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Riba, Usury, and Gharar: Definitions

 Riba is derived from Arabic verb raba, which means to increase (El-Gamal, 2!, "#$%&# 't is

widely nown as )usury* or )interest*, althou+h the real meanin+ and "ractices are beyond

that (Ahmad and assan, &# Riba is defined as forbiddin+ )"ayin+ and receivin+ more than

the "rinci"al on the money lent as loan irres"ective of whether the rate is sim"le or 

com"ounded* ('bal and .irahor, 2/, "# 0$&# 1hile aue (%%0, cited in Ahmad and

assan, & su++ests riba  as e3cess in commodity sale or e3chan+e, accrues to the

lender4owner, in which the )euivalent counter-value* is not +ivin+ in return# 5here are two

ty"es of riba: riba al-nasi6ah and riba al-fadl ('bal and .irahor, 2/, "# 00&# 5he former 

one refers to the e3cess "ayment of initial loan, while the later em"hasi7es the +ood

e3chan+ed in trade#

 Riba is stron+ly forbidded in 8uran:

)#### owever, God "ermits commerce, and "rohibits usury (interest&###* (2:2/0&#

)Devour not usury (riba&, doubled and re-doubled### (9:9&*

)5hose who devour usury (riba& do not stand e3ce"t as one stands whom atan hasconfounded with his touch: ###### (2:2/0-/%; $:!&*

5he <ro"het adviced to use money as medium of e3chan+e (=o+el and ayes, 2!, "#/$& to

avoid riba "ractices# 5he "ractice of riba is also e3"lained further in unnah, althou+h as it is

not detailed, leaves confusion due to various inter"retation by .uslim scholars# ome

ar+uments arises whether the "rohibition only covers customer or "roduction loans# 't can be

ar+ued that the "ractice of riba on both were e3isted at the "rohibition time# 5hus, the

 "rohibition > e3"lained in unnah, covers both ty"es of loans# 'n addition, both "ractices will

lead to the same unfair, un?ust, and e3"loitative "ractices#

5here is also some misconce"tion, that what is "rohibited is actually usury > e3cessive level

of interest rate# owever, it is further indicated that )### if you re"ent then ye have your 

 "rinci"al*, which forbids the e3cess "ayment at any ty"e and any level#

8/9/2019 Riba, Usury, and Gharar

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Gharar   is the close of im"ortance of financial transactions after riba# 't is related to the

uncertain situation caused by )asymmetric information* "ossess by the "arties, creatin+

ambi+uity in the )uantity, uality, recoverability, and e3istence of the +oods* which may

 "rovide disadvanta+e of one "arty over another ('bal and .irahor, 2/, "#!/&, for 

e3am"le, transactions which includes buyin+ fishes in the sea# 'n this case, it is more difficult

to identify gharar  elements which could nullify the contracts, since it really de"ends on how

the ?urists analy7in+ the circumstances# @ften, sim"le gharar  deemed to be insi+nificant as it

has small conseuences# 5hat is reasonable since in business commercial, there are various

riss and uncertainty will be faced# 5hus, Gharar  could be avoided by statin+ "recisely, for 

e3am"le, the ob?ect and the "rice#