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

[Muslimpower]

http://www.archive.org/stream/ZarrK...NazarSayByShaykhDrIsmatullah#page/n0/mode/1up

 

[Muslimpower]

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

 

[Muslimpower]

http://www.archive.org/stream/Hurma...ShaykhDrMehmoodAhmadGhazir.a#page/n0/mode/1up

 

[salaudin]

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 guess the problem simplifies a bit if we agree upon a proper definition of Riba. To the best of my knowledge (as I cannot quote any source), it is as follows
"renting out your money"
Assuming the above mentioned definition defines Riba, I will try answering your question.

Since, as of today,
1 [g] of Silver = $1
1 [g] of Gold ~ $53

A more appropriate scenario would be to return the same amount of Silver to buy 1 [g] of Gold after 1 year; be it 53 or 60 etc. Having said that, it is preferable to return the same thing (a commodity) as it eliminates this confusion.

Now, you can interpret it and draw your own conclusion.
NOTE: At this point, I do not have any references as I discussed this from an individual who knows about it. If you really want, I can ask for the literary references.

Hope it helps
Regards

 

[Unicorn]

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"

You can't use the example of indefinite borrowing it is only possible if the interest is paid regularly. No one will lend any money INDEFINITELY.

 

[AsifAmeer]

fair enough. Lekin here is what I wanna do - understand the definition you used exactly.
"RENTING OUT MONEY"

• What do you mean by MONEY? Money can be dollar, gold, SALT(old greek times, elephant ivory, Wheat grain (i.e. anything of need and is scarce)
• Whats the difference b/w Money & Capital? If none, then how is rent a house not RIBA?

• Who bears the liability? I lend you 1 gm gold, you invest in a harvest and the crop rots. Who takes a loss?

I was simply trying to magnify the ambiguity in the definition "Renting of Money"

I feel the definition of RIBA is "Guaranteed Profit".



@A.Ali.T [MENTION=8742]Star Gazer[/MENTION] [MENTION=13871]Unicorn[/MENTION]

I guess the problem simplifies a bit if we agree upon a proper definition of Riba. To the best of my knowledge (as I cannot quote any source), it is as follows
"renting out your money"
Assuming the above mentioned definition defines Riba, I will try answering your question.

Since, as of today,
1 [g] of Silver = $1
1 [g] of Gold ~ $53

A more appropriate scenario would be to return the same amount of Silver to buy 1 [g] of Gold after 1 year; be it 53 or 60 etc. Having said that, it is preferable to return the same thing (a commodity) as it eliminates this confusion.

Now, you can interpret it and draw your own conclusion.
NOTE: At this point, I do not have any references as I discussed this from an individual who knows about it. If you really want, I can ask for the literary references.

Hope it helps
Regards

 

[Star Gazer]

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"

It's a good question, all business transaction is based on good will but ofcourse some controls have to be built into the system,there could be many.
I suppose pledging some property or business could be one solution, or may be Guarantee of another person like a personal bond could work.

 

[AsifAmeer]

Exactly my point. I actually took this question to the Imam of my masjid. He goes now how bad RIBA is there should be Interest-free lending. He had a pen in his pocket. I pointed to his pen and said "Would you lend me your pen?" He pulls the pen out and says "Sure!". Before taking the pen I uttered "indefinitely". He looks confused and says "What do you mean?" I repeat "I want to BORROW your PEN indefinitely" . He smiles and gets my point. He has referred me to another Aalim who lives 60 miles away from my home. Before I see him, I wont to make my thought process crystal clear - the main reason why I posted the question here. Bro, plz do read all my posts in this thread and let me know if you have any input.

You can't use the example of indefinite borrowing it is only possible if the interest is paid regularly. No one will lend any money INDEFINITELY.

 

[AsifAmeer]

>>all business transaction is based on good will
Business is based on the bottom-line (profit). Let me give you examples

• drugs
• Prostitution

No good-will there. We are dealing with human reaction here. Theres a difference b/w "This is how it should be" vs "This is how it is"

It's a good question, all business transaction is based on good will but ofcourse some controls have to be built into the system,there could be many.
I suppose pledging some property or business could be one solution, or may be Guarantee of another person like a personal bond could work.

 

[affanpervez]

Riba means earning profit by borrowing money to someone which is totally different from investing in a business. where you can get both profit or loss. So as per my understanding if the borrower has to return gold after 1 year he will give you either 1 gram of gold or equal amount money based on the current price of 1 gram of gold or as stated in your question "silver based on the current ratio of gold to silver(for removing profit or loss)".

 

[AsifAmeer]

I like the simplicity of your answer without any discrepancy.

If you are right, does that mean Prices cannot be negotiated in advance?
E.g. I cant say that I will sell you my house for 100,000 1 year from today..

Riba means earning profit by borrowing money to someone which is totally different from investing in a business. where you can get both profit or loss. So as per my understanding if the borrower has to return gold after 1 year he will give you either 1 gram of gold or equal amount money based on the current price of 1 gram of gold or as stated in your question "silver based on the current ratio of gold to silver(for removing profit or loss)".

 

[Unicorn]

fair enough. Lekin here is what I wanna do - understand the definition you used exactly.
"RENTING OUT MONEY"

• What do you mean by MONEY? Money can be dollar, gold, SALT(old greek times, elephant ivory, Wheat grain (i.e. anything of need and is scarce)
• Whats the difference b/w Money & Capital? If none, then how is rent a house not RIBA?

• Who bears the liability? I lend you 1 gm gold, you invest in a harvest and the crop rots. Who takes a loss?

I was simply trying to magnify the ambiguity in the definition "Renting of Money"

I feel the definition of RIBA is "Guaranteed Profit".



@A.Ali.T @Star Gazer @Unicorn

Trading unequal amount of dates among superior and inferior dates is the reason you posted the thread. If you listened to Imran Husein's video he does not explains how such a transaction is the very essence of Riba except because it says so. And if you were to consider such a transaction as Riba and apply it in any transaction it takes the Riba concept in a whole new direction. The video posted by Mr. Atensari completely ignores this concept and its implications and a new way have to be discovered weather there is Riba involved or not.

 

[Star Gazer]

fair enough. Lekin here is what I wanna do - understand the definition you used exactly.
"RENTING OUT MONEY"

• What do you mean by MONEY? Money can be dollar, gold, SALT(old greek times, elephant ivory, Wheat grain (i.e. anything of need and is scarce)
• Whats the difference b/w Money & Capital? If none, then how is rent a house not RIBA?

• Who bears the liability? I lend you 1 gm gold, you invest in a harvest and the crop rots. Who takes a loss?

I was simply trying to magnify the ambiguity in the definition "Renting of Money"

I feel the definition of RIBA is "Guaranteed Profit".



@A.Ali.T @Star Gazer @Unicorn

I have asked the same question about the rent on a house, and have not received any satisfying or convincing answer to that.Leaving that aside.
I do believe that there has to be one guiding principle for the definition of riba, and I am sure some one in this Allah's world knows what he/she is talking about and it is a matter of finding that person or school of thought.

I do understand that taking money or renting money for a period of time and then returning it with some percentage increase is riba. My thought is that we can e.g buy a house worth say $100,000 and the amount of gold that I could buy with that amount is say, 10 pounds today. Now it should be arranged in a way that I should be paying the value of gold every month,e.g. I have to pay off the 10 pounds of gold in 30 years = 12 *30=360 months. Per month I owe .027 pounds of gold which comes to $ 278 each month. Of course because who ever gave me loan for 30 years should get some thing for his help they could charge a service fee which should not be allowed to be more than 20% of the total amount otherwise the service fee could go up to 100 % of the amount or more like oont kay galay mein billi.
At the end of the 30 years when I have paid in full the 10 pounds of gold the house becomes my property. Now if the value of gold goes up as we proceed then of course the monthly payment also goes up because in 30 years I have to catch up, or if the value of gold goes down as we move then the monthly payment could go down, or I could pay all the gold in one go if I have the money/currency.
We can use silver or any other metal acceptable because it is non perishable and almost 100% recyclable.

Of course this is a very broad frame work of any sort and there could be many fine tunings needed which are obscure to my mind, but this is something that I have been able to understand so far.
I would like to see how this could work.

 

[AsifAmeer]

I had sent this question to an Islamic Uni Professor here in the US. I just got a reply back this its not possible to answer this question in an email. I have been asked to join that Uni and take a course.

Kiya kahoun mein yaar...

Personally I enjoyed [MENTION=6134]atensari[/MENTION] 's video. He explained it very well that there are 2 profits - profit from liability and profit from equity. Profit from Liability is the focus of RIBA. Where I differed with the Professor was on Leverage. He mixed up Velocity of Money with ZIRP. There's a diff b/w correlation & causation. Lekin he came very close to nailing it down.

Here's the hadith
Narrated Abu Said al-Khudri
Once Bilal brought Barni (i.e. a kind of dates) to the Prophet and theProphet asked him, "From where have you brought these?" Bilal replied,"I had some inferior type of dates and exchanged two Sas of it for oneSa of Barni dates in order to give it to the Prophet; to eat." Thereupon the Prophet said, "Beware! Beware! This is definitely riba(usury)! This is definitely riba (Usury)! Don't do so, but if you wantto buy (a superior kind of dates) sell the inferior dates for money and then buy the superior kind of dates with that money."

This is the hadith where I got the idea of using forward contract to tackle the issue of time-premium. Thats why I added 2nd medium as money in the transaction.

Trading unequal amount of dates among superior and inferior dates is the reason you posted the thread. If you listened to Imran Husein's video he does not explains how such a transaction is the very essence of Riba except because it says so. And if you were to consider such a transaction as Riba and apply it in any transaction it takes the Riba concept in a whole new direction. The video posted by Mr. Atensari completely ignores this concept and its implications and a new way have to be discovered weather there is Riba involved or not.

 

[AsifAmeer]

Think of yourself as the lender, now tell me. Would you lend of 10 lbs of Gold for 30 years with Guaranteed NO PROFIT but with chances of a default? We cant ignore the fact that humans react to incentives. Even God set up hell and heaven.

That service charge on the loan. I am assuming it would be a percentage of the loan and not a fixed amount. If I lend from you $100, you may charge $3 from me but you wont charge $3 for a $300,000 loan. I dont see a difference in Riba and service fees if that fees is more than the cost handling the paperwork, filing and book-keeping of the loan and its installments, in which case the bigger the loan the lower the % in service fees.

Reason why I used metal as an example is to isolate the effects of Inflation and Discount rate by the central bank of that currency.

I have asked the same question about the rent on a house, and have not received any satisfying or convincing answer to that.Leaving that aside.
I do believe that there has to be one guiding principle for the definition of riba, and I am sure some one in this Allah's world knows what he/she is talking about and it is a matter of finding that person or school of thought.

I do understand that taking money or renting money for a period of time and then returning it with some percentage increase is riba. My thought is that we can e.g buy a house worth say $100,000 and the amount of gold that I could buy with that amount is say, 10 pounds today. Now it should be arranged in a way that I should be paying the value of gold every month,e.g. I have to pay off the 10 pounds of gold in 30 years = 12 *30=360 months. Per month I owe .027 pounds of gold which comes to $ 278 each month. Of course because who ever gave me loan for 30 years should get some thing for his help they could charge a service fee which should not be allowed to be more than 20% of the total amount otherwise the service fee could go up to 100 % of the amount or more like oont kay galay mein billi.
At the end of the 30 years when I have paid in full the 10 pounds of gold the house becomes my property. Now if the value of gold goes up as we proceed then of course the monthly payment also goes up because in 30 years I have to catch up, or if the value of gold goes down as we move then the monthly payment could go down, or I could pay all the gold in one go if I have the money/currency.
We can use silver or any other metal acceptable because it is non perishable and almost 100% recyclable.

Of course this is a very broad frame work of any sort and there could be many fine tunings needed which are obscure to my mind, but this is something that I have been able to understand so far.
I would like to see how this could work.

 

[Unicorn]

I had sent this question to an Islamic Uni Professor here in the US. I just got a reply back this its not possible to answer this question in an email. I have been asked to join that Uni and take a course.

Kiya kahoun mein yaar...

Personally I enjoyed @atensari 's video. He explained it very well that there are 2 profits - profit from liability and profit from equity. Profit from Liability is the focus of RIBA. Where I differed with the Professor was on Leverage. He mixed up Velocity of Money with ZIRP. There's a diff b/w correlation & causation. Lekin he came very close to nailing it down.

Here's the hadith
Narrated Abu Said al-Khudri
Once Bilal brought Barni (i.e. a kind of dates) to the Prophet and theProphet asked him, "From where have you brought these?" Bilal replied,"I had some inferior type of dates and exchanged two Sas of it for oneSa of Barni dates in order to give it to the Prophet; to eat." Thereupon the Prophet said, "Beware! Beware! This is definitely riba(usury)! This is definitely riba (Usury)! Don't do so, but if you wantto buy (a superior kind of dates) sell the inferior dates for money and then buy the superior kind of dates with that money."

This is the hadith where I got the idea of using forward contract to tackle the issue of time-premium. Thats why I added 2nd medium as money in the transaction.

A bartered transaction that satisfy the needs of two different people a trade between high quality of dates against lower quality dates in higher how it can be " Riba ". If a third party (buyer of both) is involved than the each of the other participants will left with less dates after that transaction is over. I don't think there is any answer for it. If there is I like to know. Dates are the same birds with different feathers. Even if you want to by superior dates that will cost more money and less for inferior looking at this aspect in reverse than this should be Riba too.

 

[salaudin]

fair enough. Lekin here is what I wanna do - understand the definition you used exactly.
"RENTING OUT MONEY"

• What do you mean by MONEY? Money can be dollar, gold, SALT(old greek times, elephant ivory, Wheat grain (i.e. anything of need and is scarce)
• Whats the difference b/w Money & Capital? If none, then how is rent a house not RIBA?

• Who bears the liability? I lend you 1 gm gold, you invest in a harvest and the crop rots. Who takes a loss?

I was simply trying to magnify the ambiguity in the definition "Renting of Money"

I feel the definition of RIBA is "Guaranteed Profit".



@A.Ali.T @Star Gazer @Unicorn

To keep things simple, let us backtrack a bit and try to do it in non-BusinessAdmin terminology (for unparh like me :) )
As I understood, your question is why
- renting out House, car, chair, bat, table etc is Halal
- renting out gold, silver, dates, wheat, salt, ivory etc is Haram (note: I intentionally left out paper currency as it has added problems)

Answer:
If we were to analyse the above question, it appears that the stuff that has "wear and tear" or "aging" must not be considered "money".
For example, if I were to rent out my chairs, I know they would get used hence loose the value. Renting out a house is a similar case BUT to be honest, for land, I have to ask.

Hope my input helps.
Best regards
Wa'Salam

 

[gazoomartian]

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?

I dont recall there was price mentioned in your original text. The way i understood, you would give 1 gm of Gold (53gm of silver) and get back 60gm of silver, w/o taking the market fluctuation in consideration.

My apologies if I misunderstood and gave you wrong fatwah

 

[AsifAmeer]

Acha what you explained here, I call it the "quality of capital". theek?

Now the question is "IF RENTING MONEY IS RIBA", and Money is something that is not perishable, then how do we explain this Hadith

Narrated Abu Said al-Khudri​

Once Bilal brought Barni (i.e. a kind of dates) to the Prophet and theProphet asked him, "From where have you brought these?" Bilal replied,"I had some inferior type of dates and exchanged two Sas of it for oneSa of Barni dates in order to give it to the Prophet; to eat." Thereupon the Prophet said, "Beware! Beware! This is definitely riba(usury)! This is definitely riba (Usury)! Don't do so, but if you wantto buy (a superior kind of dates) sell the inferior dates for money and then buy the superior kind of dates with that money."

Here's the RIBA was paid in DATES.

What I am trying to point here is that "Renting of Money is RIBA" is a loose/false definition, because the term MONEY gets ambiguous and renting mixes up Liability in the definition.

If you apply the definition "Riba is Gauranteed Profit", it fits well with the hadith. Plus it doesnt drag the complexity of renting, capital, liability and money in the equation.

To keep things simple, let us backtrack a bit and try to do it in non-BusinessAdmin terminology (for unparh like me :) )
As I understood, your question is why
- renting out House, car, chair, bat, table etc is Halal
- renting out gold, silver, dates, wheat, salt, ivory etc is Haram (note: I intentionally left out paper currency as it has added problems)

Answer:
If we were to analyse the above question, it appears that the stuff that has "wear and tear" or "aging" must not be considered "money".
For example, if I were to rent out my chairs, I know they would get used hence loose the value. Renting out a house is a similar case BUT to be honest, for land, I have to ask.

Hope my input helps.
Best regards
Wa'Salam

 

[AsifAmeer]

My apoligies for not taking your post as a fatwa lol. Good one!

Lekin you see how weak we are in even defining RIBA. Read the posts here and we have a hard time even agreeing to the definition of RIBA

I dont recall there was price mentioned in your original text. The way i understood, you would give 1 gm of Gold (53gm of silver) and get back 60gm of silver, w/o taking the market fluctuation in consideration.

My apologies if I misunderstood and gave you wrong fatwah