Lecture #02

RIBA and GHARAR

Attaullah
attaullah501@gmail.com
IQRA University Gulshan Campus

Outlines

What is Riba
Prohibition of Riba in Quran
Prohibition of Riba in Ahadees
Classification of Riba
Arguments in favor of Riba & their rebuttal
Effect of Riba in Society
Gharar
Gharar in Ahadees
Gharar Types
Gharar few instances

Introduction
Islam prohibits some economic activities and allow all other
activities that beyond these prohibited activities;
We can categorize these activities in four basic types:
1.General prohibitions
2.Violation of Islamic Law of contract
3. Riba (interest)
4. Gharar (uncertainty)

Introduction
1.General prohibitions:

. This type include all economic activities that involve in any

things which is declared disallowed in Islam;
. For example business of alcohol, pork and film industry is
not allowed in Islam;
. Therefore any involvement in such businesses fall under
general prohibitions;
. This type is easily understandable for all;

Introduction
2.Violation of Islamic Law of contract:
It depends on understanding of Islamic law of contract, which will
be covered in coming lecture

3. Riba (Interest)
4. Gharar( Uncertainty)
Today lecture will be consisted on the above two concepts

Introduction

Prohibition of Riba and Gharar are core concepts of Islamic

economic and financial law. All transactions and contracts
must be free from elements of Riba and Gharar apart from
other Shariah prohibitions.
Understanding of Riba and Gharar and their modern
application is crucial and fundamental for understanding of
Islamic financial system.

What is Riba?

Riba literally means increase, addition, excess,

expansion or growth.
Riba means any excess compensation over and above
the principal which is without due consideration. Its a
premium paid to the lender in return for his waiting as
a condition for the loan.

Prohibition of Riba in Quran

What does the Holy Quran say about Riba?
1.Surah Rome,Verse 39
2.Surah Nisa verse 161
3.Surah Aal e Imran verse 130
4.Surah Baqarah verse 275-281

Prohibition of Riba in Quran

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Prohibition of Riba in Quran

These verses of Quran clearly prohibit interest. We
can infer the following points from these verses:
1. Allah claims, Riba does not increases
2. But Charity increases.
3. Simple as well as compound both types of interest is
impermissible
4. Result of eating Riba in world hereafter is they will be
stand like demented person.

Prohibition of Riba in Quran

5. Ultimately hell fire will be permanent resident of
Riba eaters.
6. Allah destroy Riba and nourish charities.
7. Allah does not love Riba eaters.
8. Avoid Riba is requisite of our Faith(Iman).
9.

ALLAH announce war against who does not

avoid Riba

10. Lending/borrowing on principal is just deal.

Prohibition of Riba in Hadees

Different Ahadees reveal that
1. Cursed on person who deal in Riba Transactions.
2. Riba is more serious sin than Zina.
3. Riba drives drought and short of food.

Classification of Riba
Riba is mainly of two types:
1.

Riba al Nasiah or Riba al Jahilyya or Riba al Quran

2.

Riba al fadhl or Riba al Bai or Riba al Hadith

Riba al Nasiah
Definition of Riba-al-Nasiah from Hadith:
It is reported from Hazrat Ali (RA) that the Holy Prophet
has said:
Every loan that derives any benefit (to the creditor) is Riba
kind of loan where specified repayment period and an
amount in excess of capital is predetermined. (Imam Abu
Bakr Hassas Razi)

Riba al Nasiah contd

It had different forms in the days of Jahiliyya:

a) Claiming an increased amount over the principal with a
clearly stipulated condition.
b) Charging a monthly return from debtor while keeping
principal amount remain till the day of maturity.
c) By selling a commodity for a price payable at a future
specific date, and increase the amount payment upon
extension in maturity.

Riba al Nasiah contd

Examples
Return on Conventional Bank Deposits
Conventional Bank TDRs
Conventional Bank OD limits
Insurance policy
Bonds
etc

Riba al Nasiah contd

Classification of Riba Al Nasseah:
Commercial interest (Tijarti Sood):
l interest paid on loan taken for productive and
profitable purpose

Usury (Sarfi Sood):

l interest paid on loan taken for personal need and
expenses

Riba Al Fadl
Definition of Riba-al-Fadl from Hadith:
Any excess taken in exchange of specific
commodities which are homogenous.
For example: 10 kg wheat with 15 kg wheat
05 grams gold with 06 grams

22

Riba Al Fadl contd

Hadith prohibiting Riba-al-Fadl
Ubadah Ibn Al Samit narrated that the Holy Prophet (SA)
said Gold for gold, silver for silver, wheat for wheat,
barley for barley, dates for dates, and salt for salt - equal
for equal and hand to hand; if the commodities differ,
then you may sell as you wish, provided that the
exchange is hand to hand. (Muslim)

Riba Al Fadl contd

Under Riba al-fadl, the Holy Prophet, sall-Allahu alayhi wa
sallam, has identified six specific commodities i.e.
Gold, Silver, Dates, Salt, Wheat, and Barley

If the transacted commodities are of same nature then:

Spot

delivery immediate delivery of both

commodities;
Same quantity on both sides;
l
Like exchange of wheat with wheat;

If the transacted commodities are of different then:

Spot

delivery immediate delivery of both

commodities;
But the quantity may differ;
l
Like exchange of wheat with barley;

24

Riba Al Fadl contd

Imam Abu Hanifa sees two common characteristics in these
six
commodities namely:
1) Weight or Volume ()
2) Exchange between similar commodities ()
Meaning all these six goods are sold by either weight or volume.
Therefore all those commodities, which are measured through
either the unit of weight or the unit of volume and are
exchanged against similar commodities will fall under the
rules of Riba al Fadl.
For Example: 08 kg raisins with 10 kg raisins
50 kg rice with 60 kg rice

Arguments in favor of Riba (common

myths) & their rebuttal...
Arguments
Differencing due to wealth status of borrower.
Difference of nature of modern and prohibited
one.
Prohibition of interest is due to injustice but
there is no injustice in modern time Riba.
Mutual consent in modern Riba and not in
prohibited Riba.

Response

Riba is Riba.
Now, no need to these arguments..
As Various International Fiqh bodies like:
International Islamic Fiqh Academy Jeddah
Have declared all sort of banking interest as Riba &
prohibited.

Effects of Riba in the Society

1.
2.
3.
4.
5.

Concentration of Wealth
Poverty
Class conflicts
Moral hazards
Social evils

GHARAR

What is Gharar?
Gharar is an uncertainty, hazard, chance or risk
Gharar is one of those impediments which make the
contract illegitimate.
An agreement that has any element of Gharar is not
Valid from the Shariah point of view irrespective of
whether the parties of the agreement agree upon the
contract or not.

Gharar - Defined

The uncertainty that is present in the

basic elements of an agreement:
Wording,
Subject Matter & Consideration.

Gharar in Ahadith

Examples of events which have been prohibited in

Ahadith because of Gharar

Sale of unborn Camels baby still in the mothers abdomen.

Sale of Flowers before they appear on the plant.
Sale of Milk in the Lactose Glands.
Sale of Fish that comes in one throw of net.
Sale of Fruits on the tree from mere estimation.
Sale of any one of the animals from the herd.
Sale of wool on the body of the animal
Sale of camel on deferred payment until it gives the birth.

Gharar - Types
Minor Gharar Uncontrollable.
Like: Business profits/loss, contract of marriage
1.

Excessive Gharar Controllable.

next slide
2.

Gharar- Few Instances

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