 |
| Source: Financial Islam |
Linguistically, riba means, ‘increase’ and ‘growth’. According to Saleh (1986, p. 13), “Riba in its Shariah context, can be defined, as generally agreed, as an unlawful gain derived from the quantitative inequality of the countervalues in any transaction purforting to effect the exchange of two or more species, which belong to the
same genus and are governed by the same efficient cause. In Arabic, Riba means increase, excess, expansion, additional etc.
Definition Of Riba
Riba may be defined as any excess paid and received over and ; above the principal, as a condition of loan for which no ‘ recompense or exchange value is paid or received which tends to increase with the passage of time and is not related with business result. Interest may also defind as the excess of money paid by the borrower to the lender over and above the principal for using the lender’s liquid money over a certain period of time. But lending money for interest was abhorred and in most cases, prohibited by Judaism, Christianity and Islam. Definition Of Riba And Riba In Islam
Riba is traditionally viewed as a predetermined, fixed and time-related excess over and above the principal of a loan (or debt created in lieu of a credit transaction).
Characteristics of Riba as mentioned in the holy Qur’an
1. Origin of Riba is loan (Quard or Dayn).
2. Riba is the excess over and above the principal of loan.
3. Riba is related with time and becomes doubled, redoubled and multiplied with the passage time.
4. Riba is not related with the result of business.
Conventional views also opined that interest has at least four characteristics.
a. It is positive and fixed ex-ante,
b. Tied to the time period,
c. Its payment is guaranteed regardless of the outcome or the purposes for which the principal was borrowed, and d. The state’s apparatus sanctions and enforces its collection.
The economic rationale for eliminating riba (interest) is based on values of justice, efficiency, stability and growth.
Riba in the Holy Quran There are 12 (twelve) verses regarding Riba in 4 (four) suras. The chronological revelation of the same has. shown below in the following:
The word ‘Riba’ was mention total 8 times in these 12 verses of the holy Quran. The word ‘Riba’ is used once each in Suratun Rum (verse no. 39), Sunatun Nisa (verse no. 160), Sura Ale Imran (verse no. 130), Sura Barakah (verse no. 276 & 278) and 3 times in Sura Barakah (verse no. 275).
Interest was prohibited form the be’gining of the Christianity to the advent of the Reform Movement and from the Church under Pope in Rome to the division of other Churches. Christ said, “Lend hopping for nothing again.” (Luke VI 35, Hanley : History : History of Economic Thought. 1964. Page : 101)
In Hinduism, usury ‘business was restricted within the “Baithays.
‘Birth of Money from Money is prohibited’- Aristeitle.
Impact of Riba:
1.Negative long term effect on ‘Saving and Investment’.
2.Unemployment and Inflation
3.Interest and Stability
interest is one of the most destabilizing factors in a capitalist economy. Milton Friedman once asked: “What accounts for this unprecedented erratic behavior of the US economy?” and responded by saying: “The answer that leaps to mind is the correspondingly erratic behavior of interest rates.”
3. Interest and Wealth Concentration
interest is one of the causes of high levels of wealth concentration in capitalist economies, for it creates a great deal of income inequality. Income inequality, in turn, engenders social inequality, namely inequality of opportunity for the disadvantaged to earn their live hood. In the modern world, industrialists borrow capital from the banks and make a large profit however, they pay only a small part to the depositors through the banking system.
4. Justice and equity: entrepreneurs are discriminated against when they pay a fixed interest rate, even in the case of loss. And the contributor of capital is discriminated against when the entrepreneur makes a large profit but pays only a amount interest for the capital. Such discrimination is totally unjust
Impact on Riba : At a Glance
The evil consequences of Riba were never as evident in the past as they are today. Today interest has affected ‘not only the debtor or creditor, but also the economic, social and political life of human being at large.
1. Impact on Saving, Investment and Production and Employment.
a. It does not increase savings, thus capital formation is barred
b. It restricts investment and production c. It increases unemployment.
2. Impact on Distribution
a. It creates injustice,
b. It enhances difference between ‘haves’ and ‘have-nots’.
3. Impact on Stability
a. It creates inflation, fluctuation and volatility, etc.
b. It creates trade cycle, depression, etc, c. It tends to destruction.
Some Misgivings about Riba: Riba, Interest and Usury
1. Interest is a pre-determined, fixed and time-related excess on loans. But as explaine above, riba is a much broader concept than this. Riba sterna from a violation of the Qur’anic decree that loans and debts must be settled on an equal basis. Time or length of time are not critical for riba since the basic nature of the transaction in which riba arises is time-invariant. Pre-detcrmination of the return and its fixity of variability also do not matter for the same reason. In view of all this, it is fair to conclude that in fact interest is a special case of riba—not the other way round.
2. Interest vs usury distinction is irrelevant for adjudging :
Riba. Likewise, the purpose for which loans are taken is i also unimportant of purposes of riba.
3. At present, bank transactions involving interest come under the purview of loan transaction. Thus bank interest is riba. That modern banks have no precedence in Islamic history is no ground for treating bank interest differently from riba for two reasons. First, notwithstanding their complex nature, banks still personify groups of individuals their shareholders.
4. Any change in the nomenclature of interest to ‘mark-up’ or ‘profit’ is inconsequential from the point of view of riba as long as the basic transaction between banks and their customers remains a loan transaction. Definition Of Riba And Riba In Islam