An Academic Question on Riba. Need help. Please tag your friends. Any help would be appreciated

[AsifAmeer]

Before I start, I want to share that I understand what RIBA is and I understand what God says about using RIBA. Also, before you answer the question, PLEASE STATE A CLEAR DEFINITION of RIBA. Reference to sources of info would be helpful too. Thanks!

I am a student of Economics. And I wanted to understand the stand of Islam on Capital, Leverage and Interest.


My knowledge in Islamic Financing as very limited. But I recently came across a hadith where the a companion of Prophet SAW had exchanged lower quality of dates with higher quality but in lesser quantity. To this the Prophet SAW explain that this was at the heart of RIBA and explained that if something else had been bought and then be changed with those dates, it would have been fine.


Reconciling the "Time-premium" or the "risk-premium" with Islam's RIBA-free stand has been interesting, especially in a free floating currency model. To simplify my argument, I will use GOLD and silver as examples. Given today's prices, the ratio stands at 53 i.e. 1gm of Gold = 53 Gm of Silver.

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Here's my question


If I were to borrow 1 gm of Gold and return 60gm of silver after 1 year. Would the 7gm of Silver be counted as interest? Ofcourse future ratio would be unknown. It could less, it could be more. If its less, I as a borrower would incur a bigger loss. If the ratio is more than 60, I as a borrower will incur a profit.


We can also look at this transaction as a forward contract as well. i.e. I buy 1 gm of Gold from you for 60gm of Silver. I take possession of Gold today but complete the transaction 1 year from now.


Would this transaction be legit in the light of Quran and Sunnah?

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My Conversation with an Islamic Professor

on Per Sheikh, I cannot charge 7 gm of silver if the payment is made in the future. (3 days max)
After explaining him what a forward contract is, (setting a price of a sale for a future date), he said there are different school of thoughts.
Lekin my initial idea of borrowing 1gm of Gold and returning 60gm of silver - this is not valid and considered riba. So chalk it off.

However, I was still not given a clear on the follow:

• If RIBA is "RENTING of Money" and money can be Dollar, Rupee, Gold, Silver, Wheat grain, Rice, Land, Water, etc. This definition leads up to a false conclusion that renting land is Riba as well.

• The other issue was Inflation. I shared my view that in an Inflationary enviroment, it is actually the BORROWER who is getting RIBA if the lent loan doesnt not have an interest rate less than the Inflation rate because the VALUE BORROWED was not RETURNED at the end of the loan. (i.e. the returned money is worth less than the money borrowed). The Sheikh said "The borrower is poor and how could be be making interest on borrowed money.?" Once I cleared his views that today its the most powerful who are the borrowers (Nations, corporations and wealthy individuals) who have to most amount of outstanding loans and they are making money off from the borrowed money. It was at that point I felt the Sheikh openned up to me and said never in the History of Mankind has a system this twisted imposed on the humans.

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Conclusion

Folks, make up your own mind. What I suggested here is not right. It is Riba. But I am still unclear as to what the criteria is for RIBA. There is alot of work Muslims need to do. It would be completely unfair to my kids if I were to leave this world without answering this question for my kids. I have gotten you in this loop too. So you too are responsible now. All the best!

 

[atensari]

 

[arshikrani]

Before I start, I want to share that I understand what RIBA is and I understand what God says about using RIBA. If you can also list your sources of your answer you share, that would be great too! Thanks!

I am a student of Economics. And I wanted to understand the stand of Islam on Capital, Leverage and Interest.


My knowledge in Islamic Financing as very limited. But I recently came across a hadith where the a companion of Prophet SAW had exchanged lower quality of dates with higher quality but in lesser quantity. To this the Prophet SAW explain that this was at the heart of RIBA and explained that if something else had been bought and then be changed with those dates, it would have been fine.


Reconciling the "Time-premium" or the "risk-premium" with Islam's RIBA-free stand has been interesting, especially in a free floating currency model. To simplify my argument, I will use GOLD and silver as examples. Given today's prices, the ratio stands at 53 i.e. 1gm of Gold = 53 Gm of Silver.

---

Here's my question


If I were to borrow 1 gm of Gold and return 60gm of silver after 1 year. Would the 7gm of Silver be counted as interest? Ofcourse future ratio would be unknown. It could less, it could be more. If its less, I as a borrower would incur a bigger loss. If the ratio is more than 60, I as a borrower will incur a profit.


We can also look at this transaction as a forward contract as well. i.e. I buy 1 gm of Gold from you for 60gm of Silver. I take possession of Gold today but complete the transaction 1 year from now.


Would this transaction be legit in the light of Quran and Sunnah?

Brother i cant give source becoz i have read it long time ago but in my understanding its depend on mutual understanding b/w u and me u know when u r going to borrow, its price can be increase or decrease but it can be happened with both silver and gold as well. so its not ribah. its according to my understanding.

 

[UKPakistani]

Asif

Are you aware of a book called "The problem with Interest" (Tarek El Diwany)

I think it would interest you (pun intended)

Its not my thing, and I have not read it, but I am told it is a good read for someone with your interests and work

Also Google Islamic Benchmarking

Them again, maybe you know all this already

 

[A.Ali.T]

Before I start, I want to share that I understand what RIBA is and I understand what God says about using RIBA. If you can also list your sources of your answer you share, that would be great too! Thanks!

I am a student of Economics. And I wanted to understand the stand of Islam on Capital, Leverage and Interest.


My knowledge in Islamic Financing as very limited. But I recently came across a hadith where the a companion of Prophet SAW had exchanged lower quality of dates with higher quality but in lesser quantity. To this the Prophet SAW explain that this was at the heart of RIBA and explained that if something else had been bought and then be changed with those dates, it would have been fine.


Reconciling the "Time-premium" or the "risk-premium" with Islam's RIBA-free stand has been interesting, especially in a free floating currency model. To simplify my argument, I will use GOLD and silver as examples. Given today's prices, the ratio stands at 53 i.e. 1gm of Gold = 53 Gm of Silver.

---

Here's my question


If I were to borrow 1 gm of Gold and return 60gm of silver after 1 year. Would the 7gm of Silver be counted as interest? Ofcourse future ratio would be unknown. It could less, it could be more. If its less, I as a borrower would incur a bigger loss. If the ratio is more than 60, I as a borrower will incur a profit.


We can also look at this transaction as a forward contract as well. i.e. I buy 1 gm of Gold from you for 60gm of Silver. I take possession of Gold today but complete the transaction 1 year from now.


Would this transaction be legit in the light of Quran and Sunnah?

Yes that would be construed as interest, because you are changing one form of money into another and making profit on it. This is exactly what the hadith is saying. During Jesus' time also pharasies use to do the same thing, and that's why Jesus cursed the money changers. However, if you are selling a goat and someone wants to buy it, you can sell it to him for 5 ounces of silver if he pays today or 7 ounces of silver if he pays you a year later. I think that is permissable.

 

[AsifAmeer]

Here's what i stated

If I were to borrow 1 gm of Gold and return 60gm of silver after 1 year. Would the 7gm of Silver be counted as interest? Ofcourse future ratio would be unknown. It could less, it could be more. If its less, I as a borrower would incur a bigger loss. If the ratio is more than 60, I as a borrower will incur a profit.
​

Notice that its not a guaranteed profit because there could even be a loss to the lender at the time of winding down the deal.

>>you are changing one form of money into another and making profit on it
When the medium of exchange changes, it adds a layer of risk for the lender, it also removes the certainty of profit for the lender.

Money changers had cornered the coin market and were controlling prices.

I am watching this video from [MENTION=6134]atensari[/MENTION] . The guy seems to make sense. Seems like I am going to learn something new..

Yes that would be construed as interest, because you are changing one form of money into another and making profit on it. This is exactly what the hadith is saying. During Jesus' time also pharasies use to do the same thing, and that's why Jesus cursed the money changers. However, if you are selling a goat and someone wants to buy it, you can sell it to him for 5 ounces of silver if he pays today or 7 ounces of silver if he pays you a year later. I think that is permissable.

 

[Unicorn]

Before I start, I want to share that I understand what RIBA is and I understand what God says about using RIBA. If you can also list your sources of your answer you share, that would be great too! Thanks!

I am a student of Economics. And I wanted to understand the stand of Islam on Capital, Leverage and Interest.


My knowledge in Islamic Financing as very limited. But I recently came across a hadith where the a companion of Prophet SAW had exchanged lower quality of dates with higher quality but in lesser quantity. To this the Prophet SAW explain that this was at the heart of RIBA and explained that if something else had been bought and then be changed with those dates, it would have been fine.


Reconciling the "Time-premium" or the "risk-premium" with Islam's RIBA-free stand has been interesting, especially in a free floating currency model. To simplify my argument, I will use GOLD and silver as examples. Given today's prices, the ratio stands at 53 i.e. 1gm of Gold = 53 Gm of Silver.

---

Here's my question


If I were to borrow 1 gm of Gold and return 60gm of silver after 1 year. Would the 7gm of Silver be counted as interest? Ofcourse future ratio would be unknown. It could less, it could be more. If its less, I as a borrower would incur a bigger loss. If the ratio is more than 60, I as a borrower will incur a profit.


We can also look at this transaction as a forward contract as well. i.e. I buy 1 gm of Gold from you for 60gm of Silver. I take possession of Gold today but complete the transaction 1 year from now.


Would this transaction be legit in the light of Quran and Sunnah?

I don't believe time premium or risk premium come into the picture at all. When you get a chance listen to the details of this superior and Inferior quality story of dates by searching Imran Husein's lecture on Dinar and Durham Islamic system. He explains this concept in detail.

I listened to first 30 minutes of the video posted by Mr Atensari its quite interesting I will listen to the rest latter. I agree with the speaker that this issue should be considered not on the Islamic point of view but as a humanity point of view. I find flaws in it when he goes down to a balance sheet and apply the principle of generalizations I could change my mind after watching the whole thing.

In my personal experience I find that I have paid more money in Interest than I collected and I believe that is the case with most of business but if I consider the profit I made as a result of Interest turns that equasion in my favor.


Coming back to your question I think anything beyond the value of 1 gram of gold would be interest even by the standard of the speaker in the video.

 

[AsifAmeer]

I have to admit this was an excellent try by the Professor. He ALMOST got it! Yes! Its the banks! Lekin banking is just another symptom like interest. And he almost got there but he stopped at the "RESERVES". No!! Its LEVERAGE!! If you look at Leverage from a Macro level, every financialized sector in the economy has experienced inflation.

Plus his concept of cheap money, which the central bankers called ZIRP (zero interest rate policy), thats not the solution but the problem. No one disagrees that Price controls distorts markets. Imagine trying to control Interest rates via money supply. This will blow bubbles in asset classes. This is exactly what caused the housing bubble in US, the commodities bubble in the recent run up in commodities.

Money has to be scares for it to move economic signals in the economy. Here the professor is mixing up ZIRP with the "velocity of money" (MV = PT). Abundant money kill kick off the velocity of money, resulting in inflation.

Sure you can have an interest free economy, WITHOUT the boom & bust cycle, if you use SOUND (static) money supply and get rid of leverage.

Lekin I can imagine having an interesting debate with the professor. Thanks for sharing!

video

 

[gazoomartian]

Here is what Gazoo truly thinks, some may not agree with it, but nonetheless my view.


1. If the rate of return has been fixed at the time of transaction then it is Riba.

example: If you borrow $1,000 on Jan 1, 2012 at 12% interest, youwill be paying no matter what, 1% per month. Probably about $120 by the year end. This is Riba. Canada has Guaranteed Investment Certificates that pays you interest at predetermined rate, Americans have the save thing which I believe is CD (certificate of deposit). Pakistan Prize Bond is one manhoos example of Riba because it carries fixed rate or return.

Because you have agreed to pay additional 7gm of silver them its Riba, because you did not allow the market fluctuation. If you had exchanged 1gm of gold with 53gm of silver then it would have been a barter, which is perfectly kosher in Islam.


2. If you make an agreement to pay back at market price then its tijarah (trade). For example, at the time of maturity of the deal (say a year later) you could make MORE or LESS depending on the market, then you would be alright. In this context you could get back 50gm, 40gm, 60gm, even 53gm, whatever the market price at the time payback. This would not be haram. Stock share is one example.



May Allah forgive me if I am wrong

By the way Aasif, I have an alternate name for interest based commerce. Its called MONEY RENTAL. In fact, you paying rent on money borrowed (in form of interest), where as the principle remains there until you pay off.

my $0.03

 

[Saboo]

Bro @ AsifAmeer
There is a lecture by Sheikh Imran HUsein on Ribba and he discussed the hadith
you mentioned, if you care to listen.
It is on Utube....The prohibition of Ribba by Sheikh Imran HUssein.

 

[Saboo]

http://www.youtube.com/watch?v=OzJkX9yH78o
[MENTION=24375]AsifAmeer[/MENTION]
This is the link bro

 

[Star Gazer]

I think if the money is made of gold or silver then it is easy to return the amount that one has borrowed without incurring any interest or riba.
Lets say I borrow 20 tolas of gold and return it after one year I will have to return only 20 tolas. I can borrow current currency in the amount of 20 tolas but when I have to return it I should be returning the amount of money which would buy 20 tolas of gold at the time that I return it.

The other question is for exchange of commodities. That is a little more complicated for me.

 

[f4faizoo]

Would this transaction be legit in the light of Quran and Sunnah?

This is 100% ribba……..as it is over and above the principal……u have fixed from the start that u will be charging 7 grams of silver over and above the borrowed money……which is as clear as day light that it is ribba…….having said that I will probe teh question further ………….

Since ur question is based on commodities and not paper money so it would be making the question a lot simpler as indexation is out of question here……….but u can say that u were making a contingency for the possible loss due to diff in the values of Gold & silver and its sensitivity to market ……….. BUT EVEN IF YOU ARE NOT CHARGING THE EXTRA 7 GRAMS THEN AGAIN………

The question is that why u r going into a transaction that would create ambiguity. Cuz gold & silver aren’t proportionately sensitive to market value fluctuations…….. silver has diff behavior and gold behaves differently…….especially when it (gold) becomes an investment commodity……...why don’t u borrow 1 gram of Gold and return a gram. There is nothing over and above…….

In the times of Prophet (SAW) borrowing was for satisfaction of a need not for profit making. What u r doing here is borrowing to create a chance where u can make profit. Why don’t u borrow a commodity that has a greater chance of loss……..then profit making…… borrow a KG of wheat to be returned in gold…….after one year????......are u ready to do it????........
I aint discouraging u from asking questions but what I felt ( I may be 100% wrong) from the question was like the Quranic mention of people that were not allowed to fish on a particular day…and they tried to trick Almighty…which is not possible so they fell victim to what they deserved……..

 

[jimz84]

Here is what Gazoo truly thinks, some may not agree with it, but nonetheless my view.


1. If the rate of return has been fixed at the time of transaction then it is Riba.

example: If you borrow $1,000 on Jan 1, 2012 at 12% interest, youwill be paying no matter what, 1% per month. Probably about $120 by the year end. This is Riba. Canada has Guaranteed Investment Certificates that pays you interest at predetermined rate, Americans have the save thing which I believe is CD (certificate of deposit). Pakistan Prize Bond is one manhoos example of Riba because it carries fixed rate or return.

Because you have agreed to pay additional 7gm of silver them its Riba, because you did not allow the market fluctuation. If you had exchanged 1gm of gold with 53gm of silver then it would have been a barter, which is perfectly kosher in Islam.


2. If you make an agreement to pay back at market price then its tijarah (trade). For example, at the time of maturity of the deal (say a year later) you could make MORE or LESS depending on the market, then you would be alright. In this context you could get back 50gm, 40gm, 60gm, even 53gm, whatever the market price at the time payback. This would not be haram. Stock share is one example.



May Allah forgive me if I am wrong

By the way Aasif, I have an alternate name for interest based commerce. Its called MONEY RENTAL. In fact, you paying rent on money borrowed (in form of interest), where as the principle remains there until you pay off.

my $0.03

[MENTION=8825]gazoomartian[/MENTION]...what do you think about Forex exchange market ??.. Forex trading is interest based or not??

 

[gazoomartian]

@gazoomartian...what do you think about Forex exchange market ??.. Forex trading is interest based or not??

FOREX (Foreign Exchange) is NOT a Riba because the exchange rate fluctuates. Also, its a currency exchange and not a goods exchange. Exchange is done to buy certain currency to be able to buy gds using the popular currency. in my humble opinion it is not a Riba.

This FOREX business is an ugly duckling. One currency has privilege over other and creates trade imbalance, thirst, hunger, war, which is obvious by US $s.

Use of precious metal is the only way to keep the world balanced and checked. In layman terms, anything or practice that causes hardship to the masses is not allowed, US$ and UKpound are the prime examples.

 

[AsifAmeer]

You missed the aspect of the transaction and introduction of a 2nd commodity in the transaction. It was done to eliminate "Guaranteed profit" for the lender.

You are mixing up Profit with Interest. Lender takes a risk here as well. Thats why I said, this is an Academic question and requested references.


I was listening to the video [MENTION=6134]atensari[/MENTION] shared and the professor said the very same thing. Get the definitions clear 1st and dont mix up profit with interest.

This is 100% ribba……..as it is over and above the principal……u have fixed from the start that u will be charging 7 grams of silver over and above the borrowed money……which is as clear as day light that it is ribba…….having said that I will probe teh question further ………….

Since ur question is based on commodities and not paper money so it would be making the question a lot simpler as indexation is out of question here……….but u can say that u were making a contingency for the possible loss due to diff in the values of Gold & silver and its sensitivity to market ……….. BUT EVEN IF YOU ARE NOT CHARGING THE EXTRA 7 GRAMS THEN AGAIN………

The question is that why u r going into a transaction that would create ambiguity. Cuz gold & silver aren’t proportionately sensitive to market value fluctuations…….. silver has diff behavior and gold behaves differently…….especially when it (gold) becomes an investment commodity……...why don’t u borrow 1 gram of Gold and return a gram. There is nothing over and above…….

In the times of Prophet (SAW) borrowing was for satisfaction of a need not for profit making. What u r doing here is borrowing to create a chance where u can make profit. Why don’t u borrow a commodity that has a greater chance of loss……..then profit making…… borrow a KG of wheat to be returned in gold…….after one year????......are u ready to do it????........
I aint discouraging u from asking questions but what I felt ( I may be 100% wrong) from the question was like the Quranic mention of people that were not allowed to fish on a particular day…and they tried to trick Almighty…which is not possible so they fell victim to what they deserved……..

 

[AsifAmeer]

You missed the point. How is the extra 7 grams of Silver "Guaranteed Profit i.e. Interest"? Silver prices could collapse in the future.

How is it different then me selling you 60gm of Silver for 1 gm of Gold?

Here is what Gazoo truly thinks, some may not agree with it, but nonetheless my view.


1. If the rate of return has been fixed at the time of transaction then it is Riba.

example: If you borrow $1,000 on Jan 1, 2012 at 12% interest, youwill be paying no matter what, 1% per month. Probably about $120 by the year end. This is Riba. Canada has Guaranteed Investment Certificates that pays you interest at predetermined rate, Americans have the save thing which I believe is CD (certificate of deposit). Pakistan Prize Bond is one manhoos example of Riba because it carries fixed rate or return.

Because you have agreed to pay additional 7gm of silver them its Riba, because you did not allow the market fluctuation. If you had exchanged 1gm of gold with 53gm of silver then it would have been a barter, which is perfectly kosher in Islam.


2. If you make an agreement to pay back at market price then its tijarah (trade). For example, at the time of maturity of the deal (say a year later) you could make MORE or LESS depending on the market, then you would be alright. In this context you could get back 50gm, 40gm, 60gm, even 53gm, whatever the market price at the time payback. This would not be haram. Stock share is one example.



May Allah forgive me if I am wrong

By the way Aasif, I have an alternate name for interest based commerce. Its called MONEY RENTAL. In fact, you paying rent on money borrowed (in form of interest), where as the principle remains there until you pay off.

my $0.03

 

[AsifAmeer]

Problem with adding no premium on time is this
"What if I borrow 20 tolas from you INDEFINITELY since I do not incuring any cost to borrow"

I think if the money is made of gold or silver then it is easy to return the amount that one has borrowed without incurring any interest or riba.
Lets say I borrow 20 tolas of gold and return it after one year I will have to return only 20 tolas. I can borrow current currency in the amount of 20 tolas but when I have to return it I should be returning the amount of money which would buy 20 tolas of gold at the time that I return it.

The other question is for exchange of commodities. That is a little more complicated for me.

 

[Muslimpower]

http://www.archive.org/stream/Islam...ykhMuhammadIdreesMeerathir.a#page/n0/mode/1up

 

[AsifAmeer]

>>One currency has privilege over other and creates trade imbalance, thirst, hunger, war, which is obvious by US $s.
>>Use of precious metal is the only way to keep the world balanced and checked

Gazoo, the world was on a Gold standard when it was hit by the Great Depression which wasnt just an American phenomenon but Global. The KEY reasons for the great depression was the HOARDING of GOLD by France and the US. When there is less money, there is less trade. hence we go hungry to bed.

The free floating currency model, thing is you cant HOARD paper because inflation will eat away your savings. You will see this with China who is trying to hoard US dollars.

Fact is, the human behavior is so irrational that no logic can comprehend it..

FOREX (Foreign Exchange) is NOT a Riba because the exchange rate fluctuates. Also, its a currency exchange and not a goods exchange. Exchange is done to buy certain currency to be able to buy gds using the popular currency. in my humble opinion it is not a Riba.

This FOREX business is an ugly duckling. One currency has privilege over other and creates trade imbalance, thirst, hunger, war, which is obvious by US $s.

Use of precious metal is the only way to keep the world balanced and checked. In layman terms, anything or practice that causes hardship to the masses is not allowed, US$ and UKpound are the prime examples.