RIBA and GHARAR

Ameenullah Shaikh
ameenullah.shaikh@iqra.edu.pk

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.

Riba in Quran
First Revelation:
And whatever Riba you give so that it may increase in the wealth of
the people, it does not increase with Allah; but that which you give
in charity, seeking the goodwill of God, multiplies manifold.
(Al Rum, Verse 39)

Second Revelation:
O those who believe, Do not eat up Riba, doubled and redoubled,
and be mindful of Allah so that you may attain true success.
( Al Imran: 130)

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 principal. Neither you wrong, nor be
wronged.
(Al Baqarah: 275-281)

Riba in Hadith
1. From Jabir:

The Prophet, may peace be upon him, cursed the receiver and the
payer of interest, 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 alMuttalib [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 Gabriel 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
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
Annuities
Prize Bonds
Coupons
etc

Riba al Nasiah contd

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

Usury (Sarfi Sood)

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

13

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;
Like exchange of wheat with wheat;

If the transacted commodities are of different then:

Spot

delivery immediat delivery of both commodities;

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

15

Riba Al fadl contd

Imam Abu Hanifa sees two common characteristics in these six
:commodities namely
Weight or Volume( 1
Exchange between similar commodities( 2
. 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
kg rice with 60 kg rice 50

Arguments in favor of Riba

(common myths) & 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 myths) & 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 Shariah. 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 myths) & 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 myths) & 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.

Effects of Riba in the Society

Riba
Riba
Riba
Riba
Riba
Riba
Riba
Riba
Riba

is as a combination of evil and sins.

is bad practice to earn & gain.
brings instability in the community life.
is the source for the increase of inflation.
creates classes in the society.
creates injustice in seeking the rights.
is non transparent economic activity.
is the most hated practice in Islam
is the social crime

Effects of Riba in the Society

Riba is also the cause of

Inflation & Recession
in the economyhow???..lets
watch!

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
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

ANY QUESTIONS??
THANK YOU