Islamic Finance

The Definition Of Riba-Interest:

The literal meaning of 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. Hazrat Shah Waliullah Dehlvi a great scholar and leader has given a very concise and precise definition of interest. He says,

“Riba` is a loan with the condition that the borrower will return to the lender more than and better than the quantity borrowed”.

1. Meaning of the word “Riba”?

Riba literally means ‘to grow; to increase.’ Technically, it denotes the amount that a lender receives from a borrower at a fixed rate in excess of the principal. It is of two kinds:

  •  Riba Nasi’a – taking interest on loaned money.
  •  Riba Fadal – taking something of superior quality in exchange for giving less of the same kind of thing of poorer quality.

In English it is usually translated as “Interest” or “Usury”

Interest In Pre-Islamic Times:

Hafiz Ibn Hajr writes in his commentary of Sahih Bukhari (Fathul Bari):

“Imam Malik reports on the authority of Zaid Ibn Aslam that in the period of ignorance (pre-Islamic times) interest was changed according to the following scheme. One person had a right in the property of another person. It may have been a general right because of the amount lent or the price of something purchased or in any other form. A time was set when the claim would be settled.

When the appointed time arrived the creditor would ask the debtor if he wanted to settle the claim or pay interest with an extension to the time. If the claim was settled then there was no increase in the payment. Otherwise the debtor would increase the amount payable and the creditor would extend the period further”.

Islam´s View Of Trade:

Interest is not a subject without trade and commerce. Islam recognises trade and commerce not only as a lawful profession but also as a moral duty. Islam has laid down a complete set of rules for trade. The reason for these rules is to specify what halal earning is. There are many traditions (Ahaadith) concerning halal provision that can also be found in the books containing the traditions of the prophet (peace be upon him).

Actually, Islam has encouraged men to earn their own provision and to provide it to their families. The condition is that the earning has to be according to the conditions set by the Shari´ah. Any sort of transaction that does not correspond to the rules of trade will not be allowed. These rules can be found under the heading of trade in the books of jurisprudence. Interest is amongst those conditions which all dealings must be free from.

KNOW MORE:

> PROHIBITION IN ISLAM

> AHAADITH CONCERING INTEREST