Lecture #02

RIBA and GHARAR

Muhammad Aslam
m.aslamkhalil@gmail.com
IQRA University
RIBA And GHARAR
 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
Shariah has two broad branches:
1. Ibadaat
2. Ma’amlaat
Rule of act on both:

Ibadaat: Initially it is not permissible unless Shariah defines

with specific terms & conditions
o Means to follow dos

Ma’amlaat: Initially it is permissible unless prohibitions are

in place
o Means to avoid from don'ts= Prohibitions
 Introduction
• These prohibitions can be divided into four types:
1. General Prohibitions
2. Riba (interest)
3. Gharar (uncertainty)
4. Violation of Islamic Law of contract
 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 falls 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 lectures

3. Riba (Interest)
4. Gharar( Uncertainty)

Today’s lecture will be consisted of 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 Shari’ah prohibitions.
 Understanding of Riba and Gharar and their modern application is
crucial but 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.
•
It’s 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
‫ تُر ۡی ُد ۡو َن و ۡجہ ہّٰللا‬ ‫ م ۡن َز ٰکو ٍۃ‬  ۡ‫ ٰاتَ ۡیتُم‬ ‫ اَمۡ وال النَّاس فَاَل ی ۡرب ُۡوا ع ۡن َد ہّٰللا ۚ و م ۤا‬ ‫ ٰاتَ ۡیتُمۡ م ۡن ِّربًا لِّی ۡربُو ۠ا ف ۡۤی‬ ‫و م ۤا‬
ِ َ َ ِ ِّ َ َ ِ ِ َ ِ ِ َ ِ َ َ ِّ َ َ
‫﴾ سورہ الروم‬۳۹﴿ ‫ض ِعفُ ۡو َن‬ ۡ ‫ ۡال ُم‬ ‫ ہُ ُم‬ ‫ک‬ ٓ ٰ ُ ‫فَا‬
َ ‫ولِئ‬

Whatever Riba (increased amount) you give, so that it may increase

in the wealth of the people, it does not increase with Allah; ⁸ and
whatever Zakah you give, seeking Allah’s pleasure with it, (it is
multiplied by Allah, and) it is such people who multiply (their wealth
in real terms.)
‫آسان ترجمۂ قرآن مفتی محمد تقی عثمانی‬
The Noble Quran
 Prohibition of Riba in Quran

‫﴾ۙ َّو‬۱۶۰﴿ ‫ َکثِ ۡیرًا‬ ِ ‫صد ِِّہمۡ َع ۡن َسبِ ۡی ِل ہّٰللا‬ َ ِ‫ت اُ ِحلَّ ۡت لَہُمۡ َو ب‬ َ ۡ‫فَبِظُ ۡل ٍم ِّم َن الَّ ِذ ۡی َن ہَا ُد ۡوا َحرَّمۡ نَا َعلَ ۡی ِہم‬
ٍ ‫طیِّ ٰب‬
‫اس بِ ۡالبَا ِط ِل ؕ َو اَ ۡعتَ ۡدنَا لِ ۡل ٰکفِ ِر ۡی َن ِم ۡنہُمۡ َع َذابًا اَلِ ۡی ًما‬
ِ َّ‫اَ ۡخ ِذ ِہ ُم ال ِّر ٰبوا َو قَ ۡد نُہُ ۡوا َع ۡنہُ َو اَ ۡکلِ ِہمۡ اَمۡ َوا َل الن‬
‫﴾ سورہ النسٓاء‬۱۶۱﴿
 
And for their charging Riba (usury or interest) while they were forbidden
from it, and for their devouring of the properties of the people by false
means. We have prepared, for the disbelievers among them, a painful pun-
ishment.
So, because of the transgression of those who became Jews, We prohibited
for them good things which were made lawful for them earlier and for their
,preventing (people), very often, from the way of Allah
‫̃آسانت˜˜˜رجمۂ ق˜˜ر̃آنمفتیمحمد ت˜˜˜قیعثمانی‬
The Noble Quran
 Prohibition of Riba in Quran
ۚ﴾۱۳۰﴿ ‫ تُ ۡفلِح ُۡو َن‬  ۡ‫ ۪ َو اتَّقُوا ہّٰللا َ لَ َعلَّ ُکم‬ ً‫ض َعفَۃ‬ ۡ َ‫ٰۤیاَیُّہَا الَّ ِذ ۡی َن ٰا َمنُ ۡوا اَل تَ ۡا ُکلُوا الرِّ ٰۤبوا ا‬
ٰ ‫ض َعافًا ُّم‬
‫سورہ آل عمران‬

O you who believe, do not eat up the amounts acquired through’‘

Riba (interest), doubled and multiplied. Fear Allah, so that you
”.may be successful
‫̃آسانت˜˜˜رجمۂ ق˜˜ر̃آنمفتیمحمد ت˜˜˜قیعثمانی‬
The Noble Quran
 ‫‪Prohibition of Riba in Quran‬‬
‫الشيْ َطا ُنـ ِم َنـ ال َْم ِ ّسـ َذ ِل َكـ ِبَأن ّ َُه ْمـ َقال ُوا ِإ ن ّ ََما‬ ‫ومو َنـ ِإ لَّا ك ََمـا يَ ُقو ُمـ ال َّ ِذي يَتَ َ‬ ‫ْأ‬
‫خ ّب َ ُط ُهـ ّ َ‬ ‫ال َّ ِذي َنـ يَ كُل ُو َنـ ِ ّ‬
‫الربَـا ل َا ي َ ُق ُ‬
‫اء ُهـ َم ْو ِع َظ ٌةـ ِم ْنـ َر ِبّ ِهـ َفانْتَ َهـى َفل َ ُهـ َمـا َسـل ََف َوَأ ْم ُر ُه‬ ‫الربَـا َف َم ْنـ َج َ‬
‫ال ْبَيْ ُعـ ِمثْ ُلـ ِ َأ‬
‫الربَـا َو َح ّـَل الل َّ ُهـ ال ْبَيْ َعـ َو َح َّر َمـ ِ ّ‬
‫ّ‬
‫َأ‬ ‫ُأ‬
‫ات‬ ‫الص َد َق ِ‬ ‫الربَـا َويُ ْربِي ّ َ‬ ‫ح ُقـ الل َّ ُهـ ِ ّ‬ ‫خالِ ُدو َنـ (‪ )275‬يَ ْم َ‬ ‫اب الن ّ َِار ُه ْمـ ِف َ‬
‫يهـا َ‬ ‫ح ُ‬ ‫اد َف ولَِئ َكـ ْصـ َ‬ ‫ع َ‬ ‫ِإ لَـى الل َّ ِهـ َو َم ْنـ َ‬
‫اموا ال ّ َصـل َا َة َوآتَ ُوا ال َّزك َا َةـ ل َُه ْم‬ ‫ات َوَأ َق ُ‬‫ح ِ‬ ‫ع ِمل ُوا ال ّ َصـالِ َ‬ ‫آمنُوا َو َ‬ ‫َأ‬
‫ب ك ّـَُل ك َ ّف ٍَار ِثي ٍمـ (‪ِ )276‬إ ّـَن ال َّ ِذي َنـ َ‬ ‫َوالل َّ ُهـ ل َا يُ ِح ُّـ‬
‫آمنُوا اتَّقُوا الل َّ َهـ َو َذ ُروا َمـا بَ ِق َي‬ ‫َأ‬ ‫َأ ْج ُر ُه ْمـ ِعن ْ َد َر ِبّ ِه ْمـ َول َا َخ ْو ٌفـ َ‬
‫ح َزنُو َنـ (‪ )277‬يَـا يُّ َهـا ال َّ ِذي َنـ َ‬ ‫عل َيْ ِه ْمـ َول َا ُه ْمـ يَ ْ‬
‫الربَـا ِإ ْنـ كُن ْ ُت ْمـ ُمْؤ ِم ِني َنـ (‪َ )278‬فِإ ْنـ ل َ ْمـ تَ ْف َعل ُوا َفْأ َذنُوا ِب َح ْر ٍبـ ِم َنـ الل َّ ِهـ َو َر ُسـول ِ ِه َوِإ ْنـ تُبْتُ ْمـ َفلَك ُْم‬ ‫ِم َنـ ِ ّ‬
‫خيْ ٌر‬ ‫ع ْسـ َر ٍة َفن َ ِظ َر ٌةـ ِإ لَـى َميْ َسـ َر ٍة َوَأ ْنـ تَ َص َّدقُوا َ‬ ‫ُر ُءو ُسـ َأ ْم َوالِك ُ ْمـ ل َا تَ ْظلِ ُمو َنـ َول َا تُ ْظل َُمو َنـ (‪َ )279‬وِإ ْنـ ك َا َنـ ذُو ُ‬
‫ت َو ُه ْم ل َا‬ ‫لَك ُ ْمـ ِإ ْنـ كُنْتُ ْمـ َت ْعل َُمو َنـ (‪َ )280‬واتّ َ ُقوا ي َ ْو ًمـا ُت ْر َج ُعو َنـ ِفي ِهـ ِإ لَـى الل َّ ِهـ ثُ ّمَـ تُ َو ّفَـى ك ُّـُل ن َ ْف ٍسـ َمـا ك َ َسـبَ ْ‬
‫ون (‪ )281‬البقرة‪:‬‬ ‫يُ ْظل َُم َ‬
 Prohibition of Riba in Quran
Allah destroys riba and nourishes charities, and Allah does not like any sinful
disbeliever
Surely those who believe and do good deeds, and establish Salah (prayer) and
pay Zakah will have their reward with their Lord, and there is no fear for
them, nor shall they grieve
O you who believe, fear Allah and give up what still remains of riba, if you are
believers
But if you do not (give it up), then listen to the declaration of war from Allah and His
Messenger. However, If you repent, yours is your principal. Neither wrong, nor be
wronged
If there is one in misery, then (the creditor should allow) deferment till (his) ease, and
that you forgo it as alms is much better for you, if you really know
Be fearful of a day when you shall be returned to Allah, then every person shall be paid,
in full, what he has earned, and they shall not be wronged
‫آسان ترجمۂ قرآن مفتی محمد تقی عثمانی‬
The Noble Quran
Riba in Quran
First Revelation: Second Revelation:
“And whatever Riba you give so that it “O those who believe, Do not eat up Riba,
may increase in the wealth of the doubled and redoubled, and be mindful of
people, it does not increase with Allah; Allah so that you may attain true success”.
but that which you give in charity, (Al’ Imran: 130)
seeking the goodwill of God, multiplies
manifold.”
(Al Rum, Verse 39)
Riba in Quran
Third Revelation:
“Those who take Riba (usury or interest) will not stand but as stands the one
whom the demon has driven crazy by his touch…”.
“…Allah destroys Riba and nourishes charities. And Allah does not like any
sinful disbeliever…”.
“… O those who believe, fear Allah and give up what still remains of the riba
if you are believers. But if you don not, then listen to the declaration of
war from Allah and His Messenger. And if you repent, yours is your prin-
cipal. Neither you wrong, nor be wronged”. (Al Baqarah: 275-281)
 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 impermissi-
ble
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.
Riba in Hadith
1. From Jabir:
The Prophet, may peace be upon him, cursed the receiver and the payer of inter-
est, the one who records the transaction and the two witnesses to the transaction
and said: "They are all alike [in guilt]” (Muslim, Kitab al-Musaqat, also in Tirmidhi
and Musnad Ahmad).
2. Jabir ibn Abdullah said:
The Prophet, peace and blessings of God be on him, addressed the people and said:
All of the riba of Jahilliyyah is annulled. The first riba that I annul is our riba, that
accruing to Abbas ibn Abd al-Muttalib [the Prophet's uncle]; it is being cancelled
completely. (Muslim, Kitab al-Hajj, also in Musnad Ahmad).
Riba in Hadith
3. From Abdullah ibn Hanzalah:
The Prophet, peace be upon him, said: "A dirham of riba which a man receives
knowingly is worse than committing adultery thirty-six times" (Mishkat al-Masabih)

4. From Abu Hurayrah:

The Prophet, peace be upon him, said: "On the night of Ascension I came upon
people whose stomachs were like houses with snakes visible from the outside. I
asked Jibrael who they were. He replied that they were people who had received
interest” (Ibn Majah, also in Musnad Ahmed)
 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 0‫ وسلم‬0‫ عليه‬000‫لىهللا‬00‫ص‬
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 Jassas 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
 Annuities
 Prize Bonds
 Coupons
 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 nterest 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
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
– Barley
 Riba Al fadl …contd. (summarized)
 If the transacted commodities are of
same nature then:
 Spot delivery – immediate delivery of
both commodities
 Same quantity on both sides
 Like exchange of wheat with wheat
 If the transacted commodities are of dif-
ferent nature then:
 Spot delivery – immediate delivery
of both commodities
 But the quantity may differ
 Like exchange of wheat with barley
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 myth) &
their rebuttal...
A: It was not in the prevalent modern shape in those days.

Ans:
When some thing is prohibited, it is not directed to a particular form of it
but it covers every form which comes in its general sense, e.g. gambling
and pork, liquor and adultery are as Haram as they were in Jahiliya.
Arguments in favor of Riba (common myth) &
their rebuttal...
B: Doctrine of necessity and wisdom requires to allow it.
Ans:
1) It does not, it is not at all a necessity in Shari’ah. And from economic
point of view also the modern interest has brought more problems to the
humanity than the premature forms of usury.
2) Necessity is acceptable where there is no alternative.
Arguments in favor of Riba (common myth) &
their rebuttal...

C: Both parties agree on interest then why it is not permissible.

Ans:
Only agreement is not sufficient e.g. adultery is not permissible in any
condition.
Arguments in favor of Riba (common myth) &
their rebuttal...
D: Prohibited thing is interest and what commercial banks charge is “Mark-
up”.
Ans:
This is only change of name, not change of nature.
E: Due to “Inflation” interest should be permissible
Ans:
Inflation is reaction of RIBA based system.
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. Concentration of Wealth
2. Poverty
3. Class conflicts
4. Moral hazards
5. Social evils
Effects of Riba in the Society
• Riba is as a combination of evil and sins.
• Riba is bad practice to earn & gain.
• Riba brings instability in the community life.
• Riba is the source for the increase of inflation.
• Riba creates classes in the society.
• Riba creates injustice in seeking the rights.
• Riba is non transparent economic activity.
• Riba is the most hated practice in Islam
• Riba is the social crime
Effects of Riba in the Society

Riba is also the cause of

Inflation & Recession
in the economy…how???..let’s watch!
Gharrar
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 Shari’ah
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
and Consideration”.
Gharar in Ahadith
 Examples of events which have been prohibited in Ahadith because of Gharar
• Sale of unborn Camel’s baby still in the mother’s 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
1. Minor Gharar – Uncontrollable
e.g. Business profits/loss, contract of marriage

2. Excessive Gharar – Controllable

e.g. next slide
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
When Gharar is prohibited?
1.Excessive Gharar ((‫ غ˜رر ک˜˜˜ثیر‬not a minor Gharar(‫)غ˜رر ی˜˜سیر‬

2. In compensatory contracts not in non-compensatory contract.

3. Gharar should be linked to the principle object of the con-

tract and not something attached to it.
Any Questions??