Research & Written

YOUSUF IBNUL HASAN

Program Consultant Islamic Banking

& Applied Finance

IQRA University Pakistan

usufhasan@hotmail.com

RIBA- PROFIT & INTEREST

Introduction & Differences

ALMIGHTY ALLAH CLEARLY DEFINES

PRINCIPLES & MEANS FOR GOODS & SERVICES,

WEIGHT & MEASUREMENT, TIME & PERIOD,

INCREASE & DECREASE, PROFIT & LOSS,

BUYING & SELLING, GIVING & TAKING,

EFFORTS & LAZINESS, SUCCESS & FAILURE, DEFEAT & WINNER, RICHNESS & POVERTY, KNOWLEDGE & IGNORANT,

CIVILIZED & ORTHODOX, TRADITIONS & CUSTOMS,

MORALS & ETHICS, TRANSPARENCIES & WICKEDNESS, HONESTY & FRAUD, CRIME & PUNISHMENT,

REWARD & PENALTY. 2

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Performance in man’s daily life is define only in the will of Almighty Allah. Holy books and messengers were blessed and send to explain evil & sins, losses & gains, health, hygiene, wealth and happiness for mankind.

For better humanity Allah define limits of everything that the men have in this daily life.

Men have been bless unlimited power by achieving knowledge that can be stored in human mind & act according to an organize system that is clearly explain in

Holy Quran, Hadiath and Sharia'h 3

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PRIME IMPORTANCE FOR MANKIND

Almighty Allah prohibited any object or any act that is harmful to humankind

that creates instability, bring injustice, become injurious to human life and considered as unconstructive

to

Socio Economic System.

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RIBA.

Riba is an Arabic word drive from word RIBH which means Profit.

Ribh means excess, increase or addition in accordance to the Islamic guidance for

commercial & business practices & correctly interpreted according to Sharia'h

terminology as

Double Profit. 5

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RIBA is any earning, income, profit or benefits being earned, taken or received through wrong means, bad intentions, shady practices or wicked participation.

Riba is not only treated as immoral, unjust filthy but furthermore threat to SOCIO ECONOMIC LIFE OF SOCIETY.

Riba leads to crimes of various nature, through Cruelty, Humiliation, Exploitation, Self-importance, Discrimination, Power, Lust Selfishness, Greed and self-esteem

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Riba is as a combination of evil and sins.

Riba is bad practice to earn & gain.

Riba bring instability in the community life.

Riba is the source for the increase of inflation.

Riba create classes in the society.

Riba create injustice in seeking the rights.

Riba is non transparent economic activity.

Riba is the most hated practice in Islam

Riba is a social crime

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Riba is

Immoral, Unethical, Unjustified

Commercial, Economical, Trading, Business, Political, Social, Cultural

and traditional practices and activities to gain benefit

At

Individual, Collective

or

Institutional level

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People who indulge in Riba shall be raised like those who

have been Driven to madness by the touch of Devil.

That is because they say that Riba-based transaction is

just like trading, while Allah has permitted trade and

prohibited Riba. Hence those who have received the

warning from Allah and have stop accordingly, may

have what has already passed, their case being entrust

to Allah but those who revert to Riba-based dealings,

shall be the inhabitants of the hell-fire and abide

therein for ever. (You must know that) Allah deprives

Riba from all blessings and blesses charity; He loves

not any ungrateful sinners.

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HOLY QURAN AL-BAQARAH 2:275-6

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AL-BAQARAH 2:278-79

O you believers!

Fear Allah and give up Riba that remains outstanding if

you are true believers.

Watch out! If you do not obey this directive, then Allah

declares war against you from Himself and from His

Prophet.

But, if you give up your outstanding Riba, then you can

claim your principals. Neither should you cause harm

with Riba to others, nor should others harm you.

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Prophet Muhammad (May Peace Be Upon Him)

Said At the last Pilgrimage,

All Riba of Jahilliya is null and void. In this

respect, the first Riba I (May Peace Be Upon Him)

withdraw that the borrowers owe to my uncle

Abbas; it is cancelled completely. (Muslim)

The Prophet (May Peace Be Upon Him) cursed all those who

take Riba, who give Riba, who write a Riba

contract and the two witnesses to a Riba contract.

He (May Peace Be Upon Him) further said: "They are all alike

(in fault).“ (Muslim 2995)

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HADIATH REINFORCE

CONCEPT OF QURANIC RIBA 1

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RIBA IN FINANCIAL AFFAIRS

Riba must be eliminated from the financial

transactions.

No thing is more horrific as compared to Riba

that Islam has prohibited.

Nothing is more dreadful than Riba, is remains

in widespread threatening socio economic

activities in both theory and practice.

Riba convert financing system into lending

system that make the money as a commodity and

owner of the wealth, a seller and user of the

same as buyer.

Riba does not justify money to be a medium of

exchange and brings the love of money instead

of respect for the money.

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INTEREST

When money become a commodity and bought and sold with guaranteed results

of profitability

Or the increase volume of money by using in the transaction.

Such increase is the price of the money.

This price of the money is classified as Interest which is the part of Riba

There is confusion in understanding for the terms

Interest & Riba (Usury).

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THE QUESTION ARISE “INTEREST IS RIBA OR RIBA IS INTEREST”?

To make a distinction of terms with rational reasoning.

Islam through definitions and interpretations, provides explanation

in Holy Quran and Hadiath,

Riba is clearly explained where Interest is define by the scholars.

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ABU ALA MAUDUDI

Interest is an earning through lending on money by lender from borrower on condition that lender shall charge a

fixed amount of money in addition to the principal.

Interest is prohibited in Islam and people are not allowed to make money by lending their capital on interest.

Capital is to be invested in productive manner that increases the profits.

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GREEK SCHOLAR ARISTOTLE He define Interest in his book “Money & politics”.

“Interest is an artificial profit, which does not enter in legal trading. Using money as a commodity is selling, just a

forged artificial transaction.

Money has to be used as a means of sale and purchase and a measurement of a commodity to be sold or purchased.

Money is just a means to ascertain value of commodity and it cannot be sold or purchased within similar quantities

and qualities ”.

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HOW TO DEFINE INTEREST

Any amount, earning or income that is taken over

and above to PRINCIPAL AMOUNT, without any

RISK, EFFORTS, ACTIVITY, WITHOUT LOSS SHARING

and the RETURN IS GUARANTEED within a SPECIFIC

TIME is called INTEREST.

This compulsory return, income or earning on a

fixed term & fixed percentage, upon principal

amount, is an INTEREST.

INTEREST IS THE PRICE OF MONEY

Whereas money is just an intermediary between

exchanges of transaction.

There are many categories of Riba.

INTEREST is one of the categories of Riba. 17

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PROCESS OF INTEREST IN 5 ACTS OF RIBA

INTEREST is one of the categories of Riba

Five acts of Riba develop the amount of Interest.

1. Exploitation of lender to borrower

2. Non Transparency (purpose undisclosed by

borrower to lender for lending)

3. Guarantee for successful maturity by

borrower obtain by lender.

4. Humiliation by lender on non performance of

borrower on maturity.

5. Cruelty by lender by liquidating and making

physical harassment to borrower.

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Prophet Moses(May Peace be upon him)

Torah 22nd versus of the

“Exodus”

If you lend money to any of my people with you

who are poor, you shall not be to him as an exact

Riba from him.”

Deuteronomy

verse 23rd “You shall not lend upon Riba to your brother, Riba on

money, Riba on virtual, Riba on anything that is lent

for Riba.”

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LEVITICUS 25:35

'If one of your countrymen becomes poor and is unable to

support himself among you, help him as you would an alien or a temporary resident, so he can continue to live among you.

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Judaism

In several Biblical passages in which the taking of interest is either forbidden,

discouraged or disliked.

The religion of peace and love define Interest as the key to cruelty and hatred

and give birth to crime.

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Roman Catholic Church

In fourth century AD prohibited taking of interest by Church Scholars.

In the eighth century under Charlemagne it was declared usury to be a general criminal

offence.

"The love of money is the root of all evil." (Timothy 6:10)

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Ancient Hindu Religion

Vasishtha, a well known Hindu law-maker made

a special law which forbade higher castes of

Brahmans (priests) and Kshatriyas (warriors)

from being usurers or lending at interest.

Vedic texts of Ancient India (2000-1400BC)

In the Jatakas, (600-400 BC) Usury is referred to

in a humiliating manner:

“Two-Faced Elites accused of practicing Usury”.

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Islam for Money Matter

Riba does not justify money to be a medium of exchange

and develop the love of money in several ways that

disrupt the entire system of mankind.

Islam stresses a respect of money by disregard

lending and borrowing

Islam guide to financing on participation by uniting money with skill as equal in volume against value by

making effort, utilization and participation in gaining the purpose.

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Islam for Money Matter Islam guides the point of origin and limit of destination

of monetary transaction.

Islam defines duties and responsibilities between money owner and money user.

The combination and participation of money and effort

brings the result which is share according to the

pre-agreed terms of understanding is the

creation of Profit

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Profit How it is Describe?

Income is determined not on financing amount, but Principal amount taken out from Sales Proceeds , realizing Gross Profit which is

subtracted with Cost on the transaction which end into Net Profit which is the aim of financing

with “Acceptance” of loss.

To work out the profitability in the transaction

APPRAISAL, PRECAUTION, TRUST, CONFIDENCE, EXPERIENCE, KNOWLEDGE, PURPOSE, WILL &

SPRIT are the factors of BUSINESS ETHICS that result in realizing PROFIT on the transaction. 26

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Profit Mechanism

Profit is an amount appreciate over & above to the

principle amount in acceptability of profit & loss

sharing between two partners of the transaction

upon the maturity as GROSS RETURN.

This gross return over to the principal amount of

investment then be deducted with applicable and

agreed Cost on the transaction which realize the

NET INCOME on the transaction.

This Net Income which is to be shared in an

agreed RATIO instead of confirms and guaranteed

rate is the Profit.

PROFIT is sharing in RATIO of investment and not realize through RATES applied on principle amount.

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Now the question arises

If Interest is eliminated from monetary system, would it be possible that system & transactions

would become transparent and clear?

Answer is simple and straight:

“Filth remains in its hard and powerful grip irrespective of other factors”.

Interest alone cannot be eliminated without eliminating categories that fall under term

called Riba.

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Some of the categories of Riba are mentioned and clearly defined in Islamic Economics System . Islam

strictly prohibits these acts as well as society disregards them as Social

Crimes due to their dreadful effect on social, moral, cultural, economical,

financial, commercial and lawful life styles of the society.

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Categories of Riba

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The main classes of RIBA

Exploitation by taking advantage of status and position,

Irregular weight & measures for profitability,

Wrong declaration for higher return,

Misconduct (misbehavior),

Crime & Law breaking,

Mistrust,

Commit a breach

False commitment,

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Manipulation of affairs for benefits at a cost and efforts of other,

Gambling in all form,

Promising to secure the benefit by covering honorable, nearest, dearest

Falsehood and Lies

Betting and gambling

Speculation, Conjecture, unfounded information,

Trading in commodities prohibited by Islam and law of the land,

Income from the practices or activities that are prohibited by Islam,

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Breaking and abuse of state law for self benefit or

for any purpose that is declared as punishable

act.

Disobedience to the state law by declaration and

submission of wrong information for self-

benefits.

Disturbing peace of community by using force.

Committing and involving in the illegal acts.

Paying and receiving Interest that is declare as

price of money using act of cruelty, exploitation,

wrong means, false declaration, and advantage

based on weak or wrong calculation,

Taking and giving return on loans or fixing

amount without appraising the use of funds that

are given to user. 32

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Keeping deposit with person or institution having involved in Riba practices,

Using deposits as investments and declaring non-transparent results that lead to discrimination of sharing in accordance with investment percentage,

Holding and storing of currency that affects economic activities negatively.

Holding commodities that lead towards scarcity in the supplies against market demand.

Monopoly and monopolization of activity, transaction and business to taking sole benefit, stopping the growth of employment and earnings

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Grabbing the wealth,

Illegal encroachment on the property that is not owned by encroacher. Like construction of pray area on the property not lawfully purchase, legally gifted or transferred to occupant

Using public money for luxuries & self-usage,

Misuse of rights belonging to minors, orphans, widows and women,

Misappropriations among share division on inherited wealth

Miscalculation of share for inherited wealth under law of inheritance,

Income by power and cruelty,

Misuse of power and status,

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Theft,

Burglary,

Smuggling,

Adultery,

Human trading,

Pressurizing and influencing of earning situation and

taking benefits,

Misuse of public representation and obtaining benefit

through status as Public Representative,

Trade and Sale of commodity by charging over and

above to the prevailing price and avoiding payment to

state toward revenue, hiding such earning and income

on transactions

Abuse of labor, specially child and women.

Above classes differentiate Interest vis-à-vis Riba

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FUNDAMENTAL FACTS ON RIBA BASIS OF ISLAMIC THOUGHTS CONFLICT DIRECTLY WITH THE RIBA BASED SYSTEM. AS “NO ISLAM EXISTS IN A PLACE WHERE THERE IS

RIBA BASED SYSTEM”.

Riba based system is a misery not only on humanity,

faith, morals or imagination of life, but also in every

core of economic and practical life.

It is the most hateful system, which eradicates human

satisfaction and frustrates its civilized and neutral

developments.

Islam has complete ethical system supported by

realistic system as interlink.

Ethics & reality cannot be separated in Islam & cannot

be practiced alone. 36

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FUNDAMENTAL FACTS OF RIBA

Islam has clearly stated benefits of following of

ethics and reality that followers follow in daily

life.

Successful Islamic economics does not rise

without Ethics which cannot be separated to

reality of life and its rational approach.

Practical life of people cannot prosper without

proper ethics.

Riba practices corrupt the individual’s ethics,

behavior, and feelings towards community and

the society.

It also corrupts the human life, culture and the

relationship by spreading the spirit of greed,

selfishness, sneakiness and gambling in general. 37

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FUNDAMENTAL FACTS OF RIBA

Today investing capital on minimum risk basis

over guaranteed return is commonly practiced

including funds as deposit, invested on no risk

with guaranteed return.

Interest is paid at lower to the depositor’s

investment and higher to investment managers

and shareholders.

Money lent to somebody on higher return or

interest does not grow useful projects but seeks

the most lucrative opportunity even if profit

comes from the lowest nature and the meanest

tendency.

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Islam is a connected system; it prohibits the

dealing with Riba.

It also defines all its systems based on providing

the need to it.

It organizes the aspects of social life on giving

out means of dealing without touching growth of

human, social & economic development.

A true Muslim should have a firm belief that

whatever Almighty Allah has prohibited, can

develop human life in better and fair way.

It must be kept as a firm belief to restrain from

false and evil acts for the betterment of life with

its development and growth in harmony.

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Almighty Allah is the Creator of this life and

makes man, custodian to all the blessings for

humanity.

Mans determination towards the Almighty Allah

overcomes all and guides the man to the right

path.

It is also impossible for the Muslims to raise the

community in prosperity or the perception that

wickedness can show the way to advancement,

going against the prohibitions of Almighty Allah.

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RIBA AL NASSIEAH

Riba al Nassieah practiced before Islam

as man paying his money to another for a

pre agreed period.

In return, he took from him a certain

amount every month without taking the

principal amount.

When date of payment came, he asked

him for his capital and if he was unable

to repay would increase in his fund and

the term of repayment.

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RIBA AL FADI

A man sells an article in exchange of another

article having same quality and nature with

an increase or decrease like gold sold for

gold, rupee for a rupee, corn for corn and

barley for barley.

This kind is considered as Riba, as

commodities are similar to each with

different values not ascertain.

Such transaction has the involvement of

exploitation and injustice on any one’s part of

the two.

Riba system emerges initially on a rule that

there is no relationship between the

determination of Allah and the life of man. 42

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Riba creates the false feeling in the mind of men

that wealth ownership would bring the power

to become the master of this earth. It instructs

the men to not to get bound by a pledge himself

from Allah and to ignore the importance of

following the commandments of Allah.

Riba establishes a feeling of liberty among

humans for ways and means of obtaining

wealth, encouraging to adopt more unfair

means to multiply it.

Riba provides an individual a feeling that he is

free to enjoy his wealth without abiding the

contract of faith and trust in Almighty Allah or

obeying any condition as holder of wealth, for

which he is not bound to keep the interest of

others. 43

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GHARAR

Gharar is uncertainty, hazard, chance or risk and

technically it is sale of a thing which is not present at

hand or the sale of a thing whose consequence or

outcome is not known or a sale involving risk or hazard

in which one does not know whether it will come to be

or not. Such as fish in water or a bird in the air which

are dishonesty through ignorance by one or more

parties to a contract. There are several types of

Gharar, all of which are Haram. The following are

some examples:

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Selling goods that the seller is unable to deliver

Selling known or unknown goods against an unknown

price

Selling goods without proper description

Selling goods without specifying the price

Making a contract conditional on an unknown event

Selling goods on the basis of false description

Selling goods without allowing buyer to properly

examine the goods

Gambling is a form of Gharar because the gambler is

ignorant of the result of his gamble

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