Presentation on theme: "Riba, Gharar and Islamic finance"— Presentation transcript:
1Riba, Gharar and Islamic finance AUSAF AHMADIslamic Cultural Centre of IndiaNew DelhiMay
2ISLAMIC NORMS OF BUSINESS TRANSACTIONS Should not indulge in RibaShould not involve in GhararShould not indulge in fraudulent behaviorShould not coerceShould not deal in prohibited goods.Should not take advantage of anybody’s needsShould not withhold supplies to raise pricesShould not withhold information to take advantage of ignorance.
3Prohibition of Riba in Qur’an FIRST REVEALATION:That which you give as Riba (interest) the people’s wealth increases not with God; but that which you give in Charity, seeking the goodwill of God, multiplies manifold. [ 30 : 39]
4Prohibition of Riba in Qur’an [contd.] SECOND REVEALATION:And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other people’s property, We have prepared those among them who reject faith a greivous punishment. [4: 161]
5Prohibition of Riba in Qur’an [contd.] THIRD REVEALATION:o believers, take not doubled and redoubled interest, and fear God so that you 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 [3: 130-2]
6Prohibition of Riba in Qur’an [contd.] FOURTH REVELATIONThose who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; that is because they say: “Trade is like interest” while God has permitted trade and forbidden interest. [2: 275]
7Prohibition of Riba in Qur’an [contd.] God deprives interest of all but blesses Charity. He loves not the ungrateful sinners (276)
8Prohibition of Riba in Qur’an [contd.] O believers ! Fear Allah and give up interest that remains outstanding, if you are true believers. [2: 278]
9Prohibition of Riba in Qur’an [contd.] If you do not, then be sure of being at war with God and His messenger. But if you repent, you can have your principal. Neither you should commit injustice nor 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)The verse 2:279 is the strongest condemnation of Riba.
10Riba in HadithFrom Jabir: “ The Prophet (pbuh) cursed the receiver, the payer of interest, the one who records it and the two witnesses of the transaction and said: They are all alike (in guilt)[Reported by Muslim, Tirmidhi and Ahmad]
11Riba in Hadith [contd.]Jabir b. Abdallah said: The Prophet (pbuh) said, “All of the riba of Jahiliyah is annulled. The first riba that I anul is our riba, that accruing to ‘ Abbas b. Abd al Muttalib; it is being cancelled compeletely.[ Reported by Muslim and Ahmad : Last Sermon of the Prophet (Pbuh)]
12Meaning of Riba Meaning: Derived from Riba yarbou Literal meaning: to growTechnical meaning: interest, usuryIllah: two considerations: (1) Excess of Amount (2) delay in deliveryExample: gold for gold: (i) equal amount (2) on the spot. Implies No Riba.
13TYPES OF RIBA RIBA OF DEBT (Riba al Diyun) RIBA OF TRADE (Riba al Fadl)Both types of Riba are prohibited in Islam. Riba al Diyun is also known as Riba al jahiliah. It is prohibited by the Quranic injunctions. Riba al Fadl is prohibited by Hadith of the Prophet (pbuh).
14RIBA OF Debt [Riba al diyun] Riba of the period of Jahiliyah: Prevailing in Arabia before the advent of IslamThe debt is linked with time. Any extension in time is granted only by raising the price of debt (interest).Prohibited on the strength of Quranic injunction.
15RIBA OF TRADE [ Riba al fadl] The Prophet (pbuh) said: “ Gold for Gold, Silver for Silver, Wheat for What, barley for barley, dates for dates, salt for salt - like for like, hand to hand. Whoever pays more or takes more, indulges in Riba. The taker and giver are alike (in guilt).Narrated by : Abu Saeed KhudriReported by: bukhari
16Meaning of Riba al FadlIt is related with the exchange of one good with the same good.Some experts consider it to be a form of Bay’ al fasid (illegal sale)Barter between different goods is allowed.
17RIBA, INTEREST AND USURY No distinction between interest and usury i.e. between low and high rates.No distinction between consumption and production loansNo distinction between individual and institutional loans
18AVOIDANCE OF GHARAR Definition of Gharar Uncertainty / Ambiguity Ambiguity of Quantity [Gharar fil Miqdar]Ambiguity of Attributes [Gharar fis sifah] such asAmbiguity in time or place of deliveryAmbiguity in price etc.
19TYPES OF ISLAMIC CONTRCTS Nothing is determinedFixed PaymentRatio is determinedNo GhararSome GhararGharar is allowed
20TYPES OF ISLAMIC CONTRCTS [contd.] Contracts of Sale / Lease are Muawadat. Gharar is not allowed in such contracts.Mudarabah and Musharakah are contracts of Musharakat. Some amount of gharar may be tolerated in such contracts.Sadaqat and Hadaya are Tabarruat. No objection to Gharar in these type of contracts.
21DEBT FINANCE Vs. PARTICIPATORY FINANCE Participatory finance, in comparison, to debt finance is:More justMore equitableMore efficientMore growth oriented.
22DISADVANTAGES OF RIBA BASED FINANCE Riba based finance is inefficient. Riba based finance is unjust Riba based finance discourages growth. Riba based finance leads to economic instability. Riba based finance leads to economic inequalities.