DIFFERENT FORMS OF RIBA

DIFFERENT FORMS OF RIBA

The Prophet (s) declared that there seventy different kinds or forms of riba. But he did not describe them all. In fact he described only a few of the different forms of riba. The implication, therefore, is that there are forms of riba existing in the world which have not been specifically identified as such by the Prophet(s). It remains for the scholars of Islam to use inference and analogy to locate other forms of riba not identified by the Prophet and which may not have appeared as yet in the world at the time of the Prophet (s), but have now made their appearance, particularly in this evil age of ya'jooj, ma'jooj, and Dajjal!

Here are a few of the forms of riba described by the Prophet (s):

[1] - credit transactions (bai muajjal). There are some credit transactions which have been prohibited by the Prophet (s) because they involve riba:

Usama bin Zaid reported the Prophet as saying: 'Credit involves riba.' In another version he said: 'There is no riba when payment is made on the spot.'[ Bukhari and Muslim]
Such a credit transaction would, for example, be one in which an animal is traded for another animal:

Samura b. Jundub said that the Prophet forbade selling of animals for animals when payment was to be made at a later date. [Tirmidhi, Abu Daud, Nasai, Ibn Majah and Darimi]

The reason for the prohibition appears to be the element of uncertainty in which death, for example, might occur to an animal, or it may fall ill etc. Such an occurrence can lead to disagreement and conflict between the parties to the credit agreement. Credit is also discouraged because when payment is to be made at a later date one may not be able to make the payment and that could have serious consequences.

The system of riba creates its own self-generating and self-sustaining apparatus in the form of credit-worthiness of individuals. A person has good or bad credit. The system forces every individual to struggle to establish and sustain a good credit record. It does so by punishing those who have bad credit.

If someone has never borrowed money on interest and, as a consequence, does not possess a credit record, he is looked upon with grave suspicion!
[Note on Bai Muajjal]

Bai Muajjal is a credit transaction. An article is purchased on credit, i.e., with the price of the article purchased to be paid at a later time. But this does not always constitute riba. The Prophet (s) himself purchased food-grain on credit. (See hadith quoted here-under). But it was not riba! It is important for us to note, however, that this credit (bai muajjal) was quite different from today's ordinary credit transactions.

Firstly, there was no increase in price in consideration of credit.

Secondly, the debt was covered through a mortgage, i.e., the price of the article purchased on credit was essentially guaranteed in an article which was mortgaged. In the event that the buyer of the article (on credit) were to die before the debt was redeemed, he would die without a debt - since the mortgaged article would be sold in order to recover the price of the article in the original sale.

Thirdly the article which was purchased on credit was not such as admitted the possibility of future complications and conflicts (such as a mango crop which was not yet ready to be harvested). As a consequence, there was no riba in such a credit transaction (bai muajjal). Thus we find that the Prophet (s) himself entered into such a credit-cum-mortgage transaction:

Aisha (the wife of the Prophet) said that Allah's Messenger bought food grains from a Jew on the basis of deferred payment and mortgaged his armor to him.' [Bukhari, Muslim] She said that when Allah's Messenger died his coat of mail was mortgaged to a Jew for thirty sa's of barley

(a sa being a measure of weight).' (Bukhari)

Debt is something to be feared! A Muslim should never enter into debt which he does not possess the means to liquidate, unless it be for grave necessity. Secondly debt should not remain outstanding indefinitely. If a debtor cannot repay a debt then the creditor should accept whatever the debtor possesses and the balance be remitted (i.e., forgiven). Alternatively the debt should be remitted after a reasonable period of time. In fact the Torah decreed a period of seven years for remission of debts..

[2] - increasing the price of an article in consideration of deferred payment. This credit transaction is known as riba al- nasi'ah;

Riba al-nasi'ah is what was well known and conventional among the Arabs in Jahiliyyah. They used to give loans on the condition that every month they will receive a stipulated amount with the whole principal remaining outstanding. Then, when the loan matured and the borrower was unable to clear his obligation, the amount was raised and the period was extended. This is the riba that was practised in the Jahiliyyah.

From Usama bin Zaid: From Usamah ibn Zayd: The Prophet, peace be on him, said: "There is no riba except in nasi'ah [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, Bab bay'i al-ta'ami mithlan bi mithlin; also in Nasa'i).

This was the most common form of riba in Makkah. The principle involved was that if you had to wait for your money you deserved to get an additional amount. A debtor was given an extension in time because he could not pay his debt on time. The amount he owed was increased, however, in consideration for the extension in time.

If capital can increase in consideration of time then money can, by itself, generate more money. No effort will be required. Money, in such an economy, will equate with power. Money will be king! And the value of human labor will continuously diminish until labor will find itself at the mercy of capital! That is the world today! Hunger creates the opportunity for capital to rule the worker more surely than it was given to the aristocracy by the legal authority of kings. All people are chained down to heavy toil by poverty more firmly than ever they were chained by slavery and serfdom. The same principle of price increase in consideration of credit operates all over the modern capitalist economy.

Murabaha (To sell at a profit).

Islamic banks around the world are attempting to by-pass riba by utilizing a financial mechanism which they erroneously define as murabaha. The bank would purchase an article for cash and then sell it for credit at a higher price than that for which it was bought. The bank argues that since there is agreement on the new price between buyer and seller the transaction is halal.

If the bank were to purchase a car for $15,000. cash, and then proceed to sell that very car for $25,000. cash in the same market in which it was purchased, the transaction would be of doubtful validity since the market price would be manifestly violated. Indeed, why would anyone pay $25,000. when the market price is $15,000.?

If, however, the bank were to buy the car for $15,000. cash and then proceed to sell that very car for $25,000. on credit there would be no other justification for the increase in price other than the factor of time (i.e., credit). Such a transaction would be one in which money increases in consideration of time, - or money breeds money over time! It would hardly be any different from riba al-nasi'ah in the time of the Prophet (pbuh). In fact, it would be pure riba! Those misguided Muslims who obstinately cling to this false murabaha should fear Allah and stop misguiding Muslims.

[3] - having someone artificially bid up the price in an auction, thus corrupting the free and fair market; this is a form of riba known as gharar:

From Abdullah ibn Abi Awfa: The Prophet said: 'A najish [one who serves as an agent to bid up the price in an auction] is a cursed taker of riba.' [Bukhari]

[4] - employing deception (gharar) as the basis for unfair profit, thus compromising the free market;

Anas ibn Malick said that the Messenger of Allah said: 'Deceiving a mustarsal (someone who is unaware of market prices) is riba" [Bayhaqi]

Abu Hurairah reported that the Messenger of Allah once came upon a heap of grain, and when he put his hand into it his fingers felt some dampness, so he asked the owner of the grain how that came about. On being told that rain had fallen on it he said: 'Why did you not put the damp part on the top of the grain so that people might see it? He who deceives has nothing to do with me.' [Muslim]

[5] - hoarding in order to capitalize on the resultant artificially created scarcity in the market, and thus compromising the free market;

Ma'mar reported Allah's Messenger as saying: 'If anyone keeps goods till the price rises, he is a sinner.' [Muslim]

Umar reported the Prophet as saying: 'He who brings goods for sale is blessed with good fortune, but he who keeps them till the prices rise is accursed.' [Ibn Majah, Darimi]

Ibn Umar reported Allah's Messenger as saying: 'If anyone withholds grain for forty days thereby desiring a higher price, he has renounced Allah and Allah has renounced him.'[Razin]
Hoarding results in profit which is unjust. That is riba!

[6] - monopoly: This is a means of gaining control over market in such wise as would result in freedom to fix prices. Such a situation would result in prices being fixed in accordance with the plan of the monopolists rather than the free market. As such, it is similar to hoarding. Wealth is sucked from the masses by deception. That is riba.!

[7] - sale or purchase of riba debts: Such would be a sale on the condition of deferred payment but with an increase in price. The debt is then sold to a third party for cash at a price which allows both parties to share in the increase realized through deferred payment;

[8] - speculative transactions: These are transactions in which one buys goods or stocks etc., anticipating that the price would rise. When it does, one then sells and makes a killing. Alternatively one may sell goods, stocks etc., anticipating that the price would fall. When it does, one then buys back and makes a killing! Such profit is unjust. There is no effort or labor involved. It is, in effect, gambling!

. [9] - options: Sometimes a speculative transaction can result in a disappointment. The price was expected to rise but it did not. The speculator does not want his money to be tied up in a transaction which may go wrong. So what he does is to buy from the owner of the goods an option to purchase the goods during a specific time frame for a price agreed upon. He pays a non-refundable fee for the purchase of this option. If the price does rise during the period of the option he exercises his option, buys the goods and immediately resells it at a profit. If the price does not rise he simply chooses not to exercise his option. His only loss will then be the fee he paid to purchase the option.

In a free and fair market the rise and fall of prices will be determined by Allah! He can use it for distributing and redistributing wealth. Options constitute a means of bypassing Allah's prerogative of fixing prices. It is thus haram!

[10] - bribery and corruption: Riba sometimes takes the form of a bribe, or of patronage which is dispensed in order to win influence or control over individuals and institutions. Take the example of a huge prize (US$500,00.00 or more) which is awarded by an oil-rich government in the Muslim world , and client-State to USA, to a scholar of Islam chosen by that government. When that scholar accepts that prize he has, in effect, been imprisoned with the prize to that State. He cannot participate in any effort towards liberating that territory from the influence and control of the enemies of Islam and restoring its freedom. This is the triumph of the enemy. Indeed they boast of their success:

[11] Riba al-Fadl - Its Legal Position
Riba al-naqd [al-fadl] is, however, the selling of one maund [a unit of weight] of wheat, or anything similar to it, against two maunds. (Al-Tafsir al-Kabir, Tehran: Dar al-Kutub al-'illmiyyah, 2nd ed., n.d., wol. 7, p. 85).

From Abu Sa'id al-khudri: The Prophet, peace be on him, 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).

Riba[1] is considered amongst Seven Heinous Sins Al-Saba al-Mubiqat (السَبعَ الموبِقاتِ): Narrated Abu Huraira: The Prophet said, "Avoid the seven great destructive sins." The people enquire, "O Allah's! What are they? "He said, "To join others in worship along with Allah, to practice sorcery, to kill the life which Allah has forbidden except for a just cause, (according to Islamic law), to eat up Riba (usury), to eat up an orphan's wealth, to give back to the enemy and fleeing from the battlefield at the time of fighting, and to accuse, chaste women, who never even think of anything touching chastity and are good believers. [Sahih al-Bukhari, Sahih al-Muslim]