Tuesday, April 8, 2008
Friday, March 28, 2008
RIBA In Depth
The Quran states the following on Riba:
| “ | And that which you give in gift (loan) (to others), in order that it may increase (your wealth by expecting to get a better one in return) from other people’s property, has no increase with Allâh; but that which you give in Zakât (sadaqa - charity etc.) seeking Allâh’s Countenance, then those, they shall have manifold increase (Quran 30:39) | ” |
| “ | That they took riba (usury), though they were forbidden and that they devoured men’s substance wrongfully – We have prepared for those among men who reject faith a grievous punishment (Quran 4:161) | ” |
| “ | Those who charge usury are in the same position as those controlled by the devil's influence. This is because they claim that usury is the same as commerce. However, God permits commerce, and prohibits usury. Thus, whoever heeds this commandment from his Lord, and refrains from usury, he may keep his past earnings, and his judgment rests with God. As for those who persist in usury, they incur Hell, wherein they abide forever (Quran 2:275) | ” |
| “ | God condemns usury, and blesses charities. God dislikes every disbeliever, guilty. Lo! those who believe and do good works and establish worship and pay the poor-due, their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O you who believe, you shall observe God and refrain from all kinds of usury, if you are believers. If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice. If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew. (Quran 2:276-280) | ” |
| “ | O you who believe, you shall not take usury, compounded over and over. Observe God, that you may succeed. (Quran 3:130) | ” |
| “ | And for practicing usury, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution. (Quran 4:161) | ” |
| “ | The usury that is practiced to increase some people's wealth, does not gain anything at God. But if people give to charity, seeking God's pleasure, these are the ones who receive their reward many fold. (Quran 30:39) |
Ahadith:
Riba is also mentioned in Ahadith and is considered one of the seven major sins:
| “ | Jabir said that Allah's Messenger (may peace be upon him) cursed the accepter of usury and its payer, and one who records it, and the two witnesses, and he said: They are all equal. [1] | ” |
| “ | It is reported on the authority of Abu Huraira that the Messenger of Allah (may peace be upon him) observed: Avoid the seven noxious things. It was said (by the hearers): What are they, Messenger of Allah? He (the Holy Prophet) replied: Associating anything with Allah, magic, killing of one whom God has declared inviolate without a just cause, consuming the property of an orphan, and consuming of usury, turning back when the army advances, and slandering chaste women who are believers, but unwary. [2} |
DEFINITION OF RIBA:
The definition of riba in classical Islamic jurisprudence was "surplus value without counterpart."
When "currencies of base metal were first introduced in the Islamic world, no jurist ever thought that paying a debt in a higher number of units of this fiat money was riba" as they were concerned with the real value of money rather than its numerical value
For example, it was acceptable for a loan of 1000 gold dinars to be paid back as 1050 dinars of equal aggregate weight of gold - therefore having the same real value.
The rationale behind riba according to classical Islamic jurists was "to ensure equivalency in real value" and that the "numerical value was immaterial." Thus an interest rate that did not exceed the rate of inflation was not riba according to classical Islamic jurists.[3].
The common denominator between the classical view, and the modern view is that paying fiat money back at a higher value than the original loan is riba, if not any numerical value above the original amount. This would still rule out modern loan interest rates in both opinions and so has given birth to the modern Islamic Banking and Islamic Economic Jurisprudence.
THE STRICT PROHIBITION OF INTEREST IN ISLAM IS BECAUSE OF THE FOLLOWING REASONS:
1. Taking of interest implies appropriating another persons property withouy giving them anything in exchange, because the one whom lends the other one dollar for one dollar plus gets the extra for nothing.
2. Dependent on interest prevent people from working to earn money since the person with one dollar can earn extra dollars through interest either in advance or on later date without working for it. If it is happen to capital owner then they would not invest in the industry., trade and commerce, building and construction, as they will get extra earning without necessarily doing all of the hard work.
3. Permiting the taking of interest discourages people from doing good to one another. If interest is prohibited in a society, people will lend to each other with a good will, expecting back no more then what they have lent.
4. Riba is also totally prohibited in Islam because it tends to create unfair or injustice treatment between one party with another. it also exploits one by the others. In Ribawi economic the rich one tends to get more benefit compares with the poor one. The gap between the rich one and the poor one is becoming bigger and bigger as Riba have a spiral impact on increasing price for goods.
Labels: Riba/Usury or Interests
Thursday, March 27, 2008
Gharar, Maisir & Riba To Be Avoided!
These three - Gharar, Maisir and Riba must be totally avoided by the Takaful operation. These are the areas where Takaful Insurance differs from the Conventional Insurance.
GHARAR (Uncertainty or Speculation) :
In order to avoid Gharar in Takaful:
1. There must be a complete clarity or full disclosure in any Takaful contract.
2. Full disclosure is applicable on both sides, i.e on both the subject matter and terms of the contract (scope of cover, etc). It is not allowed to enter into a takaful contract if there is any unknown element on the subject matter and/or unknown exposure to the extent of the contract itself.
3. The Takaful contract must be made in a way that there is no exchange of Gharar from one party to another.
MAISIR (Gambling) :
Maisir is regarded as the excessive side of Gharar. Where there is a serious Gharar (uncertainty) in a contract – then Maisir (Gambling or Speculation) will naturally exists. Gambling is against the basic principles of justice, equity, fairness, ethics and morality, which are obligatory values within Islam.
Although in theory, conventional insurance is also meant to exclude any form of gambling in the sales contract, in practice there is always a very thin line involved.
Therefore, whilst the participants (the insureds) may have an insurable interest ( in the subject matter but if the risk transfer (risk sharing in Takaful) contains any speculative element, then it is prohibited under Takaful.
RIBA (Usury or Taking and Charging Interests) :
Therefore, to avoid Riba, Takaful treats participants’ contributions to the risk sharing scheme not as a premium in the way a conventional insurance does but as a contribution (Mushahamah) in the form of donation with a condition of compensation (Tabarru').
The pool of funds secured from the participants’ contributions or donations, must be managed and invested in accordance with the Shariah Law.
In the same way that Gharar and Maisir represent a continuous challenge for Takaful operators to ensure that pure Takaful arrangements are free of them, Riba free Fund Management too is becoming a specialist discipline which requires more in depth elaboration.
Whilst risk taking is a natural habit, it is therefore, difficult to eliminate this trait from human nature. What is not allowed in Islam however, is not the risk of uncertainty itself (which needs to be eliminated) - but selling or exchange of risk or risk transfer to a third party using sales or exchange contract, that is not allowed. On the other hand, helping each other especially in the event of misfortune, is highly encouraged in Islam.
As mentioned by Allah in the Quran:
“….Help ye one another in Al Birr and At Taqwa (virtue, righteousness and piety) but do not help one another in sin and transgression….’ - (Al-Maidah : 2).
Sharing the risk with the purpose of helping one another is therefore highly encouraged in Islam.
