Monday, April 25, 2011

All about Riba

Assalamu 'alaikum,

From 'Umar ibn al-Khattab : The last verse to be revealed was on riba and the Prophet, , was taken without explaining it to us; so give up not only riba but also raibah [whatever raises doubts in the mind about its rightful-ness]. (Ibn Majah,)

Riba in the Qur'an

1. First Revelation (Surah al-Rum, verse 39)

"That which you give as interest to increase the peoples' wealth increases not with God; but that which you give in charity, seeking the goodwill of God, multiplies manifold." (30: 39)

2. Second Revelation (Surah al-Nisa', verse 161)

"And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other peoples' property. We have prepared for those among them who reject faith a grievous punishment (4: 161)"

3. Third Revelation (Surah Al 'Imran, verses 130-2)

"O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy."

4. Fourth Revelation (Surah al-Baqarah, verses 275-81)

"Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; this is because they say: "Trade is like interest" while God has permitted trade and forbidden interest. Hence those who have received the admonition from their Lord and desist, may keep their previous gains, their case being entrusted to God; but those who revert shall be the inhabitants of the fire and abide therein for ever." (275)

"God deprives interest of all blessing but blesses charity; He loves not the ungrateful sinner." (276)

"Those who believe, perform good deeds, establish prayer and pay the zakat, their reward is with their Lord; neither should they have any fear, nor shall they grieve." (277)

"0, believers, fear Allah, and give up what is still due to you from the interest (usury), if you are true believers." (278)

"If you do not do so, then take notice of war from Allah and His Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it." (279)

"If the debtor is in difficulty, let him have respite until it is easier, but if you forego out of charity, it is better for you if you realize." (280)

"And fear the Day when you shall be returned to the Lord and every soul shall be paid in full what it has earned and no one shall be wronged. " (281).

Riba in Hadith


From Jabir : The Prophet, , may cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: "They are all alike [In guilt]." (Muslim, Kitab al-Musaqat, Bab la'ni akili al-riba wa mu'kilihi; also in Tirmidhi and Musnad Ahmad)

Jabir ibn 'Abdallah , giving a report on the Prophet's Farewell Pilgrimage, said: The Prophet, , addressed the people and said "All of the riba of Jahiliyyah is annulled. The first riba that I annul is our riba, that accruing to 'Abbas ibn 'Abd al-Muttalib [the Prophet's uncle]; it is being cancelled completely." (Muslim, Kitab al-Hajj, Bab Hajjati al-Nabi, ; may also in Musnad Ahmad)

From 'Abdallah ibn Hanzalah : The Prophet, , said: "A dirham of riba which a man receives knowingly is worse than committing adultery thirty-six times" (Mishkat al-Masabih, Kitab al-Buyu', Bab al-riba, on the authority of Ahmad and Daraqutni). Bayhaqi has also reported the above hadith in Shu'ab al-iman with the addition that "Hell befits him whose flesh has been nourished by the unlawful."

From Abu Hurayrah : The Prophet, , said: "On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had received interest." (Ibn Majah, Kitab al-Tijarat, Bab al-taghlizi fi al-riba; also in Musnad Ahmad)

From Abu Hurayrah : The Prophet, , said: "Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother." (Ibn Majah)

From Abu Hurayrah : The Prophet, , said: "There will certainly come a time for mankind when everyone will take riba and if he does not do so, its dust will reach him." (Abu Dawud, Kitab al-Buyu', Bab fi ijtinabi al-shubuhat; also in Ibn Majah)

From Abu Hurayrah : The Prophet, , said: "God would be justified in not allowing four persons to enter paradise or to taste its blessings: he who drinks habitually, he who takes riba, he who usurps an orphan's property without right, and he who is undutiful to his parents." (Mustadrak al-Hakim, Kitab al-Buyu')

Riba an Nasiyah

From Usamah ibn Zayd : The Prophet, , said: "There is no riba except in Nasiyah [waiting]." (Bukhari, Kitab al-Buyu', Bab Bay' al-dinari bi al-dinar nasa'an; also Muslim and Musnad Ahmad) "There is no riba in hand-to-hand [spot] transactions." (Muslim, Kitab al-Musaqat, Bah bay'i al-ta'ami mithlan bi mithlin; also in Nasa'i)

From Ibn Mas'ud : The Prophet, , said: "Even when interest is much, it is bound to end up into paltriness." (Ibn Majah, Kitab al-Tijarat, Bab al-taghlizi fi al-riba; also in Musnad Ahmad)

From Anas ibn Malik : The Prophet, , said: "When one of you grants a loan and the borrower offers him a dish, he should not accept it; and if the borrower offers a ride on an animal, he should not ride, unless the two of them have been previously accustomed to exchanging such favours mutually." (Sunan al-Bayhaqi, Kitab al-Buyu', Bab kulli qardin jarra manfa'atan fa huwa riban)

From Anas ibn Malik : The Prophet, , said: "If a man extends a loan to someone he should not accept a gift." (Mishkat, on the authority of Bukhara's Tarikh and Ibn Taymiyyah's al-Muntaqa)

From Abu Burdah ibn Abi Musa : I came to Madinah and met 'Abdallah ibn Salam who said, "You live in a country where riba is rampant; hence if anyone owes you something and presents you with a load of hay, or a load of barley, or a rope of straw, do not accept it for it is riba." (Mishkat, reported on the authority of Bukhari)

Fadalah ibn 'Ubayd said that "The benefit derived from any loan is one of the different aspects of riba." (Sunan al-Bayhaqi) This hadith is mawquf implying that it is not necessarily from the Prophet; it could be an explanation provided by Fadalah himself, a companion of the Prophet, .

Riba al-FadI

From 'Umar ibn al-Khattab : The last verse to be revealed was on riba and the Prophet, , was taken without explaining it to us; so give up not only riba but also raibah [whatever raises doubts in the mind about its rightful-ness]. (Ibn Majah,)

The Prophet, , said, "Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand (spot)."

From Abu Sa'id al-Khudri : The Prophet, , said: "Do not sell gold for gold except when it is like for like, and do not increase one over the other; do not sell silver for silver except when it is like for like, and do not increase one over the other; and do not sell what is away [from among these] for what is ready." (Bukhari, Kitab al-Buyu', Bab bay'i al-fiddati bi al-fiddah; also Muslim, Tirmidhi, Nasa'i and Musnad Ahmad)

From 'Ubada ibn al-Samit : The Prophet, , said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt - like for like, equal for equal, and hand-to-hand; if the commodities differ, then you may sell as you wish, provided that the exchange is hand-to-hand." (Muslim, Kitab al-Musaqat, Bab al-sarfi wa bay'i al-dhahabi bi al-waraqi naqdan; also in Tirmidhi)

From Abu Sa'id al-Khudri : The Prophet, , said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt - like for like, and hand-to-hand. Whoever pays more or takes more has indulged in riba. The taker and the giver are alike [In guilt]." (Muslim, ibid; and Musnad Ahmad)

From Abu Sa'id and Abu Hurayrah : A man employed by the Prophet, , in Khaybar brought for him janibs [dates of very fine quality]. Upon the Prophet's asking him whether all the dates of Khaybar were such, the man replied that this was not the case and added that "they exchanged a sa' [a measure] of this kind for two or three [of the other kind]". The Prophet, , replied, "Do not do so. Sell [the lower quality dates] for dirhams and then use the dirhams to buy janibs. [When dates are exchanged against dates] they should be equal in weight." (Bukhari, Kitab al-Buyu', Bab idha arada bay'a tamrin bi tamrin khayrun minhu; also Muslim and Nasa'i)

From Abu Sa'id : Bilal brought to the Prophet, , some barni [good quality] dates whereupon the Prophet asked him where these were from. Bilal replied, "I had some inferior dates which I exchanged for these - two sa's for a sa'." The Prophet said, "Oh no, this is exactly riba. Do not do so, but when you wish to buy, sell the inferior dates against something [cash] and then buy the better dates with the price you receive." (Muslim, Kitab al-Musaqat, Bab al-ta'ami mithlan bi mithlin; also Musnad Ahmad)

From Fadalah ibn 'Ubayd al-Ansari : On the day of Khaybar he bought a necklace of gold and pearls for twelve dinars. On separating the two, he found that the gold itself was equal to more than twelve dinars. So he mentioned this to the Prophet, , who replied, "It [jewellery] must not be sold until the contents have been valued separately." (Muslim, Kitab al-Musaqat, Bab bay'i al-qiladah fiha khara-zun wa dhahab; also in Tirmidhi and Nasa'i)

From Abu Umamah : The Prophet, , said: "Whoever makes a recommendation for his brother and accepts a gift offered by him has entered riba through one of its large gates." (Bulugh al-Maram, Kitab al-Buyu', Bab al-riba, reported on the authority of Ahmad and Abu Dawud)

From Anas ibn Malik : The Prophet, , said: "Deceiving a mustarsal [an unknowing entrant into the market] is riba." (Suyuti, al-Jami' al-Saghir, under the word ghabn; Kanz al-'Ummal, Kitab al-Buyu', al-Bab al-thani, al-fasl al-thani, on the authority of Sunan al-Bayhaqi)

From 'Abdallah ibn Abi Awfa : The Prophet, , said: "A najish [one who serves as an agent to bid up the price in an auction] is a cursed taker of riba." (Cited by Ibn Hajar al-'Asqalani in his commentary on al-Bukhari called Fath al-Bari, Kitab al-Buyu', Bab al-najsh; also in SuyutT, al-Jami al-Saghir, under the word al-najish and Kanz al-'Ummal, op. cit., both on the authority of Tabarani's al-Kabi

Riba and its types

Definition of Riba or Interest

The word "Riba" means excess, increase or addition, which correctly interpreted according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money).

This definition of Riba is derived from the Quran and is unanimously accepted by all Islamic scholars. There are two types of Riba, identified to date by these scholars namely 'Riba An Nasiyah' and 'Riba Al Fadl'.

'Riba An Nasiyah' is defined as excess, which results from predetermined interest (sood) which a lender receives over and above the principle (Ras ul Maal)

'Riba Al Fadl' is defined as excess compensation without any consideration resulting from a sale of goods. 'Riba Al Fadl' will be covered in greater detail later.

During the dark ages, only the first form (Riba An Nasiyah) was considered to be Riba. However the Holy Prophet also classified the second form (Riba Al Fadl) as Riba.

The meaning of Riba has been clarified in the following verses of Quran:

"O those who believe, fear Allah and give up what still remains of the Riba if you are believers. But if you do not do so, then be warned of war from Allah and His Messenger. If you repent even now, you have the right of the return of your capital; neither will you do wrong nor will you be wronged." Al Baqarah 2:278-9

These verses clearly indicate that the term Riba means any excess compensation over and above the principal which is without due consideration. However, the Quran has not altogether forbidden all types of excess; as it is present in trade as well, which is permissible. The excess that has been rendered haram in Quran is a special type termed as Riba. In the dark ages, the Arabs used to accept Riba as a type of sale, which unfortunately is also being understood at the present times. Islam has categorically made a clear distinction between the excess in capital resulting from sale and excess resulting from interest. The first type of excess is permissible but the second type is forbidden and rendered Haram.

"Seized in this state they say: 'Buying and selling is but a kind of interest', even though Allah has made buying and selling lawful, and interest unlawful." Al Baqarah 2:275

Classification of Riba

1. The first and primary type is called Riba An Nasiyah or Riba Al Jahiliya.

2. The second type is called Riba Al Fadl, Riba An Naqd or Riba Al Bai.

Since the first type was specified in the Quranic verses before the sayings of the Holy Prophet , this type was termed as Riba al Quran. However the second type was not understood by the Quranic verses alone but also had to be explained by the Holy Prophet , it is also called Riba al Hadees.

Riba An Nasiyah

This is the real and primary form of Riba. Since the verses of Quran has directly rendered this type of Riba as haram, it is called Riba Al Quran. Similarly since only this type was considered Riba in the dark ages, it has earned the name of Riba Al Jahiliya. Imam Abu Bakr Hassas Razi has outlined a complete and prohibiting legal definition of Riba An Nasiyah in the following words:

"That kind of loan where specified repayment period and an amount in excess of capital is predetermined."

One of the ahadith quoted by Ali ibn at Talib (RAA) has defined Riba An Nasiyah in similar words. The Holy Prophet said:

"Every loan that draws interest is Riba."

The famous Sahabi Fazala Bin Obaid has also defined Riba in similar words:

"Every loan that draws profit is one of the forms of Riba"

The famous Arab scholar Abu Ishaq az Zajjaj also defines Riba in the following words:

"Every loan that draws more than its actual amount"

Riba An Nasiyah refers to the addition of the premium which is paid to the lender in return for his waiting as a condition for the loan and is technically the same as interest. The prohibition of Riba An Nasiyah is one of those issues which have been confirmed in the revealed laws of all Prophets (AS). Some of the old testaments has rendered Riba as haram (See Exodus 22:25, Leviticus 25:35-36, Deutronomy 23:20, Psalms 15:5, Proverbs 28:8, Nehemiah 5:7 and Ezakhiel 18:8,13,17 & 22:12). The Quran has also stated the prohibition of Riba in various verses, has warned those who persist in practicing it of a war which is certain to be declared on them by Allah Himself and His messenger and has seriously threatened those engaged as writer, witness and dealer in Riba transactions. These verses and ahadith will be discussed at length in a separate chapter called "The prohibition of Riba in the light of Quran and hadith".

According to the above definition of Riba An Nasiyah, the giving and taking of any excess amount in exchange of a loan at an agreed rate is included in interest irrespective whether at a high or low rate. It has been proven through ahadith that the Holy Prophet paid excess at the loan repayment time but since this excess was not paid through an agreed rate, it cannot be called interest. This clarifies that the word "draws" in the hadith definition" The loan that draws interest is Riba." has been used to highlight the giving and taking of excess amount through an agreed rate in the loan contract. Due to this, Imam Abu Bakr Hasas has added the word "condition" to the definition.

The fact that Riba An Nasiyah is categorically haram has never been disputed in the Muslim community.

In short, the Riba of today which is supposed to be the pivot of human economy and features in discussions on the problem of interest is nothing but this Riba, the unlawfulness of which stands proved on the authority of the seven verses of the Quran, of more than forty ahadith and of the consensus of the Muslim community.

Wisdom behind the prohibition of Riba An Nasiyah

First of all, we should realize that there is nothing in the entire creation of the world, which has no goodness or utility at all. But it is commonly recognized in every religion and community that things which have more benefits and less harms are called beneficial and useful. Conversely, things that cause more harm and less benefit are taken to be harmful and useless. Even the noble Quran, while declaring liquor and gambling to be haram, proclaimed that they do hold some benefits for people but the curse of sins they generate is far greater than the benefits they yield. Therefore, these cannot be called good or useful; on the contrary, taking these to be acutely harmful and destructive, it is necessary that they be avoided.

The case of Riba An Nasiyah is not different. Here the consumer of Riba does have some casual and transitory profits apparently coming to him, but its curse in this world and in the Hereafter is much too severe as compared to this benefit. The Riba consumer suffers such a spiritual and moral loss that it virtually takes away the great quality of being 'human' from him. An intelligent person who compares things in terms of their profit and loss, harm and benefit can hardly include things of casual benefit with an everlasting loss in the list of useful things. Similarly no sane and just person will say that personal and individual gain which causes loss to the whole community or group is useful. In theft and robbery for example, the gain of the gangster and the take of the thief is all too obvious but it is certainly harmful for the entire community since it ruins its peace and sense of security.

Riba Al Fadl

The second classification of Riba is Riba Al Fadl. Since the prohibition of this Riba has been established on Sunnah, it is also called Riba Al Hadees.

Riba Al Fadl actually means that excess which is taken in exchange of specific homogenous commodities and encountered in their hand-to-hand purchase & sale as explained in the famous hadith:

The Prophet said, "Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand (spot)."

This hadith enumerates 6 different commodities namely:

1) Gold

2) Silver

3) Dates

4) Wheat

5) Salt

6) Barley

These six commodities can only be bought and sold in equal quantities and on spot. An unequal sale or a deferred sale of these commodities will constitute Riba. These six commodities in fiqh terminology are called "Amwal-e-Ribawiya". Does this hadith apply only to the items mentioned in it? Does it concern sales of barley or wheat but not rice? Of dates but not raisins? A complete legal definition differs in every fiqh. Scholars such as Taoos and Qatada hold that Riba Al Fadl includes these specified types only, however a majority of Islamic scholars believe that some other commodities should also be included. In order to answer the question, which other commodities should be included, some fiqhs hold that the characteristics which are common amongst these items can be used as basis (illat) for Riba Al Fadl. An illat is the attribute of an event that entails a particular divine ruling in all cases possessing that attribute; it is the basis for applying analogy. Ribawi goods are therefore goods that exhibit one of the efficient causes occasioning application of Riba rules. Various schools define these causes differently:

Imam Abu Hanifa

Imam Abu Hanifa sees only two common characteristics namely:

1) Weight

2) Volume

Meaning all these six goods are sold by either weight or volume. Therefore all those commodities, which have weight or volume and are being exchanged, with the same commodity will fall under the rules of Riba Al Fadl.

Imam Shafi

The two characteristics observed by Imam Shafi are:

1) Medium of Exchange or

2) Eatable

Therefore this law will apply on everything edible or having the natural ability of becoming a medium of exchange (currency).

Imam Maalik

Imam Maalik identified the following two characteristics:

1) Eatables and

2) Preservable

Imam Ahmad Bin Hanbal

Three citations have been related to him:

i) First citation conforms to the opinion of Imam Abu Hanifa.

ii) Second citation conforms to the opinion of Imam Shafai.

iii) Third citation includes three characteristics at the same time namely edible, weight and volume.

After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:

A deferred sale of goods (A deferred sale is when the goods are returned/or paid for after some undetermined period)

• A sale of unequal quantities of the same goods

However, when only one of the two characteristics is present to term the sale as Riba Al Fadl, then exchange of unequal goods are allowed but deferred sale is not allowed.

Wisdom behind the prohibition of Riba Al Fadl

The prohibition of Riba Al Fadl is intended to ensure justice and remove all forms of exploitation through 'unfair' exchanges and to close all back-doors to Riba An Nasiyah because in the Islamic Shariah, anything that serves as a means to the unlawful is also unlawful.

The laws of Riba Al Fadl

After closely analyzing the meaning and interpretation of the above ahadith and their explanation in further ahadith along with issues raised in reference work of Hanafi fiqh, the following rules and laws governing Riba Al Fadl are derived:

1. It is evident that the exchange of homogeneous commodities will only be required if they differ in quality and characteristic e.g. different genus of rice and wheat, superior quality gold and inferior quality gold, mineral salt and sea salt etc. The exchange of any of these six commodities with itself, but differing in types/quality (which is called barter in modern terminology), even when considering market rate, is prohibited in unequal amount. The reason being that by exchanging these commodities in unequal amounts there is a fear of developing the rationale in a person eventually leading to interest (sood) based earnings and illegal benefits. Such transactions might also lead to defrauding. For example, a shrewd trader may claim that a kilogram of a specific brand of wheat is equivalent to 3 kilograms of the other kind because of the excellence of its quality, or this unique piece of gold ornament is equivalent in value to twice its weight in gold; in such transactions there undoubtedly is defrauding of people and harm to them.

As a step to prevent this state, the Shariah has made it a law that exchange of any of these six commodities with itself but differing in quality, is allowed in only one of the following forms:

a) Any difference in value/quality should be ignored and the commodities should be exchanged in equal amounts (equal weight and volume).

b) Instead of direct exchange of commodities of the same kind, a person should sell his commodity against cash at the market value and buy someone else's commodity in exchange of cash proceeds at the market value.

2. One of the ways of transacting commodities of the same kind is that a person has a raw material and someone else has a product made of that material and both decide to exchange their product. In this case, one has to see whether:

a) The characteristics of this product has been totally changed by the industry: For eg. the remarkable changes that transform raw cotton into cloth or iron into machinery. In this case, it is permissible to transact lesser amount of cloth against greater amount of raw cotton or raw iron having more weight against machinery having lighter weight.

b) Little difference has been made to its original form after its formulation: For eg. gold which changes its shape in the form of jewelry. In this case, the Shariah'h holds that such a transaction should not happen in the first place or if it does, the exchange should be in equal weights in order to discourage unfair deals. Another alternative would be to sell gold against cash and the cash proceeds are used to buy the needed jewelry. This is because it is not possible in a barter transaction, except for an expert, to visualize the fair equivalent of one commodity in terms of all other goods. Hence, the equivalent may be established only approximately thus leading to some injustice to one or the other party. The use of money could therefore help reduce the possibility of an unfair exchange.

3. Different commodities can be unequally exchanged but deferred payment is not allowed. For eg. one kg wheat can be sold against 2 kg date or one gram of gold can be exchanged against 4 grams of silver on the condition that they are spot transactions reason being that such a transaction will surely be carried on the market rate. For eg. a person who wants to exchange silver for gold on spot will only transact as per the market rate. However, if the transaction is on credit, there is a possibility, no matter how minor, of stepping into interest that cannot be ignored. For eg. a buyer who has traded 80 tolas silver on credit today on the understanding that it will be exchanged against 2 tolas gold after a month has in fact no means to find in advance that 40 tolas silver will be equivalent to one tola gold after a month. Therefore this ascertaining of value in advance actually signifies its roots in interest and gambling. Similarly the seller who has accepted credit has in fact yielded to gambling by hoping that the ratio of gold and silver might come down from 1:40 to 1:35. The law of exchanging different commodities only at spot has been established due to this reason.

The general conditions of sale, however, should be borne in mind while making a trade transaction so that the goods are specified in addition to the cash aspect of the transaction. The correct way of specifying is that gold and silver should be under the possession of the sellers or delivered at the place of contract because both goods have the original (natural) price, which cannot be specified until they are delivered.

This rule applies to only exchange of gold and silver. Other goods can be exchanged against each other without delivery and can be specified any other way but will be restricted to cash transaction.

For eg. Zaid made a spot sale of one kg wheat to Bakar with 2 kg salt against future delivery after having identified their goods, this transaction is allowed in Shariah since it meets both conditions:

Ÿ The transaction is on spot.

Ÿ It is also specified.

However, if Zaid was selling one tola gold to Bakar against 40 tola silver, then it is necessary that both take delivery of their purchased goods at the place of contract because without delivery, goods cannot be specified.

To sum up, the Hanafi jurists maintain that in case of commodities that weigh or measure, it is illegal to transact unequally or on credit. But in case of different commodities unequal exchange is legal but credit remains illegal; the transaction in this case too should be spot.


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