prohibition of usury in shariah

7/27/2019 Prohibition of Usury in Shariah

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There are several factors and elements in Islamic muamalattransactions which are wholly forbidden by Islam. These

elements may cause a transaction to be forbidden (haram),deviate from the Shariah, and became null and void. Amongthese elements and factors are:

Usury ( riba) Uncertainty ( gharar) Gambling Deception or betrayal; and Providing forbidden items/services

Prohibited Factors AndElements In Islamic Muamalat

Transactions


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In lexical terms, riba is defined as an addition, fertility or fecundity. Allah S.W.T. revealed:

but when We pour down rain on it, it is stirred (tolife), it swells(Al-Hajj [22:5])

THE DEFINITION OF USURY

(RIBA)


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The Shariah Advisory Council of the SecuritiesCommissions definition of riba from the perspective of Syara,theextra or excess gained by one of the parties

from another party without obtaining the supposedreturn.


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The prohibition of usury in Islam is

very clear-cut, so much so that thereis no conflict of opinion amongst the

scholars.

The Evidence For Its

Prohibition:


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Several Quranic verses as well as

hadith clearly forbid usury. Among theverses revealed by Allah S.W.T. whichdenounce and warn strongly against

usury are:

Quran


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O you who believe ! Devour not

usury, doubled and multiplied; butfear Allah; that you may (really)

prosper.

(Ali Imran[3:130 ])


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That which you lay out for increasethrough the property of (other)

people, will have no increase withAllah: but that which you lay out

for charity, seeking theCountenance of Allah, (will

increase); it is these who will get arecompense multiplied.(Al-Rum[30:39])


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That they took Usury, thoughthey were forbidden; and thatthey devoured mens substancewrongfully We have preparedfor those among them who reject

Faith a grievous punishment.(Al-Nisa [4:161])


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The hadith below is the

explanation given by the ProphetS.A.W. about the actual position of the takers, representative, witnessand writer of usury who are allcondemned by Allah S.W.T.:

Hadith


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Allah S.W.T. curses the receiver of usury, the giver of usury, the two witnesses, and the writer (of the usury

contract). (Narrated by Ahmad, Tirmidzi, and Ibn Majah)


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The Fuqaha divides usury (riba) into a number of categories, yet for the purpose of this publication it is

sufficient to understand the two main categories. Thesetwo types of usury determine their definitions and thecircumstances and methods through which they take place.In general, riba is divided into two main categories: the

riba that occurs in trading affairs is known as riba al-buyuwhile the riba that occurs in matters pertaining todebt is referred to as riba al-duyun.

TYPES OF USURY


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Riba al-buyuis the usury which arises in the contract (aqad) of trading of ribawi items and occurs in two circumstances.

The first situation being the trading or exchange of twousurious items with differences in weight or quantity.The second situation being the trading or exchange of differentribawi items but the exchange takes place in deferment.

Thus, the deferral is considered usury. As stated in the hadithnarrated by Muslim, this deferred exchange conflicts with theterms and conditions applied in the exchange of ribawi items.

Riba Al-Buyu


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To illustrate the first situation, consider the trading of 5 gramsof gold (type 916) and 6 grams of gold (type 750). Thisexchange is forbidden due to the excess of the 750-type gold andis considered usury. The two types of gold are supposed to havethe same weight, regardless of quality. In the second situation,lets say Mrs. Ruhana pays RM3,585 to purchase IndonesianRupiah currency worth RP100,000, but due to unavoidable problems the Rupiah can only be handed over to Mrs. Ruhanaafter a week. As the result of delaying the hand-over, usury hasoccurred because of the delayed exchange of the ribawi items(Rupiah and Ringgit currencies) by Mrs. Ruhana is consideredusury. An exchange or purchase of ribawi items with the sameillah must occur simultaneously in an aqad ceremony.

Illustration


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Riba al-duyun is the usury that occurs in the contract(aqad) of debt and loans.

This type of riba also arises under two circumstances.The first occurs when an additional rate or benefit isapplied to the total amount of the principal loan.The second situation occurs when the additional rate or benefit exceeds the total amount of the basic loan imposeddue to the borrowers failure to pay the stated loanrepayment amount at the agreed time.

Riba Al-Duyun


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To illustrate the first situation, lets say Mr. Ikram hasapplied for a loan of RM10,000 from a conventional bank

and is required to make a repayment of RM18,000.Therefore, the excess over the principal of the loan of RM8,000 is regarded as usury. In the second situation,say Mr. Ikram sells a car priced at RM40,000 for deferred

payments over five years.If the buyer is not able to repay within the promisedwindow, Mr. Ikram prolongs the repayment period byincreasing the amount of debt that must be repaid by thebuyer. The increase in the debt to be repaid is usury.

Illustration


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The loss of blessings in property and life:Allah will deprive usury of all growth, but will give increase

for deeds of charity; for He loves not creaturesungrateful and wicked.

(Al-Baqarah[2:276]) According to the Prophet S.A.W.:

Although usury is profitable (from the angle of itsquantity), but the result is little and leads to poverty

(Narration of Ahmad and Al-Hakim)

IMPACTS OF USURY


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Usury is like committing adultery with ones ownparents:The Prophet S.A.W. has mentioned:Usury has 73 doors. The usury with the lightest weight of sin is

equal to a man who commits adultery with his own mother.(Narrated by Ibn Majah)

This warning from the Prophet is dire and the sin is soimmense that Rasulullah S.A.W. drew a parallel between the

practitioner of usury and the one who commits adultery withonesown mother, although this is the lightest form of usury.


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Usury is worse than committing adultery 36 times:The Prophet S.A.W. has mentioned:

A dirham of usury taken by a man within his knowledge isworst than committing adultery 36 times.(Narrated by Ahmad and Darulqutni)

The wickedness of the usury practitioner is such that theProphet S.A.W. warned that the sin is far worse thancommitting adultery 36 times. Such a comparison highlightsthe magnitude of the sin of one who consumes or practices

usury. Muslims are thus advised to distance themselves fromusury.


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One of the seven major sins:The Prophet S.A.W. has mentioned:

Stay away from the seven major sins, deviance (syirik), sorcery ,killing without rights, feeding off the assets of orphans, taking

usury, running away from the battlefield (out of fear) andaccusing an innocent woman of committing adultery (without

fair witness)(Narration of Al-Bukhari and Muslim)Such is the wickedness and evil of practicing usury that theProphet S.A.W. equated this sin as being equivalent with

deviance towards Allah S.W.T, murder, etc. The prohibition of usury has been stated very clearly and the practice of usurymust be renounced, specifically by the Muslims.


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From the humanitarian perspectiveProhibiting usury or usury under other names aims to

prevent the moneyed classes from oppressing those in need.Usury is clearly at odds with human rights since debtorshave no choice but to repay more than what he or she has

gained in the exchange.

The blessings in The Prohibition Of Usury and

the benefits thereof


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The parties that practice usury will inevitably be richer and well-off. Those who consume interest live in ease and

luxury, as a result of the growth of their loans. The richwho are able to lend get richer by the day, whereas debtorsand those in desperate need remain trapped in poverty as aresult of interest accumulating on the money they owe.


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The practice of usury will instill the trait of idleness.Usury encourages its practitioners to live in idle luxurywithout working, whereas Islam encourages Muslims tostrive and work.


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The entire economic system becomes fragile andvulnerable as real economic activities are obscured by

usury.The usury-based system makes it difficult for people to

participate in real economic activities.The sidelining of justice, transparency, and balance in the

economic system were factors in the global financial crisisof which the people are currently facing.


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Uncontrolled granting of credit in pursuit of high returnsled to a devastating sub-prime crisis.

The economic system is exposed to high volatility risks.The breakdown of the usury system has destroyedcredibility and reputation, and caused an erosion of publictrust and credibility both in the financial sector and in thereal economy.Usury raises the risks of subsequent economic downturnsby perpetuating the gap between real economic values andinflated financial transactions.

From the Economic

Perspective


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The Islamic system does not encourage customers to be indebt, and to shoulder excess debt.

Thus, the Islamic banking system is not allowed to offer repayment facilities to those who lack the ability to makerepayments. This is in line with economic riskmanagement systems that aim to prevent credit and sub-

prime crises.


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The Islamic system does not permit guaranteed returns or profits on investment.

Although fixed returns seem less risky, in reality itburdens all parties, especially the vendor of theinvestment.Forbidding the practice of guaranteed returns relieves the

burden on the vendor and encourages sustainableeconomic growth founded on real transactions.


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Islam encourages mudharabah and musharakah ininvestment.

These concepts are characterised by unique, just and fair controls, in complete contrast to the prevailing system of usury and capitalism.

prohibition of usury in shariah

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