Classification of Riba

(a) Riba-un-Nasiyah or Riba-al-

Jahiliya

(b) Riba-al-Fadl or Riba-al-Bai

CLASSIFICATION OF RIBA

Riba-un-Nasiyah or Riba-al-Jahiliya

“that kind of loan where specified

repayment period and an amount in

excess of capital is predetermined”.

( Imam Abu Bakr Jassas Razi)


Riba-un-Nasiyah or Riba-al-Jahiliya

Real and primary form of riba.Premium paid to the lender in return for his waiting/giving or taking of every excess amount in exchange of a loan at an agreed rate irrespective of whether it is low or high.


Riba-al-Fadl

Excess taken in exchange of

specific commodities which are

homogeneous.

Legal definition differs in every

fiqh.



Hadith prohibiting Riba-al-Fadl

‘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

Hadith prohibiting Riba-al-Fadl

Sell barley in exchange of equivalent

barley but if a person transacts in excess,

it will be riba.

However sell gold for silver anyway you

please on the condition it is hand-to-

hand(spot sales) and sell barley for date

anyway you please on the condition it is

hand-to-hand(spot sales)


Imam Abu Hanifa on Riba-al-FadlCommodities must have two

common characteristics Weight

Volume

Includes all commodities having

weight or volume and are being

exchanged


Imam Shafi on Riba-al-FadlCommodities must have two common

characteristics be a medium of exchange

be edible

Includes all commodities that are edible

or can be used as a medium of

exchange(currency).


Imam Maalik on Riba-al-Fadlcommodities must have two

common characteristics can be preserved

be edible

includes all commodities that

are edible and can be preserved


Imam Ahmad Bin Hanbal on Riba-al-

FadlFirst citation conforms to the opinion

of Imam Abu HanifaSecond citation conforms to the

opinion of Imam ShafiThird citation includes three

characteristics at the same time i.e. edible, weight and volume


Present day Islamic scholars on Riba-al-

Fadl If two characteristics i.e. weight and use as

medium of exchange is present then the

following transactions are not allowed

a deferred sale of goods having weight

and homogeneous nature

a sale of unequal goods having weight and

homogeneous nature


First law

Exchange of any of the six commodities

with itself but differing in quality, is

allowed only under certain conditions

THE LAWS OF RIBA AL FADL

First Law CONDITIONS OF EXCHANGE

– Any difference in value/quality should be ignored

– The commodities should be exchanged in equal amounts (equal weight and volume).

– No 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.


Second law

Exchange of a product with its

raw material is allowed under

certain conditions


Second Law CONDITIONS OF EXCHANGE If the characteristics of the product has been

totally changed by the industry, then different amounts can be exchanged.

If little difference has been made either the exchange should be in equal

weights

or one of the commodities should be sold in

the market and the cash proceeds used to

buy the then one.


Third Law

Exchange of any of the six commodities

with one another is allowed in unequal

amounts but the payment should not be

deferred

Provided that the general conditions

of a sale contract are fulfilled


Tijarti Sood(Commercial interest)interest paid on loan taken for

productive and profitable purpose

Sarfi Sood (Usury)

interest paid on loan taken for

personal need and expenses

TYPES OF RIBA

Riba: Present day arguments

Regarding validity of Commercial Interest there are two schools of thought on this issue.

A detailed analysis of their arguments is discussed as follows:

First School

Argument 1: “Riba as practiced during the days of the Prophet (SAW) was only Usury”.

Islam when prohibiting something does not only prohibit the prevalent form, but all forms that might erupt in future. The changed state does not change the ruling. E.g. Liquor, Pork, Corruption/Immorality: Today’s modern and sophisticated forms does not change their rulings.

The same applies to interest and gambling.

2) Argument 2: “Commercial interest did not exist in the days of Prophet (SAW).”

This claim is wrong as both forms of interest existed in

Islamic and pre Islamic history. Some examples: The tribe of Umr bin Aamir used to take interest from

the tribe of Mughairah. The tribe of Thaqeef advanced cash as well as

commodities on interest to the natives of Taif, the tribe of Mughairah and the business community of Makkah.

H.Abbas and H. Khalid bin Waleed (RA) formed a company with joint capital whose prime business was cash advancement on interest.

Hazrat Usman (RA) (pre-Islamic times) lent money on interest.

First School

3) Argument 1: The present day banking since no-one is exploited or faces injustice, therefore it cannot be called Riba.”

Islam has not only prohibited that one party

faces a loss and the other gets profit but also prohibits one party getting confirmed profit and the other party unconfirmed profit from the same investment.

Second School :

4) Argument 2: There is a Qura’nic verse “O believers do not devour one another’s possession wrongfully; rather than that, let there be trading by mutual consent” (Al Nisa verse 29). “Wrongful devouring” only arise if the consent of one of the parties is absent but in commercial interest the mutual consent is present of both parties, so its not Riba.

Mutual consent is not the criteria to render anything halal which is haram.

Second School:

Riba al Nasiah is also classified as:

Sood-e-Mufrad( Simple Interest)

interest calculated only on the initial

investment

Sood-e-Murakkab(Compound Interest)

reinvestment of each interest payment on

money invested to earn more interest

TYPES OF RIBA

During the pre-Islamic era, when a borrower used to fail to pay back the principal and interest charged on him, then the lender used to extend the loan on the condition that the interest will also become part of the loan (essentially Compound Interest). The following verses of Quran were revealed in order to stop the people from such practices:

“O believers, take not doubled and redoubled interest, and fear God so that you may prosper.” (Surah Al ‘Imran, verses 130-1)

The following hadith also proves that both simple and compound interest are forbidden:

“Listen! all Riba liable to you in the pre-Islamic days have been completely eliminated. You have to pay back the principal amount only. Neither hurt someone nor get hurt by someone. And the first riba to be completely eliminated is Abbas bin Mutalib’s.

Documents

Classification of Riba