IBF - Basic Prohibitions Including Riba-V3

Fundamentals of Shari’ah:
Basic Prohibitions including Riba in Financial Contracts
D R . M D . M A H A B B AT H O S S A I N
BBA & MBA (Accounting), PhD. (IBA, RU), DIB (IIBI, UK), CIPA & CSAA (AAOIFI)
Faculty Member, BIBM;
Member, WG of AAOIFI;
Academic Advisor, CSBIB;
Member, SSC of SBAC Bank Ltd.;
Member, SSC of Meghna Bank Ltd.;
Member, SSB of Beximco Green Sukuk;
Member, Sukuk Technical Committee of BB;
Member, SSB of IDLC AML Shariah Fund; and
Member, SSB of BBML Sukuk (PRAN-RFL Group).
Email: mahabbat@bibm.org.bd; Mobile: +8801716373565
BIBM BIBM
Dua (Praying to Allah at the Beginning)
• Alḥamdulillahi Waḥdah [All praise is due to Allah alone]
• Waṣ-Salatu Was-salamu `alā man lā Nabiyya Ba`dah; Wa’ala Alihi Wasahbihi Ajma’in [Salutation and peace be upon the last
Mesenger, and upon his family and all of his companion]
• Fauju Billah Himinash Shaitan Nirrajim [I seek refuge in Allah from the outcast Shaitan/Devil/Iblis]
• Bismillahir Rahmanir Rahim [In the name of Allah, Most Gracious, Most Merciful]
• Rabbi Zidni Ilma [My Lord, increase me in knowledge]
• Rabbi Sharli Sadri Wa Yassirli Amri Wahlul Uqdatan Mil-Lisaani Yafqahu Qawli [O my Lord! Open for me my chest; Ease my task for
me; And remove the impediment from my speech, so they may understand what I say]
• Allahumma Inni As'aluka Ilman Naafi’an wa rizqan Thayyiban wa Amalan Mutaqabbalan [O Allah, I ask You for beneficial knowledge,
goodly provision, and acceptable deeds]
• Rabbi Yassir wala Tu'assir wa Tammim bil Khair [Oh Allah, make this task easy and do not make it difficult. Oh Allah! Make it end well]
• Rabbana Atina Fid Dunya Hasanatawn Wa Fil Akhirati Hasanatawn Wa Qina Azaaban Naar [Our Lord, give us in this world [that
which is] good and in the Hereafter [that which is] good and protect us from the punishment of the Fire]
• Allahumma inni a'udhu bika minal-barasi, wal-jununi, wal-judhami, wa min sayyi'il-asqaam [O Allah! I seek refuge in You from
albinism, insanity, leprosy and from evil diseases]
5/16/23 Dr. M. Mahabbat Hossain DIB, CSAA, CIPA Slide# 2

Shariah Based (Islamic) Banking: Definition
• Islamic banking has been defined in a number of ways however, general perception is similar
• The definition of Islamic bank, as approved by the General Secretariat of the OIC, is as follows:
• "An Islamic bank is a financial institution whose status, rules and procedures expressly state its commitment to
the principle of Islamic Shariah and to the banning of the receipt and payment of interest on any of its
operations"(Ali & Sarkar 1995, pp. 20-25).
• Islamic Banking Definition as per BB Guidelines 2009
• Islamic Bank" means such a banking company or an Islamic bank branch(es) of a banking company licensed by
Bangladesh Bank, which follows the Islamic Shariah in all its principles and modes of operations and avoids
receiving and paying of interest at all levels.
• "Islamic Banking Business" means such banking business, the goals, objectives and activities of which is to
conduct banking business/ activities according to the principles of Islamic Shariah and no part of the
business either in form and substance has any elements not approved by Islamic Shariah.
5/16/23 Dr. M. Mahabbat Hossain DIB, CSAA, CIPA Slide # 3

Locating Economics and Finance within Islamic Shariah
Islamic Shariah (Law)
Aqidah Amaliyyah Akhlaq (Provisions related with

(Provision related with Faith) (Provision related with Actions) Moralities and Ethics)
Fiqh Ibadah (Worshiping to Allah) Fiqh Muamalat (Human-to-Human)

[As per specification and direction] [Should not be prohibited]
Political Activities Economic Activities Social Activities
Banking & Financial Activities Other Economy Related Activities

“…Who has forbidden the adornments and lawful provisions Allah has brought forth for His servants?..” (Surah Al A’raf: 7/32).
“...Today, I have perfected your religion for you, and completed My favor upon you, and have granted Islam as a religion for
you...” (Sura Al-Ma’ida: 5/3).
IFI: Common Activities
 Fund Collection including Deposit Mobilization by IFI
 Equity Financing through Ordinary Share;  Deployment of Funds by IFI
 Preference Share; • Mode for short-term investment;
 Sukuk; • Mode for medium-term investment;
 Mudarabah bond; • Mode for long-term investment;
 Deposit without profit; • Deploying fund without expected return;
 Deposit with profit; • Deploying fund in fixed earing mode;
 Refinancing from BB; • Deploying fund in variable earing mode;
 Collecting large fund from an entity; • Deploying fund as per regulatory preference;
 Fund collecting forever; • Deploying funds in securities as part of portfolio;
 Collecting funds in distressed situation. • Deploying funds in surplus position.
 … Ancillary Services by IFI
 … • Providing and accepting agency services;
 … • Providing and accepting guarantee services;
 … • Currency exchange;
 … • Fund remittance;
• Offering locker services;
5/16/23 Dr. M. Mahabbat Hossain DIB, CSAA, CIPA Slide# 5
Shariah Based Finance: Basic Prohibition
• Riba (Interest): “…Allah has permitted trade and forbidden Riba…”. (Surah Baqarah, 2:275). Riba is a tool of
exploitation.
• Riba al Fadl and Riba al Nasiah
• Gharar (Extreme Uncertainty and Lack of Transparency, Ignorance): See Surah Al-Baqarah, 2: 282 and Sahih
Muslim Hadith No. 1513 (‘The Messenger of Allah (PBUH) forbade sale by throwing stones and Gharar transaction’ ).
It’s for information asymmetry and improper disclosure and reporting.
• Gharar Fahish (major or excessive: Prohibited by Shari’ah) and Gharar Yaseer (minor or slight: Not prohibited
by Shari’ah)
• Maisir (Gambling): (Uncertainty) + (Zero-Sum Game) + (Acquisition of property without appropriate effort): O
believers! Intoxicants, gambling, idols, and drawing lots for decisions are all evil of Satan’s handiwork. So avoid them
so you may be successful. Satan’s plan is to stir up hostility and hatred between you with intoxicants and gambling
and to prevent you from remembering Allah and praying. Will you not then abstain? (Surah Ma’idah 5: 90-91). It’s
against harmonious economic activities.
5/16/23 Dr. M. Mahabbat Hossain, BIBM Slide # 6

• Dharar (Harmful for Individual, Society and Religion): Dharar is doing improper business to another.
Whereas, Idrar or dırar is the harm in response to damage. In general, it refers to all sources of damage,
detriment, harm, or loss inflicted by an individual on others or even on one’s self. “Spend in the cause of
Allah and do not let your own hands throw you into destruction ˹by withholding˺. And do good, for Allah
certainly loves the good-doers”. Surah Al-Baqarah, 2: 195. “No mother shall be treated unfairly (with harm)
on account of her child. Nor father on account his child”. [Surah Al-Baqarah 2: 233]. The Prophet (pbuh)
outspokenly prohibited Dharar in the hadith: neither inflict injury nor repay one injury with another) (Al-
Nawawi, Hadith no. 32).
• Jahalah (Ignorance): Literally, it refers to ignorance, lack of knowledge, obscurity, folly, etc. In Shariah
parlance, it means an action taken without certain knowledge, especially with respect to commutative
contracts. For example, an individual buys something without knowing its price, specifications, quality, etc.
In essence, al-jahalah is a special form of al-gharar (i.e., its concept is narrower than that of al-gharar).

• Ghalat (Mistake): Ghalat denotes a false or inexact representation of reality. It is an assumption about anything but
proves to be inaccurate. Ghalat in a contract is that, following its formation, it becomes clear to a contracting party that
the subject matter of the contract contradicts with what has been contracted for. For example, one buys a piece of
jewelry which is supposed to be gold or diamond but it is copper or glass. There is no contract on such transaction
simply because the supposed subject matter has not be properly ascertained and does not exist.
• Ghalat to the subject matter
• Ghalat to the value of the subject matter
• Ghalat to the quality and description of the subject matter
• Ghalat in person
• Ghabn (Unjustifiable Price): It is an Arabic word which means “unfair advantage”. It also refers to fraud, cheating and
deception.
• Najsh (Artificial Price Hiking): The term Al-Najsh means an action in which a person offers a high price for something,
without intending to buy it, but just to cheat or defraud another person who really means to buy it.

Islamic Finance: Basic Prohibition
• Taghrir (Deceive): The literal meaning of Taghrir is 'deceive' or Khida in Arabic. The words'
misrepresentation' and 'misleading' are translated into Arabic as the following - khidāc, tadlīs (fraud), and
kazib (lying), all of which carry the meaning of making a fraudulent misrepresentation to attract and
influence another party to fulfil the desire of the person making the fraudulent misrepresentation. In the
opinion of, the words taghrīr, ghish, ghabn al-fahish and tadlīs fall under gharar, where the word gharar
provides a more general meaning, while the other words have a more specific meaning. Taghrir is divided
into two: taghrir fiᶜli (an act of fraud or deceit) and taghrir 'qawli (fraud or deceit in verbal or written form).
• Al-Ikrah (Compulsion): In literal term duress (Ikhrah) is derived from the root word Karaha which is
constructed as Akrahahu meaning to force someone to do something against his desires. Duress (Ikhrah)
in Islamic jurisprudence is to force someone to do something that he dislikes, but in order to remove the
more harmful aspect, he does against his consent.

Islamic Finance: Basic Prohibition
• Safqatayn Fi Safqah or Bay’atayn Fi Bay’ah (Combination of Two Contracts): The messenger of Allah (PBUH) forbade two sale in
one sale (Al-Tirmidhi, Hadith No. 1231)
As reported, the Prophet (SW) prohibited combination of sale and loan ( bay ’ wa salaf ) in one agreement (al Sijistani 2009 , al
Tirmizi 2007 , al Nasa i 1999 , Ibn Majah 2011 , Ibn Hanbal 2003 & Ibn Anas 2005 b). Also, as reported, the Prophet (SW)
prohibited ( bay atan fibay ah ) two sales in one sale (al Tirmizi, al Nas i, Abu Daud & Ibn Anas 2005 b). Additionally, in another
hadith the Prophet (SW) prohibited safqatan fi safqah ) two agreements in one agreement (Ibn Hanbal, al Bazzar 2009 , al
Tabrani).
• Non-permissible Goods/Services: It is impermissible to producing, storing, marketing, transporting, facilitating impermissible goods
and services, e.g., Pork, alcohol, tobacco, etc.
• Zulm (Injustice): However, if one of you trusts another, then he who is trusted should deliver his trust, and let him be careful (of his
duty towards) Allah, his Lord; and do not conceal testimony, and whosoever conceals it, his heart is surely sinful. And Allah knows
what you do. (Surah Baqarah, 2:283).
• Money as a commodity: Money may be used as (i) Medium of Exchange; (ii) Measure of Value; (iii) Standard Unit of A/c; and (iv)
Store of Value, however,
Money should not be used as a commodity.

Shariah Principles in Financial Activities: Summary
Prohibitions or Discouraged Activities Encouraged Activities
• Dealing with Non-permissible Goods/Services; • Encourage economic activities and risk sharing
• Riba (Interest); • Reduction of adverse impact on environment
• Gharar (Lack of Transparency/ Ignorance); • Preservation pure natural disposition
• Dharar (Harmful) for Individual, Society & Religion); • Application of trading and justice in dealings
• Maisir (Gambling); • Preservation of wealth through investment in real
• Zulm (Injustice) economic sector
• Concentration of wealth • Ensuring financial inclusion and helping weak-group, e.g.
• Unjust enrichment CMSMEs and Agriculture
• Use of money is as a commodity • Preservation of posterity through research and training
• Combination of two contradictory contracts • Investment in Technology and CSR in education, etc.
• Sale of debt at a negotiated price
• Misuse of resources
• Actions against natural order, etc.

Riba: Meaning
 Literal Meanings of Riba  Riba in Different Languages
 Dictionary Meaning-Riba • Ribbit/Neshec (in Hebrew)
Increase, excess, expansion, addition, • Riba (in Arabic)
surplus • Ribbit (in Hebrew)
• Usura (in Portuguese and Spanish)
 Technical Meaning • Tokos (in Greek)
Interest, Usury, Sud • Sud (in Urdu, Bangla)
That means any addition (interest) • Usury (in English)
charged over and above the principal of a
debt or a loan. • Usure (in French)

Riba: Definitoin
 Early Definitions of Riba
1. Imam Abubakr Al-Jassas (305-370 H): “The Riba of Jahiliyya is a loan given for stipulated period with a stipulated increase on the
principal payable by the loanee” Abubakr Al-Jassas, Ahkamul Qur’an, p.469 v.1
2. Imam Abubakr Al-Jassas: “The Riba which was known to and practiced by the Arabs was that they used to advance loan in the form of
Dirham (silver coin) or Dinar (gold coin) for a certain term with an agreed increase on the amount of the principal advanced” Abubakr Al-
Jassas, Ahkamul Qur’an, p.465 v.1
3. Imam Fakhruddin Al-Raazi (1149-1209 C): “The Riba Al-Nasiah, it was a transaction well-known and recognized in the days of Jahiliya
i.e. they used to give money with a condition that they will charge a particular amount monthly and the principal will remain due as it is.
Then on the maturity date they demanded the debtor to pay the principal. If he could not pay, they would increase the term and the payable
amount. So it was the Riba practiced by the people of Jahiliya” Al-Tafseer Al-Kabeer, Imam Al-Raazi, p.91, v.7
Modern Definitions of Riba

 “Riba is a predetermined, fixed and time- related excess over and above the principal of a loan”
 “Any additional amount, big or small, over the principal, in a contract of loan or debt is ‘Riba’ prohibited by the Holy Quran,
regardless of whether the loan is taken for the purpose of consumption or for some production activity” (The Historic Judgment on
Interest)

Riba (Interest): Other Definitions
 Prof. Marshall has said – “The payment made by borrower for the use of a loan is called Interest.”
 As Prof. Keynes has said – “Interest is the reward of parting with liquidity for a specified period.”
 According to Seligman – “Interest is the return from the fund of capital.”
 According to Carver – “Interest is the income which goes to the owner of capital.”
 According to Richard – “Interest is primarily a reward for waiting.”
 As per the opinion of Prof. Wicksell – “Interest may be defined as a payment made by the borrower of capital by virtue
of its productivity as a reward for his capitalist’s abstinence.”
Sources:
https://www.economicsdiscussion.net/interest-rate-theories/interest-meaning-definition-and-types-economics/13927
As per Google, interest is the money paid regularly at a particular rate for the use of
money lent, or for delaying the repayment of a debt.

Classification of Riba in Shari’ah
 The word used for interest in the Qur'an is Ar-Riba which means excess.
 In Shari`ah, it is the measure of excess in one thing when two things are exchanged in some
bargain; or in the case of a loan, an increased amount of the loan at the time of its payment.
 Therefore, Ar-Riba are of two kinds:
a) Riba Al-Fadl: To take more in exchange of one commodity in the event of barter of two
similar commodities.
b) Riba An-Nasi'ah: To take a larger return of one thing while two identical things are bartered.
But in this case the larger return is effected after a fixed period of time.

Shariah Reference on Riba: Quranic Verses-1
1. Surah Rum, Chapter 30, Verse 39: Discourages Riba
 “That which you give as interest to increase the people’s' wealth increases not with God; but that which you
give in charity, seeking the goodwill of God, multiplies manifold.”
2. Surah al-Nisa’, Chapter 04, Verse 160-61: Warning for Punishment
 Thus, We forbade them many clean things which had earlier been made lawful for them, for the wrong-
doing of those who became Jews, for their barring many from the way of Allah (4:161) and for their taking
interest which had been prohibited to them, and for their consuming the wealth of others wrongfully. And for
the unbelievers among them We have prepared a painful punishment.
3. Surah Al 'Imran, Chapter 03, Verses 130-32: Prohibition of Compound Riba
 “O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire
which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive
mercy.”

Shariah Reference on Riba: Quranic Verses-2
4. Surah al-Baqarah, Chapter 2, Verses 275-81: Explicitly Prohibition of Riba
 “Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; this
is because they say: "Trade is like interest" while God has permitted trade and forbidden interest. Hence those who have
received the admonition from their Lord and desist, may keep their previous gains, their case being entrusted to God; but
those who revert shall be the inhabitants of the fire and abide therein forever.” (275)
 “God deprives interest of all blessing but blesses charity; He loves not the ungrateful sinner.” (276)
 “Those who believe, perform good deeds, establish prayer and pay the zakat, their reward is with their Lord; neither should
they have any fear, nor shall they grieve.” (277)
 “0, believers, fear Allah, and give up what is still due to you from the interest (usury), if you are true believers.” (278)
 “If you do not do so, then take notice of war from Allah and His Messenger . But, if you repent, you can have
your principal. Neither should you commit injustice nor should you be subjected to it.” (279)
 “If the debtor is in difficulty, let him have respite until it is easier, but if you forego out of charity, it is better for you if you
realize.” (280)
 “And fear the Day when you shall be returned to the Lord and every soul shall be paid in full what it has earned and no one
shall be wronged. “ (281)

Stages of Prohibition of Riba: Quranic Verses
Stage 1 Stage 2 Stage 3 Stage 4

Surah Rum, Surah al-Nisa’, Surah Al 'Imran, Surah al-Baqarah,
30/39 04/160-61 03/130-32 2/275-81
 Discourage Riba  Attach the practice of  Prohibits a type of Riba  Conclusively prohibits all
 Compares Riba with Riba with the Jews  Prohibits the practice of forms of Riba
Zakat & Charity  Consider the practice as charging double and  Define it as any excess
 Praises Zakat & Charity an injustice (Zulm) multiple Riba over the principal of the
and Criticizes the practice  Warning for punishment  Motivate to fear God for loan
of Riba prosper  Circulate notice of war
from Allah and His
Messenger

Shariah Reference on Riba: Hadith (General)
1. Jabir ibn 'Abdallah , giving a report on the Prophet's Farewell Pilgrimage, said: The Prophet (SM), addressed the people and said "All of the riba of
Jahiliyyah 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, Bab Hajjati al-Nabi, ; may also in Musnad Ahmad)
2. From Abu Hurayrah: The Prophet (SM), said: "On the night of Ascension I came upon people whose stomachs were like houses with snakes
visible from the outside. I asked Gabriel who they were. He replied that they were people who had received interest." (Ibn Majah, Kitab al-Tijarat,
Bab al-taghlizi fi al-riba; also in Musnad Ahmad)
3. From 'Abdallah ibn Hanzalah: The Prophet (SM), said: "A dirham of riba which a man receives knowingly is worse than committing adultery thirty-
six times" (Mishkat al-Masabih, Kitab al-Buyu', Bab alriba, on the authority of Ahmad and Daraqutni). Bayhaqi has also reported the above hadith
in Shu'ab al-iman with the addition that "Hell befits him whose flesh has been nourished by the unlawful.“
4. From Abu Hurayrah: The Prophet (SM), said: "Riba has seventy segments, the least serious being equivalent to a man committing adultery with
his own mother." (Ibn Majah)
5. From Abu Hurayrah: The Prophet (SM), said: "God would be justified in not allowing four persons to enter paradise or to taste its blessings: he
who drinks habitually, he who takes riba, he who usurps an orphan's property without right, and he who is undutiful to his parents." (Mustadrak al-
Hakim, Kitab al-Buyu’)
6. From Jabir: The Prophet (SM), may cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction
and said: "They are all alike [in guilt]." (Muslim, Kitab al-Musaqat, Bab la'ni akili al-riba wa mu'kilihi; also in Tirmidhi and Musnad Ahmad)
7. From Abu Hurayrah: The Prophet (SM), said: "There will certainly come a time for mankind when everyone will take Riba and if he does not do so,
its dust will reach him." (Abu Dawud, Kitab al-Buyu', Bab fi ijtinabi al-shubuhat; also in Ibn Majah)

Shariah Reference on Riba: Hadith (Riba an Nasiyah)
1. From Usamah ibn Zayd: The Prophet (SM), said: "There is no riba except in Nasiyah [waiting]." (Bukhari, Kitab al-Buyu', Bab
Bay' al-dinari bi al-dinar nasa'an; also Muslim and Musnad Ahmad) "There is no riba in hand-to-hand [spot] transactions."
(Muslim, Kitab al-Musaqat, Bah bay'i al-ta'ami mithlan bi mithlin; also in Nasa'i)
2. From Ibn Mas'ud: The Prophet (SM), said: "Even when interest is much, it is bound to end up into worthlessness." (Ibn
Majah, Kitab al-Tijarat, Bab al-taghlizi fi al-riba; also in Musnad Ahmad)
3. From Anas ibn Malik: The Prophet SM), said: "When one of you grants a loan and the borrower offers him a dish, he should
not accept it; and if the borrower offers a ride on an animal, he should not ride, unless the two of them have been previously
accustomed to exchanging such favours mutually." (Sunan al-Bayhaqi, Kitab al-Buyu', Bab kulli qardin jarra manfa'atan fa
huwa riban)
4. From Anas ibn Malik: The Prophet SM), said: "If a man extends a loan to someone he should not accept a gift." (Mishkat, on
the authority of Bukhara's Tarikh and Ibn Taymiyyah's al-Muntaqa)
5. From Abu Burdah ibn Abi Musa: I came to Madinah and met 'Abdallah ibn Salam who said, "You live in a country where riba
is rampant; hence if anyone owes you something and presents you with a load of hay, or a load of barley, or a rope of straw,
do not accept it for it is riba." (Mishkat, reported on the authority of Bukhari)
6. Fadalah ibn 'Ubayd said that "The benefit derived from any loan is one of the different aspects of riba." (Sunan al-Bayhaqi)
This hadith is mawquf implying that it is not necessarily from the Prophet; it could be an explanation provided by Fadalah
himself, a companion of the Prophet,
Shariah Reference on Riba: Hadith (Riba al-Fadl)
1. From 'Umar ibn al-Khattab: The last verse to be revealed was on riba and the Prophet (SM), was taken without explaining it to us;
so give up not only riba but also raibah [whatever raises doubts in the mind about its rightful-ness]. (Ibn Majah,)
2. The Prophet (SM), 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). However, sell gold for silver anyway you
please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand
(spot).”
3. From Abu Sa'id al-Khudri: The Prophet (SM), said: "Do not sell gold for gold except when it is like for like, and do not increase one
over the other; do not sell silver for silver except when it is like for like, and do not increase one over the other; and do not sell what
is away [from among these] for what is ready." (Bukhari, Kitab alBuyu', Bab bay'i al-fiddati bi al-fiddah; also Muslim, Tirmidhi, Nasa'i
and Musnad Ahmad).
4. From 'Ubada ibn al-Samit: The Prophet (SM), said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for
dates, and salt for salt - like for like, 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, Kitab al-Musaqat, Bab al-sarfi wa bay'i al-dhahabi bi al-waraqi naqdan; also
in Tirmidhi).
5. From Abu Sa'id al-Khudri: The Prophet (SM), said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for
dates, and salt for salt - like for like, and hand-to-hand. Whoever pays more or takes more has indulged in riba. The taker and the
giver are alike [in guilt]." (Muslim, ibid; and Musnad Ahmad)

Shariah Reference on Riba: Hadith (Riba al-Fadl)
6. From Abu Sa'id and Abu Hurayrah : A man employed by the Prophet, , in Khaybar brought for him Janibs [dates of very fine
quality]. Upon the Prophet's asking him whether all the dates of Khaybar were such, the man replied that this was not the case
and added that "they exchanged a sa' [a measure] of this kind for two or three [of the other kind]". The Prophet, , replied, "Do not
do so. Sell [the lower quality dates] for dirhams and then use the dirhams to buy Janibs. [When dates are exchanged against
dates] they should be equal in weight." (Bukhari, Kitab al-Buyu', Bab idha arada bay'a tamrin bi tamrin khayrun minhu; also Muslim
and Nasa'i)
7. From Abu Sa'id : Bilal brought to the Prophet, , some barni [good quality] dates whereupon the Prophet asked him where these
were from. Bilal replied, "I had some inferior dates which I exchanged for these - two sa's for a sa'." The Prophet said, "Oh no, this
is exactly riba. Do not do so, but when you wish to buy, sell the inferior dates against something [cash] and then buy the better
dates with the price you receive." (Muslim, Kitab al-Musaqat, Bab al-ta'ami mithlan bi mithlin; also Musnad Ahmad)
8. From Fadalah ibn 'Ubayd al-Ansari : On the day of Khaybar he bought a necklace of gold and pearls for twelve dinars. On
separating the two, he found that the gold itself was equal to more than twelve dinars. So he mentioned this to the Prophet, who
replied, "It [jewellery] must not be sold until the contents have been valued separately." (Muslim, Kitab al-Musaqat, Bab bay'i
alqiladah fiha khara-zun wa dhahab; also in Tirmidhi and Nasa'i)
9. From Abu Umamah : The Prophet, , said: "Whoever makes a recommendation for his brother and accepts a gift offered by him
has entered riba through one of its large gates." (Bulugh al-Maram, Kitab al-Buyu', Bab alriba, reported on the authority of Ahmad
and Abu Dawud). (Note: commission is allowed by gift against favour is not permissible:
https://www.youtube.com/watch?v=8QUjKPoS1Ns)

Riba al-Fadl: Rules for Exchange
Currency Staple Food
Ohers
Gold Silver USD BDT Date Salt Wheat Barley
Gold E+S S S S 0 0 0 0 0
Silver S E+S S S 0 0 0 0 0
Currency
USD S S E+S S 0 0 0 0 0
BDT S S S E+S 0 0 0 0 0
Date 0 0 0 0 E+S S S S 0
Salt 0 0 0 0 S E+S S S 0
Staple Food
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Interest: Perception of Christianity
https://islamicmarkets.com/publications/prohibition-of-usury-interest
 Historical evidence shows that Islam is not the only religion that prohibits interest and considers it
as Riba (usury). In fact, all religions prohibit usury
 The early Christian view of interest was clearly set out in the Bible.
‘If you lend money to one of your poor neighbours among my people, you shall not act like an extortioner toward
him by demanding interest from him’ (Exodus 22: 24-25.)
 This prohibition is repeated no less than 22 times in the Old Testament. Psalm 15 goes on to say:
‘…Who can find a home in your tent, who can dwell on your holy mountain? Whoever lives blamelessly, who acts
uprightly, who speaks the truth from the heart... who asks no interest on loans, who takes no bribe to harm the
innocent. No one who so acts can ever be shaken.’ ‘If you lend money to my People, to the poor among you, you
are not to act as a creditor to him; you shall not charge him interest.’ (The American Standard Bible).

Interest: Perception of Christianity
 The early Christians took these sayings very seriously and interest was banned by the Church for nearly 1500 years.
During the Middle Ages, the Christian priesthood were still aggressively against usury, arguing that it was against the
natural order of things which was a direct reflection of the Aristotelian view on lending, whereby the natural law was of
a ‘just equality’: whatever was lent was returned, nothing more, nothing less.
 According to the Third Lateran Council (1179), those who took interest were branded as wicked and could not be
admitted to communion or receive Christian burial.
 By the thirteenth century, St. Augustine defined usury as being an act by anyone who expected to receive back more
than the amount lent which was not confined to money but also included agrarian commodities.
 The Church established cannon law, prohibiting borrowing money where the lender would receive more that the
original amount.
 The Church's simplest and perhaps earliest objection to usury was on the basis that it constituted unearned income,
an idea which stemmed from its general doctrine of Just Price.
 The Lateran Council of 1515 clearly expressed such a view of the Church: ‘This is the proper interpretation of usury
when gain is sought to be acquired from the use of a thing, not in itself fruitful (such as a flock or a field) without
labour, expense or risk on the part of the lender.’

Interest: Perception of Judaism
 The combination of loans and interest, in Judaism, is a complicated and detailed subject.
 The biblical Hebrew terms for interest are neshek, literally meaning a bite, in reference to its painfulness to the debtor, and
marbit/tarbit, which specifically refers to the gain by the creditor.
 Neshek referred to interest that was charged by deducting it from the loaned money itself, before the loaned money was handed over
to the debtor, while marbit/tarbit referred to interest that was charged by adding it to the amount due to be repaid.
 The word marbit/tarbit, which referred to the form of interest more familiar in modern times, became ribbit in later Hebrew and has
been carried into modern Hebrew. [The similarity in the Hebrew ribbit and the Arabic riba will not be unnoticed.]
 The Torah expresses regulations against the charging of interest in the Holiness Code, Covenant Code and Deuteronomic Code.
 The Holiness Code encourages loans themselves, whether of money or food, emphasising that they enable the poor to regain their
independence, but, along with the other two codes, forbids the charging of interest on the loan.
 All three codes state that the charging of interest is exploitative, but the Covenant Code and Deuteronomic Code made it acceptable
to charge interest on any loan to a non-Israelite (person who is not Jewish).
 The Torah and Talmud encourage the granting of loans, but only if they do not involve interest, with certain exceptions.
 Charging interest is classed in the Book of Ezekiel as being among the worst sins and is forbidden, according to Jewish law.
 The Talmud dwells particularly on Ezekiel's condemnation of interest, where Ezekiel denounces it as an abomination and
metaphorically portrays usurers as people who have shed blood.

Interest: Perception of Judaism
 If you lend money to one of my people among you who is needy, do not be like a
money lender; charge him no interest. (Exodus 22:25)
 If your brother meets with difficult times, you shall give him shelter and lodging,
though he be a stranger, that he may live with you. Do not exact from him any
interest over and above that which you have spent on him. (Leviticus 25:35-7)
 Do not charge your brother interest, whether on money or food or anything else that
may earn interest. (Deuteronomy 23:19)
 Lord, who shall abide in thy tabernacle? Who shall dwell in thy holy hill? He that
putteth not out his money to usury, nor taken rewards against the innocent.
(Psalm,15:1,2,3) (https://www.youtube.com/watch?v=Siev0Rx6RUI)

Interest in Other Religions: Hinduism and Buddhism
 Interest was also prohibited in Hinduism and Buddhism.
 Among the oldest known references to interest are those to be found in ancient Indian religious
manuscripts.
 The earliest such record derives from the Vedic texts of Ancient India (2000-1400 BC) in which the ‘usurer’
(kusidin) is mentioned several times and interpreted as anyone who lent 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).
 It is during this latter period that the first sentiments of contempt for usury are expressed. 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) to be usurers or lenders at interest.
 Also, in the Jatakas, usury is referred to in a demeaning manner: “hypocritical ascetics are accused of
practising it”.

Interest: Philosophers’ and Moralists’ Opinions
 The writings of Aristotle, the ancient Greeks were against the practice: Aristotle considered money like a
barren hen that lay no egg. A piece of money cannot beget another piece.
"Very much disliked also is the practice of charging interest; and the dislike is fully justified for interest is a
yield arising out of money itself, not a product of that for which money was provided. Money was intended
to be a means of exchange; interest represents an increase in the money itself. Hence of all ways of
getting wealth, this is the most contrary to nature.” (Aristotle, The Politics. Pg46, Penguin)
• Plato objected to usury on the grounds that it set one class (the rich or the lenders) against another (the
poor or the borrowers). He considered that the profession of the usurer is to be hated, as it is an illiberal
and degrading way of making money. He believed charging of interest against humanity and unjust as well
as unnatural.
 In Rome, as in Greece, the philosophers and moralists condemned the practice of usury.
 Evidence that these anti-interest sentiments found their way into the civil law of the time can be seen, for
example, from the Lex Genucia reforms in Republican Rome (340 BC), which banned interest altogether.

Interest: Basic Questions Regarding Prohibitions
 Does prohibited Riba refer retail and consumer financing only?
 Is Riba allowed in commercial/productive loans?
 Does prohibited Riba refer to excessiveness only?
 Does prohibited Riba refer compounding of interest only?
 Is adjustment for inflation or indexation allowed in Islam?
 Does prohibition of Riba deny "Time Value of Money?"
 Does prohibition of Riba deny that interest is for promoting savings?
 Who should be the owner of a property if it is purchased by X but paid by Y?
 Whether Riba is prohibited by religion or its scholars only?
 Whether Riba is prohibited in Islam Only?
Worldly Logic in Favor of Riba
Argument No. 1: Is the Definition of Riba Ambiguous?
 The verses of the Quran prohibiting Riba were revealed in the last days of the Prophet’s (PBUH)
life-he did not have an opportunity to interpret.
 No definition of the term Riba is found in the Quran.
 The verses on Riba are ambiguous and the Quran requires us to follow only that which is clear.
Refutation to Argument No. 1
 Allah declares war against those engaging in Riba Allah would not declare war against a practice
the true nature of which is unknown.
 The verses of Surah al-Baqarah pronounce Riba a grave sin.

Argument No. 2: Only usurious loans are prohibited
 The word ‘Riba’ refers only to usurious loans against which creditors charged excessive rates of
interest.
 Modern banking interest cannot be termed ‘Riba’ if interest rates are not excessive.
 Give up what remains of Riba, if you are believers.”[Al-Baqarah2:278]
 “If the creditor received a goat as mortgage from the debtor, the creditor may use its milk to the
extent he has spent in providing fodder to the goat. However, if the milk is more than the price of
the fodder, the excess is Riba.”
 “Every loan which derives a benefit is a kind of Riba.”
 "A dirham of Riba which a man receives knowingly is worse than committing adultery thirty-six
times"

Argument No. 3: Only commercial loans are prohibited
 “Riba” used in the Quran is restricted to the increased amount charged on consumption loans
extended to the poor for their day-to-day needs.
 As far as modern commercial loans go, they were not practiced in the days of the Prophet
(PBUH), nor has the Quran addressed them when prohibiting ‘Riba’.
 A transaction’s validity is not based on a party’s financial status.
 The Quran does not differentiate between consumption and commercial loans.
 Commercial loans were indeed common amongst the Arabs at that time.

Argument No. 4: Al-Quran prohibits only Riba al-Jahiliyya
 Al-Quran only prohibits Riba al-Jahiliyya where the interest amount is imposed after the loan’s
maturity.
 Riba al-Fadl is not prohibited in the Quran but is condemned by the Sunnah and so is a disliked
but not an impermissible transaction.
Refutation to Argument No. 4:
 Riba al- Quran is every transaction that entails an increase on the principal whether or not it is
established at contract execution or conclusion.
 “Do not sell gold for gold, except in equal quantities...and do not sell the deferred (gold or silver)
for the (gold or silver) delivered on the spot."

Argument No. 5: Riba is Allowed under Dharura (Necessity)
 Interest is the back-bone of the modern economy.
 Islam, being a practical religion, recognizes the principle of necessity and permits eating pork in
extreme situations for survival.
 The same principle of necessity should be applied to interest-based transactions and the laws
permitting interest should not be declared repugnant to Islamic injunctions.
 This argument asserts itself based on the doctrine of necessity. While Islam is realistic and does
not demand the impossible the doctrine of necessity is not a vague concept but in fact one
founded on sound principles. It requires a certain criteria be met before it is considered applicable
to a given situation. The necessity must be real; one that cannot be met with except by the
impermissible. Based on this understanding, the doctrine of necessity does not apply to interest.
Interest free financial system is available.
Argument No. 6: Lender and borrower share the business profit and risk as well
 In case of business loan, the borrower share his profit through interest payment.
 In case of difficulty, lender share the risk by way of write-off and waiver.
 The basic feature of the interest is that it is predetermined and does not depend on performance.
 Borrower does not share any additional profit in case of higher profit earned.
 Lender does not welcome to write-off or waiver in case of default, rather he accepts it if there is
not other option.
 If they are agreed to share the profit and risk in true sense with mutual understanding, it would be
come a Shari’ah compliant contract and would not be Riba at all.

Consequence of Interest Base System
 Increased money supply-high inflation-cost of living increased-decline savings-squeezes resources for production.
 Bankruptcy of many companies and small enterprises funded with interest in the case of failure to make sufficient
profits to pay their debt and interest thereon.
 Further spread of unemployment due to bankruptcies and reduced volume of investment, thus hampering economic
growth and economic development.
 Concentration of wealth in few hands of the community as a result of securing compensation for the owners of capital
and failure to ensure fair distribution of wealth.
 Depletion of funds of poor people, thus making rich richer and poor poorer.
 Foreign intervention in economic affairs of debtor countries.
 Squeezes resources for production.
 Artificially good living standard
 Problem in long-term decision because of interest rate fluctuation
• Recurring Financial Crises.
• It creates hostile relation between the rich and the poor.

Rationale for the Prohibition of Riba
 To be Shari’ah compliant and expecting Barakah of Allah.
 Act of lending is an act of higher charity.
 To promote real economic transactions.
 To promote of profit-and risk-sharing.
 To promote economic & social justice.
 To ensure the Islamic principles of property rights.
 There is no established theory of interest.
 To expedite economic growth in sustainable manner.
 To promote small enterprises, new venture, innovation etc.
 To promote employment generation.
As all major religions as well as prominent philosophers, even atheists, are against Riba, there is no
justification to be associated with it as a rational being. Without debating or creating ambiguity about the
established matter, it is better to keep oneself in safety distance from Riba
Key Difference between Islamic Finance and Conventional Finance
Islamic Finance Conventional Finance
1. Functions based on Divine guidance 1. Functions based on man-made principles
2. Money is not a commodity, however used as 2. Money is a commodity, besides is used as
medium of exchange, unit of measurement and medium of exchange, unit of measurement
store of value and store of value
3. Reward is a consequence of risk, that’s why risk 3. Reward is not necessarily consequence of risk,
sharing therefore, elimination/transfer of risk
4. It promotes risk sharing between investor and 4. The investor is assured of a predetermined
entrepreneur rate of return with nil/negligible risk
5. Profit on trade is the basis for earning profit 5. Time value of money is the basis for charging
6. While disbursing fund under Bai mode, interest
exchange of goods or services is required 6. While disbursing cash finance, no agreement
for exchange of goods/services
Key Difference between Islamic Finance and Conventional Finance
Islamic Finance Conventional Finance
7. It trends to create link with the real sector of 7. Money as a commodity that leads to inflation,
economy may not be linked with real sector
8. Relationship: Partners, investors/trader, 8. Relationship: Creditor/Debtor
buyer/seller and lessor/lessee etc.
9. Gharar fee transaction 9. May involve with speculative element
10. No income from defaulters, however penalty 10. Continue to charge interest to the defaulters
charged and are given for charity 11. Not necessarily consider harmful in general or
11. May not involved in harmful and prohibited to the society and individual
goods and services

Difference between Interest and Profit
Interest Profit
1. Excess over the principal in a loan transaction. 1. Positive end result of business operation.
2. Unearned income 2. Has to earn by investing labor and capital.
3. Return of principal with additional amount 3. No such surety.

(interest) is ensured.
4. Pre-determined 4. Uncertain
5. Interest may repetitively be earned on a single 5. Profit may be earned once from a single
transaction. deal.
6. Prefixed cost of goods and services and 6. Profit is found after deduction of all
creates inflation. expenses from total income. So it has no
relation with inflation.

Difference between Interest and Profit
Interest Profit
7. Interest increases money supply in the 7. There is no opportunity of increasing money
market. supply.
8. These is the opportunity of compounding 8. Close end transaction.
9. There is no risk of erosion of capital. 9. Risk of erosion of capital is there.
10. No chance of negative end result i.e., loss. 10. This is every possibility of negative end result.
11. Declared Haram (prohibited) unequivocal 11. Halal (permitted) as declared by the holy
terms in the holy Quran. Quran.
12. Transfers assets from poor to rich. 12. Transfers assets from poor to rich.

Relationship Between Banker and Customer
Deposit/Liabilities Financing/Assets
CB IB CB IB
Custodian-Depositor Seller-Buyer
Borrower-Lender Lessor-Lessee
Borrower-Lender Lender-Borrower
Entrepreneur-Investor Investor-Entrepreneur
Relationship Relationship
Partners
Agent-Principal Principal-Agent

Recommendations for Bankers and Professionals
 General: It is strongly acknowledged that Riba is one of the major sin.
 As Job Seeker: To be careful for selecting the profession and entity.
 As Investor: To apply the screening process [e.g., (i) Prime Activities; (ii) Proportion of Non-permissible income; (iii) Interest-
Bearing Debt to Equity/Market Cap/Assets; (iv) Interest-Bearing Securities to Market Cap/Assets].
 As Professional: Is it a proper solution to leave (?) Nothing to do, so continue as it is (?) or Have anything to do (?)
 Working in a regulatory body of the bank and financial institutions: ?
 Working in the associated institute (e.g. training/research) of the financial institutions: ?
 Posted in a desk of a conventional bank/financial institutions not associated with financial activities: ?
 Working in a conventional bank/financial institutions offering Islamic financial services through branch/window: ?
 Working in a full-fledged Islamic bank (assumed that there are some Shari’ah violations in operational level): ?
 …Whether you disclose whatever is in your hearts or conceal it, Allah will call you to account for it, and will then forgive
whomsoever He wills, and will chastise whomsoever He wills. Allah has power over everything …”( Surah Al Bakarah: 2/284).
 Allah does not lay a responsibility on anyone beyond his capacity. …(Believers! Pray thus to your Lord):
 “Our Lord! Take us not to task if we forget or commit mistakes. Our Lord! Lay not on us a burden such as You laid on those gone
before us. Our Lord! Lay not on us burdens which we do not have the power to bear. And overlook our faults, and forgive us, and
have mercy upon us. You are our Guardian; so grant us victory against the unbelieving folk …”(Surah Al Bakarah: 2/286).
Allahu Alam
Rabbana la Tu'akhidhna In-nasina aw Akhta'na
Subhanallahi wa Bihamdihi Subhanallahil Azeem
Subhanaka Allahumma wa Bihamdika, Ashhadu an la ilaha illa Anta, Astaghfiruka wa atubu ilaika
Jazakumullahu Khairan
D R . M D . M A H A B B AT H O S S A I N
BBA & MBA (Accounting), PhD. (IBA, RU), DIB (IIBI, UK), CIPA & CSAA (AAOIFI)
Faculty Member, BIBM;
Member, WG of AAOIFI;
Academic Advisor, CSBIB;
Member, SSC of SBAC Bank Ltd.;
Member, SSC of Meghna Bank Ltd.;
Member, SSB of Beximco Green Sukuk;
Member, Sukuk Technical Committee of BB;
Member, SSB of IDLC AML Shariah Fund; and
Member, SSB of BBML Sukuk (PRAN-RFL Group).
Email: mahabbat@bibm.org.bd; Mobile: +8801716373565
BIBM BIBM

IBF - Basic Prohibitions Including Riba-V3

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Fundamentals of Shari’ah:

Basic Prohibitions including Riba in Financial Contracts

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Aqidah Amaliyyah Akhlaq (Provisions related with

Fiqh Ibadah (Worshiping to Allah) Fiqh Muamalat (Human-to-Human)

Political Activities Economic Activities Social Activities

Banking & Financial Activities Other Economy Related Activities

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Modern Definitions of Riba

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Stage 1 Stage 2 Stage 3 Stage 4

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2. Unearned income 2. Has to earn by investing labor and capital.

3. Return of principal with additional amount 3. No such surety.

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