A Contemporary example of Riba Al-Fadhl

To find a contemporary example of Riba Al-Fadhl, we first need to understand what it

is?
Riba Al-Fadhl is described as an unlawful excess in the exchange of two counter-values
where the excess is measurable through weight or measure. The concept is based on
some Ahadith according to which if gold, silver, wheat, barley, dates, and salt are
exchanged against themselves, they should be spot and be equal and specified. If
these conditions are not found, this transaction will become Riba Al-Fadhl. (Usmani, I.
2002, p.253)

Some writers have adopted the same concept of Riba al-Fadhl to prove that indexation
of financial assets and obligations are not allowed in Islam. Indexation of financial
obligations is the adjustment of the liability of the borrowers in money terms to reflect
the change in the value of money during the period the loan, this value is measured
using a price index. The concept of indexation in conventional finance is often used to
make a provision for a floating rate in the agreements, in relation to any future
inflationary pressures. By applying new rates for the remaining period, it does not allow
an increase in liabilities that that accumulated in the past.

In the Islamic framework, transactions of loan or debt should involve equality. If a

measurable good is lent then it is necessary to return the same quantity, irrespective of
any increase or decrease in its price. The writers argue that since the six commodities
mentioned (Gold, silver, wheat, barley, date and salt) in the Ahadith of Riba al-Fadhl are
themselves subject to price changes over time thus they cannot be used as measures
of value to return loans. In case they are used, they should be returned with the same
quality and the same weight.

However, the reason why their point of view appears weak is that all Muslim scholars of
jurisprudence, except a tiny minority belonging to the Zaharis, agree that the six
commodities mentioned in Ahadith of Riba al-Fadhl are not the only ones that are
applicable for the purpose. These commodities have only been mentioned by way of
example. The real message of these Ahadith is that whenever a credit exchange takes
place, every attempt should be made to return the very same value. In attempting to do
so through indexation, any list of relevant commodities could be chosen to make the
arrangement fair to both parties. 
 ISLAMIC FINANCE

A Contemporary example of
Riba Al-Fadhl
Assignment # 1

Submitted to: Ma’am Huma Ayub

Submitted by: Annum Rafique
Sabeen Iqbal
BBA 8 C
Date: 3rd March 2011