Classification of Riba

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)

CLASSIFICATION OF RIBA

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.

CLASSIFICATION OF RIBA

Riba-al-Fadl
Excess taken in exchange of specific

commodities which are homogeneous.

Legal definition differs in every fiqh.

CLASSIFICATION OF RIBA

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

CLASSIFICATION OF RIBA
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)
(Kanz ul Amaal)

CLASSIFICATION OF RIBA

Imam Abu Hanifa on Riba-al-Fadl Commodities must have two common characteristics Weight Volume

Includes all commodities having weight or volume

and are being exchanged

CLASSIFICATION OF RIBA

Imam Shafi on Riba-al-Fadl Commodities 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).

CLASSIFICATION OF RIBA

Imam Maalik on Riba-al-Fadl commodities must have two common characteristics can be preserved

be edible
includes all commodities that are edible and can be preserved

CLASSIFICATION OF RIBA

Imam Ahmad Bin Hanbal on Riba-al-Fadl First citation conforms to the opinion of Imam Abu Hanifa Second citation conforms to the opinion of Imam Shafi Third citation includes three characteristics at the same time i.e. edible, weight and volume

CLASSIFICATION OF RIBA

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

The Laws of RIBA Al FADL

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 elses commodity in exchange of cash proceeds at the market value.

The Laws of RIBA Al FADL

Second law
Exchange of a product with its raw material

is allowed under certain conditions

The Laws of RIBA Al FADL

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.

The Laws of RIBA Al FADL

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

TYPES OF RIBA

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

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: Todays modern and sophisticated forms does not change their rulings. The same applies to interest and gambling.

First School
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. (Dar ul Mansoor by Ibn Jareeh) 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. (Encyclopedia of Islam) H.Abbas and H. Khalid bin Waleed (RA) formed a company with joint capital whose prime business was cash advancement on interest. (Jamai ul Bayan) Hazrat Usman (RA) (pre-Islamic times) lent money on interest.
(Tareekh e Tabree)

Second 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 Quranic verse O believers do not devour one anothers 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.

TYPES OF RIBA
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

Revelation
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)

Revelation
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 Mutalibs. (Ibn e Kathir)