What is

Riba/Usury/Interest/Ribit?

DR.SYED M. ABDUR REHMAN SHAH

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 Riba: Contents
 What is Riba?
 Riba in comparative religions
 Riba in Economic Markets
 Basic Types of Riba
 Riba-Shari’ah Ruling(‫)الحكم الشرعي‬
 Riba in Quran and Sunnah
 Generalization of Riba
 Economic Rational For Prohibition of Riba
 Riba, Interest and Usury
 How Interest came into Muslim communities
 The worst thing in the worldsmars565@gmail.com
 Meaning of Riba
 Meaning: Derived from Riba yarbou
 Literal meaning: to grow
 Technical meaning: interest, usury, Ribit
 Riba literally means to increase, to grow to rise,
to add, however, not every increase or growth
which has been prohibited by Islam.
 Interest is effortless profit ,free from
compensation, free of exchange. It can be +ve or
–ve.

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The original teachings of Judaism, Christianity, and
Islam prohibit lending money and charging….
Interest/Usury: The original word usury was
used to mean paying a rent for the use of money; the
meaning was changed to mean, in today’s language,
lending at an excessive interest rate.
Ribit: Which means an increase over the original
amount of debt, in the language of the Old
Testament.
Riba: Which also means an increase, in the language
of the Qur’aan.
It is also interesting to note that charging interest is
prohibited in Buddhism, Hinduism, and many other
faiths and philosophies. smars565@gmail.com
Riba in Economic Markets
Price

Wage

Interest
Commodity Labor Money
Market Market Market

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‫)تقسيم الربوا( ‪Riba- Basic Types‬‬

‫ربوا‬

‫<رباالحديث‬ ‫<رباالقران‬
‫<رباالبيوع‬ ‫<رباالديون‬
‫‪Riba of Trade‬‬ ‫‪Riba of Debt‬‬

‫رباالفضل‬
‫رباالنسيئه‬
‫)مثال بمثل(‬
‫‪) Spot‬يدا بيد(‬
‫‪Quantity‬‬
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 Riba-Shari’ah Ruling(‫)الحكم الشرعي‬
Both types of Riba are prohibited in Islam.
 Riba al Diyun is also known as Riba al jahiliah as it
was prevailing in Arabia before the advent of Islam
It is prohibited by the Quranic injunctions.

 Technically, Riba al Diyun is a financial interest that

refers to the premium that must be paid by the
borrower to the lender along with the principal
amount as a condition for the loan or for an
extension in its maturity.

 Riba al Fadl is prohibited by Hadith of the Prophet

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 Riba: Prohibition in Qur’an
(1)
FIRST REVEALATION:
‫ِهّٰللا َو َم ۤا‬
‌ۚ ‫ِّرًبا ِّلَيۡر ُبَو ۟ا ِفۤۡى َاۡم َو اِل الَّناِس َفاَل َيۡر ُبۡو ا ِع ۡن َد‬ ‫َو َم ۤا ٰا َتۡي ُتۡم ِّم ۡن‬
‫َز ٰك وٍة ُتِرۡي ُد ۡو َن َو ۡج َه ِهّٰللا َفُاوٰٓلِٕٮَك ُهُم اۡل ُم ۡض ِع ُفۡو َن‬ ‫ٰا َتۡي ُتۡم ِّم ۡن‬

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.
Room [30: 39]
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 Riba: Prohibition in Qur’an (2)

SECOND REVEALATION:
ؕ‌‫َّو َاۡخ ِذِهُم الِّر ٰب وا َو َقۡد ُنُهۡو ا َع ۡن ُه َو َاۡك ِلـِهۡم َاۡم َو اَل الَّناِس ِباۡل َباِط ِل‬
‫َو َاۡع َتۡد َنـا ِلۡل ـٰك ِفِرۡي َن ِم ۡن ُهۡم َع َذ اًبا َا ِلۡي ًم ا‬
And for their (Jews) 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 grievous punishment.
Nisa [4: 161]

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 Riba: Prohibition in Qur’an (3)
 THIRD REVEALATION:

‫َتۡا ُك ُلوا الِّر ٰٓبوا َاۡض َعاًفا‬ ‫ُّم ٰض َعَفة ٰۤي ـَاُّيَها اَّلِذ ۡي َن ٰا َم ُنۡو ا اَل‬
‫ُتۡف ِلُح ۡو ۚ‌َن‬ ‫َو اَّتُقوا َهّٰللا َلَعَّلُك ۡم‬

O believers; take not doubled and

redoubled interest, and fear God so that
you prosper in this life and hereafter.
Aal Imran [3: 130]

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 Riba: Prohibition in Qur’an (4)

 FOURTH REVELATION
 ‫َاَّلِذ ۡي َن َيۡا ُك ُلۡو َن الِّر ٰب وا اَل َيُقۡو ُم ۡو َن ِااَّل َك َم ا َيُقۡو ُم اَّلِذ ۡى َيَتَخ َّبُطُه الَّش ۡي ٰط ُن‬
‫ِم َن اۡل َم ِّسؕ‌ ٰذ ِلَك ِبَاَّنُهۡم َقاُلۤۡو ا ِاَّنَم ا اۡل َبۡي ُع ِم ۡث ُل الِّر ٰب وا‌ۘ ‌ َو َاَح َّل ُهّٰللا اۡل َبۡي َع‬
‫‌َو َح َّر َم الِّر ٰب وا‬
Those 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.
Al Baqra [2: 275]
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 Riba: Prohibition in Qur’an (4)

‫َيۡم َح ُق ُهّٰللا الِّر ٰب وا َو ُيۡر ِبى الَّص َد ٰق ِتؕ‌ َو ُهّٰللا اَل ُيِح ُّب ُك َّل َك َّفاٍر َاِثۡي ٍم‬
God deprives interest of all but blesses
Charity. He loves not the ungrateful
sinners. Al Baqra (2: 276)

‫ۡي‬ ‫ۡؤ‬
‫ُّم ِم ِن َن‬ ‫ۡم‬‫ُت‬ ‫ۡن‬ ‫ُك‬ ‫ۡن‬ ‫وا‬‫ٰٓب‬ ‫ال‬ ‫ا‬ ‫ا‬ ‫ۡو‬ ‫َذ‬ ‫وا‬‫ُق‬‫َّت‬‫ا‬ ‫وا‬‫ُن‬ ‫ٰا‬ ‫ۡي‬ ‫َّل‬ ‫ا‬ ‫ا‬ ‫َا‬ ‫ـ‬ ‫ٰۤي‬
‫َهّٰللا َو ُر َم َبِقَى ِم َن ِّر ِا‬ ‫ُّيَه ِذ َن َم‬
O believers ! Fear Allah and give up interest
that remains outstanding, if you are true
believers. Al Baqra (2: 278)
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 Riba: Prohibition in Qur’an (4)

 ‫َفِاۡن َّلۡم َتۡف َعُلۡو ا َفۡا َذ ُنۡو ا ِبَح ۡر ٍب ِّم َن ِهّٰللا َو َرُس ۡو ِلٖهۚ‌ َو ِاۡن ُتۡب ُتۡم َفَلـُك ۡم‬
‫ُرُء ۡو ُس َاۡم َو اِلُك ۡمۚ‌ اَل َتۡظ ِلُم ۡو َن َو اَل ُتۡظ َلُم ۡو َن‬
 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. Al Baqra (2: 279)

‫َو ِاۡن َك اَن ُذ ۡو ُع ۡس َرٍة َفَنِظ َر ٌة ِاٰل ى َم ۡي َسَرٍة ؕ‌ َو َاۡن َتَص َّد ُقۡو ا َخ ۡي ٌر َّلـُك ۡم‌ ِاۡن ُك ۡن ُتۡم‬
‫َتۡع َلُم ۡو َن‬
 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. smars565@gmail.com
Al Baqra (2: 280)
 Riba: Chronological Order of the
Quranic Revelations
Nature of Instruction Verse Number

General Instruction Ar- Room [30:39]

Riba- No Increases
Zakat- Increases

Riba- One of causes to Jewish An- Nisa [4: 161]

Punishment
Compound Riba Prohibition for Aal- Imran [3:130]
Believers

Final Absolute Prohibition Al- Baqrah [2:275-280]

War against Allah and Holy Prophet

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 Riba in Hadith

 Sunna explains different forms of riba and puts

more emphasis on its prohibition.

 From 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]
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 Riba in Hadith [contd.]

Jabir b. Abdallah said: The Prophet (pbuh) said,

“All of the riba of Jahiliyah is cancelled. 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)]
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Riba in Hadith [contd.]

Who eats a Dirham of riba intentionally it is

worse than sin of thirty six time adulatory
(Musnad e Ahmad).

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 Riba in Hadith

 No People among whom adultery and Riba

become openly practiced unless they have
earned the punishment of Almighty Allah.

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 RIBA OF TRADE [ Riba al fadl]

 The Prophet (pbuh) said: “ Gold for Gold, Silver

for Silver, Wheat for Wheat, 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 Khudri
 Reported by: bukhari
 Equality & Spot transaction

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 RIBA OF TRADE [ Riba al fadl]
 These Six commodities are called “Amwal e Rabwia”

Question?
Does this Hadith apply to only these six items……????
Ans is no…
Majority of scholars say other commodities can also be
included based on common characteristics as illah for Riba
ul fadal.
An “illah” is the attribute of an event that entails a
particular divine ruling in all cases possessing that
atribute. It is basis for applying ANALOGY.
Various Scholars define these causes differently.
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Four Schools of thought regarding
to “illah” of Riba ul Fadal
1. Imam Abu Hanifa 3. Imam Malik
i. Weight , I. Eatable
ii. Volume II. Preserve able
All six goods are sold by
either weight or volume. All
those goods which are dealt
so, are under Riba ul Fadal

4. Imam Ahmad bi Hambal

2. Imam Shafi
Three opinions,
I. Medium of Exchange
III. 1st with 1st imam
II. Eatable
IV. 2nd with 2nd imam
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RIBA OF TRADE [ Riba al fadl]

 When these common characteristics are

found in a good according to Islamic Scholars
respectively then following two transactions
are not allowed in the same good
 A deffered Sale of goods.
 Sale of unequal quantities of same goods.
If only one of two common characteristics
is there then 1st transaction is not allowed
whereas 2nd is allowed.
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 Meaning of Riba al Fadl

 It 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.

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 Economic Rational For Prohibition of Riba
1. Interest (Price of Capital)– main factor for unjust distribution
of production results
• Capital receives the whole benefit but does not share
losses
• Entrepreneur is discriminated by paying fixed rate of
interest even in case of loss
• Capital is discriminated by receiving small amount of
interest when entrepreneur earns large profits
• Industrial borrower receives large profits and pays small
part to depositors through conventional banking (net
resource transfer from poor to the rich) –Concentration of
income and wealth.
• Islamic finance prescribes Profit and Loss sharing as no
one can determine the productivity of capital and
entrepreneur before hand. smars565@gmail.com
 Economic Rational For Prohibition of Riba
2. Credit worthiness preferred over productivity –
corporate sector appropriates the funds while Small
businesses are neglected despite their economic
feasibility .In empirical studies of capital structure
there is positive relationship in between size and debt.
Islamic banks downscale their operations as they share
in the results of the business and credit worthiness
occupies secondary position than productivity.
3. The interest system promotes passive behavior and
risk aversion – absence of effort affects production and
productivity .
Islamic finance brings active partners together (P&L
sharing)
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 Economic Rational For Prohibition of Riba
4. Financial capital is preferred to Human Capital due
to capitalistic nature.
Islam gives vital role to productivity of HR and
moreover productivity of Financial capital is
attached to HR.
5. The conventional banking exposed to instability
Islamic banking, working through the system of
profit and loss sharing, demonstrates a stable
system.
6. Moral hazard and adverse selection-
Equity finance provides access to information [more
even resource distribution]
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 RIBA, INTEREST AND USURY

 No distinction between interest and usury

i.e. between low and high rates.
 No distinction between consumption and
production loans
 No distinction between individual and
institutional loans

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Connection of world’s
problems with Interest
 Need an example? Brazil is home to the beautiful
Amazon rainforest. This lush wonder supplies us
with a quarter of the world’s oxygen. Unfortunately,
this forest will vanish in our lifetimes. Why? So Brazil
can pay off $200 billion of debt. How? With lumber.
 Or take an example closer to home. Are you or
someone you know crushed under growing personal
debt? 43% of all American families now spend more
than they earn each year. And this problem gets
worse each year for millions of families around the
world.
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Introduction of Modern Riba
in Islamic countries
 In 17th Century after industrial revolution,
European based their financial System on
interest. Especially in 19th & 20th centuries they
introduced in muslim colonies by two channels.
 (i) Secular legislations which have endorsed the
Western definition of usury.
 (ii) The modern banking system whose
activities are interest based.
(Dr. Abdel-Rahman Yousri Ahmad)

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 The worst thing in the world
 "All that we had borrowed up to 1985 or 1986 was
around $5 billion and we have paid about $16
billion yet we are still being told that we owe
about $28 billion. That $28 billion came about
because of the injustice in the foreign creditors'
interest rates. If you ask me what is the worst
thing in the world, I will say it is compound
interest.“ (President Obasanjo of Nigeria, G8
summit, Okinawa, 2000).

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