RIBA

(INTEREST)
Week 2
Sarah Iftikhar
Reference Book: Islamic Finance by Dr. MIA Usmani
 TABLE OF CONTENTS

01 02
Riba Classification of Riba
Definition There are two types of
Riba.

03 04
Riba An Nasiyah Riba Al Fadl
The real and primary form prohibition of this Riba has
of Riba. been established on the basis
of Sunnah
 RIBA
• excess, increase or addition

• it implies any excess compensation

without due consideration
 Riba was not prohibited abruptly,
rather its prohibition was established
in a gradual manner. Four verses that
were revealed in order to prohibit riba
gradually are stated in the following
lines as per the sequence of their
revelation.
 Sequence of Quranic Revelation

1st 2nd 3rd 4th

Revelation Revelation Revelation Revelation

Surah Rum, Ayah 39 Surah An’Nisa, Ayah 161 Surah Al-Imran, Surah Al-Baqarah,
Verse(130-132) Verse 275-281

"Whatever Riba (increased amount) "And for their charging Riba (usury O You believe do not eat up the "Those who take riba (usury or
you give, so that it may increase in or interest) while they were amounts acquired through Riba interest) will not stand but as
the wealth of the people, it does not forbidden from it, and for their (interest), doubled and multiplied. stands the one whom the demon
increase with Allah; and whatever devouring of the properties of the Fear Allah, so that you may be
has driven crazy by his touch.
zakah you give, seeking Allah's people by false means. We have successful, [130] and fear the fire
pleasure with it, (it is multiplied by prepared, for the disbelievers among that has been prepared for the That is because they have
Allah, and) it is such people who them, a painful punishment.” (4: disbelievers. [131] Obey Allah and said:"Sale is but like riba", while
multiply (their wealth in real terms)." 161)" the Messenger, so that you may be Allah has permitted sale, and
blessed.” [132] prohibited riba….
Types of
Riba
01 Riba An Nasiyah
An excess, which results from
predetermined interest (sood)
which a lender receives over
and above the principal (Ras ul
Maal) in any loan transaction.
 ● The verses of the Holy Quran has directly
Riba An Nasiyah rendered this type of Riba as haram, it is
also called ‘‘Riba Al Quran.’

● Since only this type was considered as Riba

in the dark ages, so it has earned the name
of “Riba Al Jahiliyyah” as well.
 "O you who believe, fear Allah and give up what still remains of
riba, if you are believers.[278]But if you do not (give it up), then
listen to the declaration of war from Allah and His Messenger.
[279] However, if you repent, yours is your principal. Neither
wrong, nor be wronged. [279] If there is one in misery, then (the
creditor should allow) deferment till (his) ease, and that you forgo
it as alms is much better for you, if you really know.[280] Be
fearful of a day when you shall be returned to Allah, then every
person shall be paid, in full, what he has earned, and they shall
not be wronged.” [281]

—Surah Al-Baqarah, Ayah 278-281

 Riba An Nasiyah
These verses clearly indicate that the term Riba means any excess
compensation over and above the principal amount in any loan
transaction.

In the dark ages, the Arabs used to accept Riba as a type of sale,
which mistakenly is also being understood in the present era as well.

Islam has categorically made a clear distinction between the excess in

capital resulting from sale and excess resulting from interest.
 "That is because they have
said:"Sale is but like riba", while
Allah has permitted sale, and
prohibited riba.” (2:275)

—Surah Al-Baqarah, Ayah 275

 Riba An Nasiyah
Riba An Nasiyah refers to the additional 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 (SAW).

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)
 Riba An Nasiyah

The giving and taking, paying and

receiving of any excess amount in
exchange for a loan at an agreed rate is
included in interest regardless of whether its
being at a high or low rate.
AWESOME
WORDS
Imam Ali (RA) narrated that the
Holy Prophet said, “Every loan
that draws interest is Riba."

—Hazrat Ali Ibn Abi Talib (RA)

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

—Imam Abu Bakr Jassas Razi (RA)

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

—Imam Abu Bakr Jassas Razi (RA)

 Riba An Nasiyah

Sahabi Fazala Bin Obaid (RA) Abu Ishaq az Zajjaj (RA)

"Every loan that draws more
"Every loan that draws profit is
than its actual amount.”
one of the forms of Riba?"
Ahadees on
Riba
 Narrated by Jabir ”: The Prophet 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]."

—SAHIH MUSLIM 1598

Jabir ibn 'Abdallah (RA) ” , 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 alMuttalib [the Prophet's uncle]; it is
being cancelled completely."

Jabir ibn ‘Abdallah (RA)

 Narrated by Abu Hurayrah (RA) , 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."

Abu Hurayrah (RA)

 Narrated by 'Abdallah ibn Hanzalah” ,”: The
Prophet , said: "A dirham of riba which a man
receives knowingly is worse than committing
adultery thirty-six times" (narrated in Musnad-
eAhmed and Ad-Daruqutni). 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."

'Abdallah ibn Hanzalah (RA)

 Narrated by 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 Hurayrah (RA)

 Narrated by Abu Hurayrah The Prophet said:
"Allah 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."

Abu Hurayrah (RA)

Narrated by Usamah ibn Zayd (RA) The Prophet
said: "There is no riba except in Nasiyah
[Deferment]."

Usamah ibn Zayd (RA)

 Narrated by Abdullah Ibn Mas'ud (RA) The
Prophet said: "Even when interest is much, it is
bound to end up into paltriness."

Abdullah Ibn Mas'ud (RA)

 Narrated by Anas ibn Malik (RA) 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."

Anas ibn Malik (RA)

Narrated by Anas ibn Malik (RA) The Prophet
said: "If a man extends a loan to someone he
should not accept a gift."

Anas ibn Malik (RA)

 From Abu Burdah ibn Abi Musa 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
isriba."

Abu Burdah (RA)

 Fadalah ibn 'Ubayd said that "The benefit
derived from any loan is one of the different
aspects of riba."

Fadalah (RA)
From Hazrat Abu Hurayrah (May Allah be
pleased with him): 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 orphans property
without right,
• and he who is undutiful to his parents."
Wisdom behind the prohibition of Riba An Nasiyah

Things which have more benefits and less

harms are called beneficial and useful
Things that cause more harm and less
benefits are taken to be harmful and useless

Curse of sins they generate is far greater than the

benefits they yield.

LIQUOR OR GAMBLING
Acutely harmful and destructive
Do hold some benefits for people
Wisdom behind the prohibition of Riba An Nasiyah

APPARENTLY PROFITABLE ONLY.

• Curse in this world
• Hereafter is much more severe
• Spiritual and moral loss
• casual benefit with an everlasting loss in the
list of useful things
• personal and individual gain which causes
loss to the whole community or group is
useful (e.g. theft and robbery)
 02
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 as explained in the famous hadith OF Holy
Prophet (PBUH)
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)."
 Amwaal-e-Ribawiyyah

GOLD • These six commodities can

only be bought and sold in
SILVER equal quantities and on spot.

DATES • An unequal sale or a deferred

sale of these commodities
WHEAT with similar commodities will
constitute Riba.
SALT
BARLEY
SOME IMPORTANT TERMINOLOGIES

ILLAT
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
Ribawi goods are therefore goods that exhibit one of the efficient
causes that results in the activation of the rules of Riba.
 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.

Various schools define these causes differently:

 PROHIBITIONS OF RIBA AL FADL

Imam Abu Hanifa (RA) sees only two

common characteristics namely:
Weight or
A
Volume
IMAM
ABU HANIFA (RA)
Exchange is
between
B
similar
commodities
 PROHIBITIONS OF RIBA AL FADL

Imam Shafi (RA) also observed two

common characteristics namely:
Medium of
A
Exchange
IMAM
SHAFI (RA)

Eatable
B
(edible)
 PROHIBITIONS OF RIBA AL FADL

Imam Malik(RA) identified two

characteristics:
Eatable
A
(edible)
IMAM
MALIK (RA)

Preservable B
 PROHIBITIONS OF RIBA AL FADL

First citation Three citations have been related to

conforms to him:
the opinion A
of Imam Abu
Hanifa (RA) IMAM AHMED BIN
HANBAL (RA) Third citation
includes three
Second characteristics
citation D at the same
conforms to time i.e. edible,
B weight and
the opinion
volume.
of Imam Shafi
(RA)
However, all schools of thought are unanimous
that if one of the two characteristics are found
then tafazul i.e. difference in quantity is
allowed, but Nasiyah i.e. credit / deferred sale
is not allowed.
 Wisedom behind prohibition of Riba Al Fadl
The prohibition of Riba Al Fadl is intended to:

• ensure justice

• remove all forms of exploitation through 'unfair' exchanges

• 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.
Ahadees on
Riba Al Fadl
 Narrated by Abu Sa'id al-Khudri The Prophet
(SAW) 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]."

Abu Sa'id al-Khudri (RA)

Narrated by Abu Sa'id and Abu Hurayrah A man employed by
the Prophet in Khayber brought for him “Janeeb” [dates of
very fine quality]. The Prophet asked him, "Are all the dates
of Khayber like that?" The man replied, "No, I swear Allah, O
Prophet of Allah, We exchange one sa' [a unit of
measurement] of this kind of dates for two or three [of the
other kind of dates]". The Prophet replied, "Do not do so. Sell
all the dates (no matter they are of fine quality or not) for
darahim and then use the darahim to buy janeeb.” The
Prophet then said that “the ruling of the things that are
exchanged by weight is same as that.”

Abu Huairah (RA)

 Narrated by Abu Sa'id ”: Bilal (RA) brought to the Prophet
(RA) some “Barni” [good quality] dates whereupon the
Prophet asked him where these were from. Bilal(RA)
Breplied, "I had some inferior dates which I exchanged for
these - two sa's for a sa'." The Prophet (RA) 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."

Abu Sa'id (RA)

 Narrated by Fadalah ibn 'Ubayd al-Ansari ” : On the day of
Khayber I bought a necklace of gold and pearls for twelve
dinars. On separating the two, I found that the gold itself
was equal to more than twelve dinars. So I mentioned this to
the Prophet who replied, "It [jewellery] must not be sold until
the contents have been valued separately."

Fadalah ibn 'Ubayd al-Ansari (RA)

 Narrated by Abu Umamah (RA) : The Prophet
(SAW) said: "Whoever makes a
recommendation for his brother and accepts a
gift offered by him has entered in one of the
lagest gates of riba."

Abu Umamah (RA)

 Narrated by Anas ibn Malik(RA) : The
Prophet (SAW) said: "Deceiving a
mustarsal [an unknowing entrant into the
market] is riba."

Anas ibn Malik (RA)

Narrated by 'Abdallah ibn Abi Awfa (RA) :
The Prophet (SAW) said: "A najish [one
who serves as an agent to bid up the price
in an auction] is a taker of riba, a
treacherous."

'Abdallah ibn Abi Awfa (RA)

 Laws of
Riba Al Fadl
*As per Hanfi fiqh
 The rules of Riba Al Fadl
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
 The rules of Riba Al Fadl
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.
 The rules of Riba Al Fadl
2. One of the ways of transacting commodities of the same kindis 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 the product have been totally changed by the

industry: For e.g. the 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.
 The rules of Riba Al Fadl
b) ) Little difference has been made to its original form after its formulation:
For e.g. gold which changes its shape in the form of jewelry.

In this case, the Shariah 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. The reason for the impermissibility of the
former transaction is the fact that 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. The use of money could therefore help reduce the
possibility of an unfair exchange.
 The rules of Riba Al Fadl
Different commodities can be unequally exchanged but deferred payment is
not allowed.

For e.g. one kg wheat can be sold against two kg date or one gram of gold can
be exchanged against four grams of silver on the condition that they are spot
transactions.

The general condition of sale, however, that needs to be borne in mind while
making a sale transaction is 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. This rule applies
to only exchange of gold and silver, however, other goods can be exchanged
against each other.
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 if the transaction is
between two similar commodities. But in case of
different commodities, unequal exchange is legal but
credit remains illegal; the transaction in this case too
should be spot.
 Any
Questions