RIBA And Its Causes

Financial Management

LAILA MAZHAR BS(IT) 6th Morning|

WHAT IS RIBA? Riba is an Arabic noun derived from

the Raba, meaning ‘to increase’, ‘to grow’, and ‘to exceed’. It includes interest which is paid by banks or on loans.

"Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed."

RIBA IN QURAN “…Allah has permitted trade and has

forbidden riba.”

Qur’an 2:275

“O you who believe, fear Allah and give up what remains of your demand for riba, if you are indeed believers. If you do it not, take notice of war from Allah and His Messenger.”

Qur’an 2:278-279

RIBA IN HADITH “Allah has cursed the one who

consumes riba, the one who gives it, the one who witnesses over it, and the one who writes down the transaction.”

"There is no riba except in loaning." (Nasaee 4504)

"In any society, when riba becomes common, it causes hunger and poverty in it. And in any society, when bribery becomes common, it makes it depressed (See Shafi 1996 p.79)

TYPES OF RIBA Riba in loans (Riba Al-Nasiyah) "That

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

Riba in excess (Riba al-Fadl ) “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.”

PROHIBITION OF Riba Al-Nasiyah

Implies that the fixing in advance of a positive rate of return on a loan as a reward for waiting is not permitted by the Shari‘ah.

Hence Muslim clergy is saying that interest on loan borrowed for personal or business use is not allowed due to fixed and predetermined rate where as if the loan is based on loss or profit then it is allowed-Islamic Banking.

PROHIBITION OF Riba Al-FADL Spot exchange of dissimilar

commodities. (injustice and exploitation is occurred).

It relates to exploitation in trading. Trade is allowed with fair knowledge of

the prevailing prices and the quality of goods being purchased or sold on the part of both the buyer and the seller. If not, it would be regarded as Riba al-Fadl.

CAUSES OF RIBA The causes of the six

kinds(GOLD,SILVER,DATES,WHEAT,SALT,BARLEY)

to be riba, are two of them, the cost and the weight. As a result, there are two groups; the first one is the cost which contains the gold and silver. The second one is the weight which contains the rest.

To put it more clearly and to see how Riba appears in transactions, suppose that:

1. A Person exchanges gold for gold or dates for dates and are not the same in the cost or weight with delay. There will be two riba, Riba Al-Fadl which gold and dates are not the same in the cost and weight, and Riba Al-Nasiyah which is the transaction is delayed or not handed at the same time because there are from the same group and kind.

2. A Person exchanges gold for silver or barley for salt and are not the same in the cost or weight with delay. There will be riba Al-Nasiyah, which means the transaction is delayed. Because there are in the same group but not the same kind, which means it must be handing in the same time or the possession is delayed.

3. A Person exchanges gold for dates, and is not the same and delayed. There will be no any riba. Because there are not the same group and the same kind.

CONSEQUENCES OF RIBA Riba conflicts with the spirit of

brotherhood and sympathy, and is based on greed, selfishness and hard heartedness.

Riba is one of the major contributors towards inflation.

Riba causes trauma and depression due to mounting debts.

Riba is a sure gain without any possibility of loss, hence all the risk is taken by the borrower, rather than sharing the risk and the profits with both parties.

Riba creates a monopoly in society, where the rich are rewarded for being wealthy, while those who are not are forced to pay extra!

Whole nations, dozens of them, large and small, have foreign debts so large that their riba payments on these debts are a crushing burden on the entire country. Debt kills. Some 11 million children die each year around the world due to conditions of poverty and debt.

Former President Obasanjo, commented on the debt Nigeria faces:

“All that we had borrowed up to 1985 or 1986 was around $5 billion and we have paid about $16 billion yet we are still being told that we owe about $28 billion. That $28 billion came about because of the injustice in the foreign creditors’ (lenders) interest rates.If you ask me what is the worst thing in the world, I will say it is compound interest.”   - Jubilee 2000 news update, August 2000

HOW CAN WE AVOID RIBA? An obvious way to steer clear of this

evil is to not take out a loan which involves paying riba.

Opening up riba-free bank accounts. Not entering into contracts which

stipulate riba penalties, even though one intends to pay on time.

Meeting any conditions required to continue trading without the use of riba.

Borrowing money from family or friends where possible.

Dealing with Islamically compliant banks.

Renting if you cannot afford to buy a house without riba.

Accepting/ organizing a “goodly loan” (al-Qard al-Hasanah), which is a loan by means of which one intends to show kindness to another, which does not involve taking riba.

CONCLUSION None can doubt that riba is haram and a major

sin, and no disobedience to Allah is worth the risk of His punishment. We must remember that the life of this world is short and fleeting, and that the purpose of our existence is not to lust after beauty and wealth, but rather to worship Allah correctly and live by His rules. Just because riba is widespread and common, it does not make it permissible. “And whosoever fears Allah and keeps his duty to Him, He will make a way for him to get out (from every difficulty), and will provide him sustenance from where he never even imagined. And whosoever puts his trust in Allah, Allah is sufficient for him.”Qur’an 65:2-3

THANKYOU