Riba

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In the Greatest name of Allah, The Most Merciful, The Most Beneficial.

THE MEANING OF RIBA :

THE MEANING OF RIBA Riba means addition, increase. Riba literally means to increase, to grow to rise, to add, however, not every increase or growth which has been prohibited by Islam 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.

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Interest or Al-RIBA as it is used in the Arabic language means to excess or increase. In the Islamic terminology interest means effortless profit or that profit which comes free from compensation or that extra earning obtained that is free of exchange.

According to Hazrat Shah Waliullah Dehlvi :

According to Hazrat Shah Waliullah Dehlvi " Riba is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed."

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According to Quran:

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According to Quran:

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AL-NASIAH AL-FADL The term nasi’ah means to postpone or to wait . It refers to the time period that is allowed for the borrower to repay the loan in return for the addition of the premium . The excess over the loan paid in kind. It lies in the payment of an addition by the debtor to the creditor in exchange of commodities of the same kind . It makes no difference whether the return is a fixed or a variable percentage of the principal, an absolute amount to be paid in advance or on maturity, or a gift or service to be received as a condition for the loan Arises if gold, silver, wheat, barley, dates and salt (Ribawi items) are exchanged against themselves with unequal proportion. They should be exchanged on the spot and be equal and alike , otherwise any change in transactions will create riba-al-fadl. Source : Al-Quran Source : Hadith Known as “riba hutang” ; it refers to the interest on loan. Known as “riba jualan” ; it happen in trading transaction TYPES OF RIBA

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PROFIT RIBA Halal Haram Derive from trading Derive from debt (al-nasiah) and trading (al-fadl) The buyer purchases the items he needs and the seller gets profit for the time, labour and brains he employs in providing that items to the buyers. The debtors cannot settle the transaction on equal terms with the creditor because of his weaker position. The profit which the debtor make on money of the creditors has after all its own limits. There is no limit to the interest the creditor may charge on his money. The transaction in trade comes to an end as soon as the items and its price change hands. After this the buyer is not required to return anything to the seller. The debtor has to spend it first and the reproduce it and return it, to the creditor along with the interest. Thus the debtor runs a double risk.

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Real Solution of Problem of Interest 1. Discrimination between Halal (permitted things being lawful) and Haram (forbidden things being unlawful). 2.      Equitable distribution of wealth through Zakat, Sadaqat. 3.      Provision of basic necessities of life for every citizen . 4. Prohibition of hoarding of wealth and promotion of its circulation in productive channels. 5.  Elimination of interest.

Dimensions or Classifications of Riba:

Dimensions or Classifications of Riba Riba has two dimensions: 1. Riba Duyun The first one prohibits increases arising from debts (loans), known as Riba Duyun . This can be classified as follows:

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A. Riba Qardh Where the increase (interest) on the principal sum of the loan is agreed upon at the point of contract. B . Riba Jahilliyah or Riba Nasiah This refers to the increase levied on the borrower for late repayment or failure to repay the loan.

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2. Riba Buyu' or Riba Fadhi Riba Al Fadl actually means that excess which is taken in exchange of specific homogenous commodities and encountered in their hand-to-hand purchase & sale.

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Hadith Nabvi The Prophet said, "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, but if a person transacts in excess, it will be usury(Riba) gold for gold; silver for silver; wheat for wheat; barley for barley; Salt for salt.

HISTORY OF USURY :

HISTORY OF USURY Usury in Hinduism and Buddiasm Oldest known references to usury are to be found in ancient Indian religious manuscripts and Jain (1929) provides an excellent summary of these in his work on Indigenous Banking in India. The earliest such record derives from the Vedic texts of Ancient India (2,000-1,400 BC) in which the “usurer” ( kusidin ) is mentioned several times and interpreted as any lender at interest. More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC). For example, Vasishtha, a well known Hindu law-maker of that time, made a special law which forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being usurers or lenders at interest.

Usury in Judaism:

Usury in Judaism Criticism of usury in Judaism has its roots in several Biblical passages in which the taking of interest is either forbidden, discouraged or scorned [i] .The Hebrew word for interest is neshekh , literally meaning "a bite" and is believed to refer to the exaction of interest from the point of view of the debtor. In addition to these biblical roots extensions of the prohibitions of interest, known as avak ribbit , literally "the dust of interest"

Usury in Christianity :

Usury in Christianity Roman Catholic Church had by the fourth (4Th ) century AD prohibited the taking of interest This anti-usury movement continued to gain momentum during the early Middle Ages and perhaps reached its zenith in 1311 when Pope Clement V made the ban on usury

Usury in Modern Reformist Thinking:

Usury in Modern Reformist Thinking Some may be surprised to discover that Adam Smith, despite his image as the “Father of the Free-market Capitalism” and his general advocacy of laissez-fair economics, came out strongly in support of controlling usury (Jadlow, 1977; Levy, 1987).

PROHIBITION OF RIBA IN THE HOLY QURAN :

PROHIBITION OF RIBA IN THE HOLY QURAN In several verses of the Holy Qur’an, Allah(swt) has mentioned the consequences of riba. The Qur’an did not declare the prohibition of riba in the early stage of revelation, rather we find that the complete prohibition of interest came sequentially.

The Qur'an, however, states::

The Qur'an, however, states: "They say 'trade is just like interest' whereas Allah has permitted trade and forbidden interest." Qur'an (2:275)

Prohibition of Riba or Interest:

Prohibition of Riba or Interest 1. Usury as Unearned Income The simplest and perhaps earliest objection to usury was on the basis that it constituted unearned income. This is the proper interpretation of usury when gain is sought to be acquired from the use of a thing without labour, expense or risk on the part of the lender.

2. Double Billing :

2. Double Billing Interest is illegal and immoral, “like selling a loaf of bread and then charging in addition for the use of it”

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[Ali Imran 3:130] O ye who believe! devour not Usury, doubled and multiplied; but fear Allah; that ye may (really) prosper.

3. Usury as Exploitation of the Needy :

3. Usury as Exploitation of the Needy Usury as exploitation of the needy still exists in modern times. For example if the poor people getting loans from banks, they are not able to pay the excess amount on the principal amount. So poor people is not deserved for loan if strict conditions of interest are imposed on them.

4. Usury as a Mechanism of Inequitable Redistribution of Wealth :

4. Usury as a Mechanism of Inequitable Redistribution of Wealth Usury acts as a mechanism by which 'the rich get richer and the poor get poorer' Kennedy (1992) provides some excellent evidence of this phenomenon which relates to Germany in 1982. She shows that, while the poorest 2.5 million households paid out (net) 1.8 billion in interest, the richest 2.5 million households received (net) 34.2 billion.

5. Usury as an Agent of Economic Instability :

5. Usury as an Agent of Economic Instability Main objection to interest is that it is an endemic factor in the instability of interest-based economies. Kennedy (1995) suggesting that the compounded growth of interest may in fact cause inflation . She shows, for instance, how in Germany, while government income, Gross National Product and the salaries and wages of the average income earner rose by about 400% between 1968 and 1989, the interest payments of the government rose by 1,360% which she claims implies an inflationary effect.

6. Usury as Discounting the Future :

6. Usury as Discounting the Future The last reason cited for condemning usury relates to the concept and practice of discounting future values Discounting affects the rate at which we use up natural resources - the higher the discount rate ,the faster the resources are likely to be depleted.

PROHIBITION OF RIBA IN THE HOLY QURAN :

PROHIBITION OF RIBA IN THE HOLY QURAN In the Qur’an Allah (swt) says: “ That which ye lay out for increase through the property of (other) people, will have no increase with Allah: But that which ye lay out for charity, seeking the countenance of Allah (will increase): it is these who will get a recompense multiplied ”. (30:39) “ That they took riba (usury), through they were forbidden and that they devoured men’s substance wrongfully – We have prepared for those among men who reject faith a grievous punishment .” (4:161)

PROHIBITION OF RIBA IN THE HOLY QURAN :

PROHIBITION OF RIBA IN THE HOLY QURAN “ O ye who believe! Devour not usury doubled and multiplied; but fear Allah, that ye may (really) prosper .” (3:130) “Those who devour usury will not stand except as stands one whom the evil one by his touch hath driven to madness. That is because they say: ‘Trade is like usury.’ But Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge). But those who repeat (the offence) are companions of the fire, they will abide therein (forever)” (2:275) “ O you who have attained faith! Remain conscious of God, and give up all outstanding gains from Usury, if you are (truly) believers” (2: 278)

PROHIBITION OF RIBA IN THE HADITH :

PROHIBITION OF RIBA IN THE HADITH Jabir reported: The Prophet (saw), cursed the receiver and the payer of interest, the one who records it (the contract) and the two witnesses to the transaction and said, “they are all alike (in guilt).”

PROHIBITION OF RIBA IN THE HADITH :

PROHIBITION OF RIBA IN THE HADITH Abu Hurayrah (ra) narrated that the Prophet (saw) said: “”God would not allow four persons to enter paradise or to taste its blessings: he who drinks wine, he who takes riba, he who usurps an orphan’s property without right and he who is undutiful to his parents.”

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[al-Rom 30: 39] That which ye lay out for increase through the property of (other) people, will have no increase with Allah: but that which ye lay out for charity, seeking the Countenance of Allah, (will increase): it is these who will get a recompense multiplied.

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[39] Dan (ketahuilah bahawa) sesuatu pemberian atau tambahan yang kamu berikan, supaya bertambah kembangnya dalam pusingan harta manusia maka ia tidak sekali-kali akan kembang di sisi Allah (tidak mendatangkan kebaikan) dan sebaliknya sesuatu pemberian sedekah yang kamu berikan dengan tujuan mengharapkan keredaan Allah semata-mata, maka mereka yang melakukannya itulah orang-orang yang beroleh pahala berganda-ganda.

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[al-Nisaa 4:161] That they took usury, though they were forbidden; and that they devoured men's substance wrongfully; We have prepared for those among them who reject Faith a grievous punishment.

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[al-Nisaa 4:161] Dan juga (disebabkan) mereka mengambil riba padahal mereka telah dilarang melakukannya, dan (disebabkan) mereka memakan harta orang dengan jalan yang salah (tipu, judi dan sebagainya) dan (ingatlah) Kami telah menyediakan bagi orang-orang yang kafir di antara mereka, azab seksa yang tidak terperi sakitnya.

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[Al-Baqarah 2: 275] Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are Companions of the Fire; they will abide therein (forever).

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[Al-Baqarah 2:278] O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers