Riba prohibited in islam

1
RIBA (USURY,INTEREST)
PROHIBITED IN ISLAMPROHIBITED IN ISLAM

ISLAM PROHIBITS
TRANSANCTION WITH ANY OF
THESE ELEMENTS
3

What is riba?
5
 The Arabic word 'riba' means to increase (al-
ziyada), to grow (al-numuw), to multiply, to
expand, to rise and to become lofty (al-irtifa
and al-uluw)
 • Technically it denotes, in a loan transaction,
any increase or premium or advantage over
specified time obtained by the lender as a
condition of the loan

The rationale of prohibition
of riba
7
 1. Riba is Unearned Income. In the case of
profit, a person has worked hard to earn the
profits
 • Islam only permits trade but forbids riba or
usury.
 Profits are the result of initiative, enterprise and
efficiency.
 Interest is fixed, but profit fluctuates.
 • In the case of interest, a person knows his or
her return and can be sure of it. Profit is not

The rationale of
prohibition of riba
8
 2.Riba is Exploitation of the Needy • The usury
is charging for loans to the poor. A parallel
modern argument relates to the devastating
social impact of the so-called “Third World debt
crisis”.
 • 3.Riba as a Mechanism of Inequitable
Redistribution of Wealth • The riba or usury is a
mechanism by which 'the rich get richer and the
poor get poorer' . Islam rejects financial interest
on the basis that it contradicts the Principle of
Distributive Equity

The rationale of
prohibition of riba
 4.Riba is an Agent of Economic Instability
 • An endemic factor in the instability of
interest-based economies, i.e. the cycles of
boom and bust, recession and recovery.
 Ahmad (1958) wrote “the greatest problem
in the capitalist economy is that of the crises
and interest plays a peculiar part in bringing
about the crises”.
9

The rationale of
prohibition of riba
 5. Riba as Discounting the Future
 • The practice of discounting future values
are using compound interest - results in an
appreciation in invested monetary capital,
 • It is presumed rational for people to prefer
having a specified amount of currency now
than the same amount some time in the
future. The higher the discount rate, the
faster the resources are likely to be depleted.
10

Prohibition of riba in Al
Quran
 • “That which you give as interest to
increase the people’s wealth increases not
with God, but that you give in charity,
seeking the goodwill of God, multiplies
manifold “.(Surah Ar Rum:39).
 This ayah shows interest deprives wealth of
God’s blessings.
13

Quran
 “And for their taking interest even though
it was forbidden for them, and their
wrongful appropriation of other people’s
property. We have prepared for those
among them who reject faith, a grievous
punishment “.(Surah An Nisa:161).
 This verse indicates the seriousness a
felony of taking interest in the eye of The
Almighty.
15

Quran
 • “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”.
 (Surah Al-Imran:130-2)
 Muslims must stay clear from interest for
the sake of their own welfare.
17

Quran
 "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 have what has already passed,
their case being entrusted to God; but those who
revert shall be the inhabitants of the fire and
abide therein for ever."(Al-Baqarah,2:275)
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SURAH AL-BAQARAH, 2:276,277
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AL BAQARAH, 2:276
 God nullifies/erases/destroys the
interest/usury , and He grows/increases the
charities, and God does not love/like every
(insisting) disbeliever , sinner.
 Indeed, those who believe and do righteous
deeds and establish prayer and give zakah
will have their reward with their Lord, and
there will be no fear concerning them, nor
will they grieve.
21

AL BAQARAH, 2:278,279
 O you who have believed, fear Allah and
give up what remains [due to you] of
interest, if you should be believers.
 And if you do not, then be informed of a
war [against you] from Allah and His
Messenger. But if you repent, you may
have your principal - [thus] you do no
wrong, nor are you wronged.
23

EVILS OF RIBA
 1. Disobedience to Allah and prophets.
 • 2. Deprived of blessings of life and
earnings.
 • 3. Hard-heartedness and been turned
away from goodness.
 • 4. Deprivation from goodness.
 • 5. Oppression of the people.
24

Evils of Riba
 • 6. Turns away from legitimate business.
 • 7. Cause of colonialism.
 • 8. Dungeon through which society
suffocates itself.
 • 9. Cause ruin and bankruptcy.
 • 10. Cause of great evil and sins.
25

HADITH
 Abu Hurayrah (ra) narrated that the
Prophet (saw) said: • “”God would not
allow four persons to enter paradise or to
taste its blessings:
1. He who drinks wine,
2. He who takes riba,
3. He who usurps an orphan’s property
without right and
4.He who is undutiful to his parents.” • The
Prophet said: "There is no riba except in
loaning." (Nasa’ee)
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HADITH
 Gold is to be paid by gold, silver by silver,
wheat by wheat, barley by barley, dates by
dates and salt by salt, like for like, payment
being made on the spot. If anyone gives
more or asks for more, he has dealt in
usury. The receiver and the giver are
equally guilty
 (Muslim)
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HADITH
 A time is coming to mankind when only the
receiver of usury will remain and if he does
not receive it, some of its vapor will reach
him.
(Ahmad, Abu Dawud, Nasai, Ibn Majah).
29

HADITH
A dirham which a man knowingly receives in
usury is more serious (a crime) than thirty-
six acts of fornication.
(Ahmad, Daraqutni).
30

HADITH
 When a man makes a loan to another man,
he must not accept a present (from him).
(Bukhari).
31

HADITH
 Even though (amount of) usury is not much
it leads in the end to penury.
(Ibn Majah, Baihaqi).
32

RIBA IS FORBIDDEN IN OLD
AND NEW TESTAMENTS
 EXODUS, 22:25
 LEVITICUS, 25:35-36
 DEUTRONOMY, 23:20
 PSALMS, 15:5
 PROVERB,28:8
 NEHEMIAH, 5:7
 EZAKHIEL, 18:8’13,17 AND 22:12
 AGIBI BANK WAS ESTABLISHED CIRCA
700 BC AND FUNCTIONED ON EQUITY
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A-Riba Al-Buyu
(Trade Transaction)
36
 Riba al-Fadl •Also known as Riba al-buyu’
that is riba by excess. •It applies to six items :
gold, silver, date, raisin, wheat and barley and
the like of them.
 Riba al-Nasiah •It occurs whenever the
creditor advanced loan on some monthly
interest in addition to the principal sums.
•Increase due time •On other words, this
stipulated interest which the lender takes
from the borrower to pay back the capital

B- RIBA AL-DAYN Riba al-
Qard Riba al-Qard •It is riba in debt or out of lending
and borrowing. •It was originated from the
transaction of a loan , and it is interest or
payment charged due to the loan given. •On the
other words, it is the extra amount over the
above principal of the loan.
 Riba al-Jahiliyah •It is Riba in loan. •It is when a
loan contract is made or at rescheduling a
previous debt. •It takes place only in debts
created via lending or extended to a new
maturity via rescheduling.
37

Some Arguments given
against the prohibition of
riba
39

 The verses of the Holy Qur'an which prohibit
riba were revealed in the last days of the life of
the Holy Prophet, (S.A.W).
 He (SAW) did not have an opportunity to
interpret them properly.
40
FIRST ARGUMENT

 The second argument runs on the basis that
the word 'riba' refers only to the usurious
loans on which an excessive rate of interest
used to be charged by the creditors.
 As far the modern banking interest, it cannot
be termed as 'riba' if the rate of interest is not
too much or unfair
41
SECOND ARGUMENT

 The third argument differentiates between
consumption of loans and commercial loans.
 The word "Al-Riba" used in the Holy Qur'an is
restricted to the increased amount charged on the
consumption loans used to be taken by the poor
people for their day to day needs and the rich
people used to charge heavy amounts from them.
42
THIRD ARGUMENT

 But the modern commercial loans are concerned,
they did not exist in the days of the Holy Prophet,
(S.A.W), nor has the Holy Qur'an addressed them
while prohibiting 'riba’.
 The basic philosophy of 'riba' cannot be applied to
these commercial and productive loans where the
debtors are not poor people. In most cases they
are wealthy or at least economically well-off and
the loans taken by them are generally used for
generating profits.
 Therefore, any increase charged from them by
the creditors cannot he termed as Zulm (injustice)
which is the cause for the prohibition of 'riba'.
43
THIRD ARGUMENT

 The fourth says that the Holy Qur'an has
prohibited riba-al-jahiliyya.
 In which if the debtor could not pay off the loan at
its due date, the creditor would give him more
time against charging an additional amount.
 According to this theory, if an increased amount
is fixed in the initial agreement of loan, it does
not constitute riba al-Qur’an.
 However, it does fall in the definition of riba-al-
fadl, prohibited by the Sunnah.
 Its prohibition is of a lesser degree which can be
termed as makrooh and not haram.
44
FOURTH ARGUMENT

 The fifth was that although the modern interest-based
transactions are covered by the prohibition of 'riba', yet
the commercial interest is the back-bone of the modern
economic activities.
 No country can live without being involved in interest-
based transactions.
 Islam, being a practical religion, recognizes the principle
of necessity and it has allowed even to eat pork in
extreme situation where one cannot live without eating
it.
 The same principle should be followed, and on these basis
of this necessity the laws permitting the charge of interest
should be allowed.
45
FIFTH ARGUMENT

FIRST ARGUMENT
 The verses of the Holy Qur'an which prohibit
riba were revealed in the last days of the life of
the Holy Prophet, (S.A.W),
 The Prophet (SAW) did not have an
opportunity to interpret them properly.
47

 the Holy Prophet (SAW) announced the
prohibition of riba in his last sermon during
his last Hajj (10th year after Hijra).
 He also declared that the first riba decreed
to be void is the riba payable to his uncle
Abdul Muttalib (Radi-Allahu anhu)
48
ANSWER TO THE FIRST ARGUMENT

 A deeper study reveals that this argument is
misconceived.
 In fact the prohibition of riba was effective at
least from the 2nd year of Hijra but the Holy
Prophet, Sall-Allahu alayhi wa sallam,
deemed it necessary to be announced at the
time of his last sermon which was the most
attended gathering of his followers.
49
ANSWER OF FIRST ARGUMENT

 The second argument runs on the basis that
the word 'riba' refers only to the usurious
loans on which an excessive rate of interest
used to be charged by the creditors.
 As far the modern banking interest, it cannot
be termed as 'riba' if the rate of interest is not
too much or unfair
50
SECOND ARGUMENT

Imam Abubakr Al-Jassas (D.380 AH) in his
famous work Ahkamul Qur'an has explained
riba in the following words:
"And the riba which was known to and practiced
by the Arabs was that they used to advance
loan in the form of Dirham (silver coin) or Dinar
(gold coin) for a certain term with an agreed
increase on the amount of the principal
advanced."
51
ANSWER TO THE SECOND ARGUMENT

Holy Qur'an had prohibited to claim any increase
over and above the principal in the case of
consumption loans only, where the borrowers
used to be poor person's who was borrowing
money to meet their day to day needs of food and
clothes etc.
Since no productive loans were in trend in the days
of Holy Prophet, Sall-Allahu alayhi wa sallam, it
was not contemplated by the verse of Riba to
prohibit a charge on the commercial and
productive loans.
52
ANSWER TO THE THIRD ARGUMENT

 They argued it is injustice to claim any
additional amount on the principal from a poor
person.
 It is not so in the case of a rich man who
borrows money to develop his own commercial
enterprise and earn huge profits through it.
 Therefore, it is only the consumption loans on
which any excess is termed as Riba and not an
increased amount charged on the commercial
loans.
53

 The third argument differentiates between
consumption of loans and commercial loans.
 The word "Al-Riba" used in the Holy Qur'an is
restricted to the increased amount charged on the
consumption loans used to be taken by the poor
people for their day to day needs and the rich
people used to charge heavy amounts from them.
54
THIRD ARGUMENT

 Validity of a Transaction is not Based on
the Financial Status of a Party
 The Nature of Qur'anic Prohibitions
 Banking and Productive Loans in the Age of
Antiquity
55

 This one declares that the Holy Qur'an has prohibited riba-al-
jahiliyya. In which if the debtor could not pay off the loan at its due
date, the creditor would give him more time against charging an
additional amount.
 According to this theory, if an increased amount is fixed in the initial
agreement of loan, it does not constitute riba al-Qur’an.
 However, it does fall in the definition of riba-al-fadl, prohibited by the
Sunnah.
 Its prohibition is of a lesser degree which can be termed as makrooh
and not haram.
56
FOURTH ARGUMENT

 Account of Riba al-Jahiliyya
(Riba al-Qur’an)
"The Riba of Jahiliyya was a transaction
whereby a person used to sell a commodity
for a price payable at a future specific date.
 When the date of payment came and the
buyer was not able to pay, the seller used to
increase the amount due and give him more
time."
57
ANSWER TO THE FOURTH ARGUMENT

 The seller used to keep on increasing the
amount in exchange of additional time given to
the buyer.
 This is also Known As Riba Al Quran.
 Its other name is Riba Al Nasiah.
58

'Riba al-fadl' or 'riba-al-
sunnah
 It means that the quantity on both sides must be
equal to each other and if the quantity of any one side
is more or less than this transaction is also a Riba
transaction,
 In the old tribal system of Arabia these commodities
were used as money.
 However, this transaction was termed as riba by the
Holy Prophet (SAW) and this meaning was not
covered by the term 'riba al-Jahiliyya'. Therefore, it
was called as 'riba al-fadl' or 'riba-al-sunnah'.
59

Riba al-fadal covered six
commodities
 "Gold for gold, silver for silver, wheat for
wheat, barley for barley, date for date, salt
for salt, must be equal on both sides(when
exchanged) and hand to hand.
 Whoever pays more or demands more (on
either side) indulges in Riba."
60

 Although the modern interest-based transactions are
covered by the prohibition of 'riba', yet the commercial
interest is the back-bone of the modern economic
activities, no country can live without being involved in
interest-based transactions.
 Islam, being a practical religion, recognizes the principle
of necessity and it has allowed even to eat pork in
extreme situation where one cannot live without eating
it.
 The same principle should be followed, and on these basis
of this necessity the laws permitting the charge of interest
should allowed.
61
FIFTH ARGUMENT

 We can compromise on extreme basis but
not if we have a solution for it
 Islamic Banking should be implemented.
 Quran has stated laws for economic
transactions and Muslims should follow
these laws to keep their earnings RIBA free
62
ANSWER TO THE
FIFTH ARGUMENT

 Having tawakkul that Allah will provide for
you and your family
 Not taking out loans which incur interest
 Choosing halal investments (for example
gold rather than the stock market)
 Renting and saving the cash for a home
instead of a mortgage
 Being wary of contracts you sign and having
a student of knowledge/imam/shaykh check
them 64

TIPS TO AVOID RIBA
 Opening up bank accounts without interest
(in other words, checking accounts)
 Making bill payments on time so as
not to incur a late penalty (set your
account to automatic payment so the bank
will automatically draw the money and you
will be sure to not pay late)
 Borrowing money from family or friends
where possible
65

TIPS TO AVOID RIBA
 Not buying what you simply don’t have the
money for – live within your means
 Dealing with Islamically compliant banks
 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
66

Islam Promotes Riba free
economy
 Islam wishes to establish justice between
the financier and the entrepreneur.
 The prohibition of riba is important :
 • -to ensure justice in Islamic economy
 • -to remove all forms of exploitation
through unfair exchanges and
 • -to close all back doors to riba because in
Islamic Shariah anything that serves as a
means to the unlawful is also unlawful.
67

CONCLUSION
 We must be aware of this reminder:
 “ And be afraid of the Day when you shall
be brought back to Allah. Then, every
person shall be paid what he earned, and
they shall not be dealt with unjustly”
 Al Baqarah: 281)
69

Riba prohibited in islam

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