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RIBA IN BUSINESS

THE NATURE OF RIBA


IN ISLAM

THE MEANING OF RIBA


THE PROHIBITION OF RIBA
TYPE OF RIBA
CONSUMPTION AND PRODUCTION
LOAN

THE MEANING OF RIBA

Riba literally means increase, addition, expansion


or growth. It is, however, not every increase or
growth which has been prohibited by Islam. In
the Shari'a, riba technically refers to the
"premium" that must be paid by the borrower to
the lender along with the ' principal amount as a
condition for the loan or for an extension in its
maturity. In this sense, riba has the same
meaning and import as interest in accordance
with the consensus of all the fuqaha' (jurists)
without any exception. The term riba is, however,
used in the Shari'a in two senses. The first is riba
al-nasi' a and the second is riba al-fadl.

THE PROHIBITION OF
RIBA..cont..

The prohibition of riba appears in the Qur'an in four different


revelations

Thefirst of these (III:39), in Makka, emphasized that while interest


deprived wealth of God's blessings, charity raised it manifold.
The second (III:161), in the early Madina period, severely
disapproved of it, in line with its prohibition in
thepreviousscriptures.It placed those who took riba in
juxtaposition withthosewho wrongfully appropriated other
people's property and threatened both with severe punishment
from God.
The third revelation (III:1302), around the second or third year
after Hijra, enjoined Muslims to keep away from riba if they
desired their own welfare (in the comprehensive Islamic sense).
The fourth revelation(11:27581),near thecompletion of
theProphet's mission, severely censured those who take
riba,established a cleardistinction between trade and riba, and
required Muslims toannul all outstanding riba, instructing them to
take only the principal amount, and forego even this in case of the
borrower's hardship.

THE PROHIBITION
OF RIBA

The Prophet, peace be upon him, also


condemned, in the most unambiguous
words not only those who take riba,
but also those who give riba and those
who record the transaction or act as
witnesses to it. He even equated the
taking of riba to committing adultery
thirty-six times or being guilty of
incest with one's own mother

TYPE OF RIBA

AL-BUYU {Involve exchange of ribawi


products: ie: money (gold, silver) and staple
foods}
AL-FADL (different in quantity or size)
AL-NASIAH (postpone, defer, or wait; ie: not
immediate)

AL-DAIN (Loan and repayment)


AL-QARD (promise with certain benefit or extra
amount as a term of payment of the loan)
AL-JAHILIYYAH (Extra charge to the loanee when
he/she cannot pay on time)

HISTORY OF RIBA

It was prohibited since Pharaohs time


During Babylon 12% of interest was charged by banks
Plato (ancient Greek) wrote it is illegal for a person to charge
interest on the loan given to his friend-money cannot make
money
Roman time: Originally interest is prohibited, later it was allowed
to charge interest not more than 12%
Riba was prohibited Among Jews; but not to others
In Christian: Originally interest is clearly prohibited until 13 th
century. After Industrial revolution through Napoleon Civil Law
(1804) and 1808 interest was allowed up to 5% in the civil case
and 6% for business. More than that considered as criminal
offence. Law of Italy restricted up to 5% based on agreed upon by
the two parties.
During Jahiliyyah time interest charged between 40 to 100%. To
some extent their wives and daughters became prostitute
because of the riba. Because of riba many Arab run to desert
became gangster and robber.

DIFFERENCES BTW.
PROFIT AND INTEREST

Purpose of business is seeking for profit


through selling a product with a price
exceeding the cost. (Exchange process of a
product with another product or product with
money = mubadalah)
Surplus money will be charged 2.5% as a
zakat (depend upon haul and nisab)
Bank can reinvest deposit money with
permission by the depositors
Interests are prohibited in Islam
Interest all the time based on self-centered

ISSUES ABOUT
INTEREST

REASON FOR INTEREST


Debtors are at risk
Creditors make profit with the
money
Capital a productive things
Future value of money