Considering the fact that, Sukuk (Islamic bond) issuance and trading are important means of investment in the modern economic system, Muslim jurists and economists are trying to find the Islamic alternative. However, to meet the various demands of investors Islamic bonds and certificates should be diversified. We have so far the sukuk al-mudarabah (co-partnership bond) or sukuk al-muqaradah (securitised bond), the sukuk al-musharakah (partnership bond), the sukuk al-Ijarah (Lease bond), the sukuk al-istisna‘ (manufacturing bond), the suku al-salam (differed delivery bond) and the sukuk al-murabahah (differed payment bond).
However, it should be noted that although some of these instruments have been generally accepted as being in compliance with Islamic principles so that they can be traded in the secondary market, the negotiability of certain others is still a point of debate and controversy due to their legal acceptability or compliance with Shari‘ah. Therefore, some of these bonds can be traded in the secondary market while the trade of others is limited to the primary market because they can be exchanged only at face value.
In Malaysia for instance, almost all of the domestic Islamic debt papers issued so far have been based on the principles of murabahah (sale by differed payment), bay‘ bi al-thaman al-ajil (sale by differd payment), bay’ al-’inah (buy back sale) and bay’ al-dayn (debt trading), despite the controversy surrounding the issuance of tradable bonds in the secondary market based on the above two contracts. At the same time, there is a perceptible increase in the willingness amongst Malaysian issuers of bonds to explore other Islamic principles of financing, namely the profit-oriented based musharakah (partnership) as well as the asset-backed mode of ijarah (Lease). Hopefully, the future issuance of Islamic bonds will focus on the widely accepted bonds such as sukuk al-musharakah (partnership bond), sukuk al-mudarabah (co-partnership bond) and sukuk al-ijarah (Lease bond).
However, the issue with Malaysian Islamic bonds, which are basically based on the principles of bay’ al-’inah (buy back sale) and bay’ al-dayn (debt trading), which is not well accepted by the Middle-eastern investors. They claim that, the contract of bay’ al-’inah and bay’ al-dayn is seen as something similar to riba (usury) based financing. This practically pose an unwanted challenge to the Malaysian companies expecting Islamic funds from the Middle-east via bond (sukuk) issuance.
Monday, February 27, 2012
Monday, February 20, 2012
Need for Re-takaful to face the Global Catastrophe?
The challenges posed by both neo-modern and postmodern society and their secular cultures are very far reaching. The impact can be felt in every facet of life be it religious, political, social and economical. Following the rapid and strangulating development of the economy of the super other western powers, the insurance sector inclusive, most developing economies especially in the Muslim world feel a pressing need to re adjust their economies in order to meet up with the rapid development and high rate economic growth taking place in these developing economies.
The Muslim world among others is in need of access to large and open markets among the different Muslim countries in order to have a high rate economic growth too. A survey of recent Muslim scholarship on western theories and epistemologies reveals an attempt to understand western legacy on modern society so as to liberate Muslim societies from secular and foreign control. This is to ensure that political, economic and other preoccupations of Muslims do not become mere distractions of the world from their care and development for the hereafter. Islam is concerned both with material and spiritual advancement.
The Islamic worldview can therefore never be compared to any other worldview. It is against this background that current Muslim scholarship in the field of finance and economics in general should be viewed. It is an attempt at the total Islamization of the banking and financial sector so as to free the Muslim world from the dominant Western civilizational and ideological value-laden economic, financial and banking principles. Presently, most of the Muslim world like third world countries has under-developed economies suffering enormously under the claws and yokes of western economic and financial interest-based system. One of such key areas of modern financing where the Muslim world need a kind of economic co-operation in order to confront the challenges posed by western interest based financial system is Re-takaful Business.
It is sad that in spite of the abundance of human and natural resources in the Muslim world, the Takaful and Re-takaful Business and the entire Muslim world economic sector can still not compete with conglomerate companies like the American Insurance Group and the likes. Though the insurance business in principle was accepted by Islam right from the time of the Prophet when he instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina), yet the insurance business has undergone a lot of developments and innovations since the time of the Prophet.
In view of the Islamic acceptance of insurance in principle as well as the necessity of the insurance scheme in our complex society, there is need to examine for a continuous research into the modern concept of insurance in its entirety so as to bring it in harmony with the rulings and requirements of the Shari’ah. The need to abide by Islamic teachings, guided by Muslim historical heritage and current global insurance and reinsurance indexes cannot be over emphasized. This work therefore is an attempt to examine an aspect of the insurance system in Islam known as the re-takaful business.
What is Re-takaful?
The term Retakaful refers to the Islamic form of reinsurance. The Retakaful business is based on the principles of Takaful in Islam. As stated before Takaful implies a group of people coming together to be jointly responsible for someone or something. ReTakaful therefore means a joint guarantee or pact among clients or cedants who are all the operators of this important work of Takaful based on mutual agreement to jointly indemnify themselves from part of the losses and risks that may happen to any of them. It also may also accrue from the policies they underwrite.
It is therefore an attempt by a group of people who are Takaful operators to pool resources together so as to share among themselves any loss or damage that befalls any of them. The Retakaful business is based on the same human attempt to make provision or protection against any future loss. Just as individuals are motivated to insure themselves with a direct insurer, so also is the insurer also desirous of reinsuring himself against any future loss or damage with a reinsurer. It is this need for reinsurance that brings about Retakaful.
As stated above, the Retakaful business is based on the principles of Takaful in Islam. It can be traced to the early days of Islam when the Prophet himself instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina). By that act, he laid the foundation of Takaful. This ma’qil al-ijtima’ or the system of ‘aqil is similar to what obtained among the Arabs in the Jahil or pre-Islamic period during which a group of Arabs undertook to alleviate the burden of any member of the group that was liable to pay any form of compensation.
Though the insurance as well as the reinsurance business has undergone a lot of developments and innovations since the time of the Holy Prophet (saw), it can still be brought into harmony with the rulings and requirements of the Shari’ah as explained by Muslim jurists. Unless this harmony is effected, the insurance as well as the reinsurance business will be found wanting in respect of many of its operations in modern society.
Need for Re-takaful?
Just as the Prophet recognized the need for ma’qil al-ijtima’ or the system of ‘aqil to protect Muslims against any future loss or damage, so also is there the need to protect the operators of this important work of Takaful from part of the losses and risks that may accrue from the policies they underwrite. This will help to spread the losses and risks involved in the Takaful business as well as lighten the financial impact of such risks and losses on Takaful operators and the financial industry at large.
It is clear that no one is immune from losses and damages against property, business venture and even life itself including Takaful operators themselves, hence the need to offer double securities against them. RETAKAFUL is therefore part of the general precautions than can be taken against damages, risks and losses. Islam is not opposed to taking such precautions as long as it does not contradict with any Islamic contractual law.
The Muslim world among others is in need of access to large and open markets among the different Muslim countries in order to have a high rate economic growth too. A survey of recent Muslim scholarship on western theories and epistemologies reveals an attempt to understand western legacy on modern society so as to liberate Muslim societies from secular and foreign control. This is to ensure that political, economic and other preoccupations of Muslims do not become mere distractions of the world from their care and development for the hereafter. Islam is concerned both with material and spiritual advancement.
The Islamic worldview can therefore never be compared to any other worldview. It is against this background that current Muslim scholarship in the field of finance and economics in general should be viewed. It is an attempt at the total Islamization of the banking and financial sector so as to free the Muslim world from the dominant Western civilizational and ideological value-laden economic, financial and banking principles. Presently, most of the Muslim world like third world countries has under-developed economies suffering enormously under the claws and yokes of western economic and financial interest-based system. One of such key areas of modern financing where the Muslim world need a kind of economic co-operation in order to confront the challenges posed by western interest based financial system is Re-takaful Business.
It is sad that in spite of the abundance of human and natural resources in the Muslim world, the Takaful and Re-takaful Business and the entire Muslim world economic sector can still not compete with conglomerate companies like the American Insurance Group and the likes. Though the insurance business in principle was accepted by Islam right from the time of the Prophet when he instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina), yet the insurance business has undergone a lot of developments and innovations since the time of the Prophet.
In view of the Islamic acceptance of insurance in principle as well as the necessity of the insurance scheme in our complex society, there is need to examine for a continuous research into the modern concept of insurance in its entirety so as to bring it in harmony with the rulings and requirements of the Shari’ah. The need to abide by Islamic teachings, guided by Muslim historical heritage and current global insurance and reinsurance indexes cannot be over emphasized. This work therefore is an attempt to examine an aspect of the insurance system in Islam known as the re-takaful business.
What is Re-takaful?
The term Retakaful refers to the Islamic form of reinsurance. The Retakaful business is based on the principles of Takaful in Islam. As stated before Takaful implies a group of people coming together to be jointly responsible for someone or something. ReTakaful therefore means a joint guarantee or pact among clients or cedants who are all the operators of this important work of Takaful based on mutual agreement to jointly indemnify themselves from part of the losses and risks that may happen to any of them. It also may also accrue from the policies they underwrite.
It is therefore an attempt by a group of people who are Takaful operators to pool resources together so as to share among themselves any loss or damage that befalls any of them. The Retakaful business is based on the same human attempt to make provision or protection against any future loss. Just as individuals are motivated to insure themselves with a direct insurer, so also is the insurer also desirous of reinsuring himself against any future loss or damage with a reinsurer. It is this need for reinsurance that brings about Retakaful.
As stated above, the Retakaful business is based on the principles of Takaful in Islam. It can be traced to the early days of Islam when the Prophet himself instituted what can be regarded as ma’qil al-ijtima’ or social insurance between the Muhajirun (Muslims who migrated from Mecca) and the Ansar (Muslims who welcomed the emigrants in Medina). By that act, he laid the foundation of Takaful. This ma’qil al-ijtima’ or the system of ‘aqil is similar to what obtained among the Arabs in the Jahil or pre-Islamic period during which a group of Arabs undertook to alleviate the burden of any member of the group that was liable to pay any form of compensation.
Though the insurance as well as the reinsurance business has undergone a lot of developments and innovations since the time of the Holy Prophet (saw), it can still be brought into harmony with the rulings and requirements of the Shari’ah as explained by Muslim jurists. Unless this harmony is effected, the insurance as well as the reinsurance business will be found wanting in respect of many of its operations in modern society.
Need for Re-takaful?
Just as the Prophet recognized the need for ma’qil al-ijtima’ or the system of ‘aqil to protect Muslims against any future loss or damage, so also is there the need to protect the operators of this important work of Takaful from part of the losses and risks that may accrue from the policies they underwrite. This will help to spread the losses and risks involved in the Takaful business as well as lighten the financial impact of such risks and losses on Takaful operators and the financial industry at large.
It is clear that no one is immune from losses and damages against property, business venture and even life itself including Takaful operators themselves, hence the need to offer double securities against them. RETAKAFUL is therefore part of the general precautions than can be taken against damages, risks and losses. Islam is not opposed to taking such precautions as long as it does not contradict with any Islamic contractual law.
Saturday, February 18, 2012
NO! TO RIBA (Usury) IN ECONOMIC PROSPERITY?
The term of Riba (Usury / Fixed Interest) can be understood in many ways by different sources. All these definitions are based on the concentration of incremental value of the transaction between the two persons (lenders and borrowers, bankers and customers.) Riba is not only cover in one area but it can be in different field in economic. For example, in daily life also incur riba. The meaning of Riba can be defined and understood as the lending of money at illegal high rate of interest. But in Islam Riba is different meaning.
Riba technically prefers to the premium that must be paid by the borrower to the lender along the amount principal (amount as a condition for the loan) with increment amount. This can know as an extra amount in one of two homogeneous equivalents being exchanged without the increase by return for time. It is the lending of money on interest. It is the cause of any risk, independence of any labor or effort. Allah has strictly forbidden Riba. However, the world today, including the Muslim world, is influenced with Riba. The Prophet Muhammad has confirmed this teaching in Hadith reported from Abu Hurairah;
“Their will come a time, he said, when you will not be able to find a single person in the world who will not be consuming Riba. And if any claim that he is not consuming Riba then surely the rapor of Riba will reach him”.
Riba is considered as a grave sin in Islam. The Hadith above implied that no one could escape from Riba. The true believers must wage the greatest possible struggle to keep himself and his family free from Riba, to guard himself from Riba. If he does not fight himself from Riba and does not respond to oppression in the world where caused by Riba then his faith is empty.
Riba is forbidden irrespective of business nature, it prohibits in all form whether in the form of consumption or production. Any payment relates for a loan and it’s compensating of time for a high rate of return value is considered as Riba.
Riba in Arabic comes from the roof word “raba” mean to cut or to prosper and in the Qur’an had mentioned the meaning of riba. There are certain views of jurists about riba. Some of them are unanimous with the loan transaction such as Malaki held the view that the lenders or borrower can pay or receipt profit of the loan which is contradict by Allah but Shari'ah and Hambali schools are not agree in this transaction. What the amount of interest value can consider as Riba? The amount receive from the riba is prohibited event it is as small rate or high rate (from 1%-25%) It does not mean that the amount of interest as 50-100% wills the case of Riba. Riba never defines as undue profit.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”. (al-Qur'an).
Formation of Riba: Islamic law prohibits Riba as a predetermine payment on borrowed funds irrespective of the purpose for which the funds are used. According to the purpose of used, Muslim jusrists classify Riba into two forms: Riba al nasiah and Riba al- fald.
Riba al-Nasi’ah: (Usury of credit):
This term in Arabic known as to “postpone” Muslim identifies this Riba in loan as giving to the lender a fixed increment after interval of time over the fixed period and increase of credit over the principal. On the other hand riba al nasi’ah prefer to the repayment in the period which instrumental in earning for the lenders a fixed increment rather than delays in repayment. This was common practice in the pre- Islamic and in the early Islamic era. This form of riba established in all credit transaction where loan was advanced to person on the payment of monthly interest over the principal. In case the debtor unable to repay the principal and accumulate surplus, he will receive an extension of time to pay the loan but at the same time the sum of payment has increased double. In this sense of practice, the Qur’an has prohibited it in surah al-Baqarah verse 276-278.
This forbidden was not limit the transaction even this is in the consumption or product loans transaction. In legal terminology of the Shari'ah, Riba is defined as surplus, profit or increase in loan and sale and it spreads in all economic sectors, in trades commerce and credit for no equivalent return. Therefore, the practice of riba is unlawful for Islamic because the greater benefit is given to the rich who becomes richer whilst the poor and weak suffers. And from this is will creates different socio- economic classes in society. Ulama' have come to a outcome regarding the Riba in banks. In one of the legal compendiums, they declared:
"An interest transaction in banks is classified as Riba al-Nasi'ah. This can occur in two ways, when someone deposits their valuable or when someone borrows money (al-Qard) for a period of time and incurs interest either way. Therefore its unlawfulness is the same as the prohibition of Riba and this sin is the same as the sin of involving in Riba."
Riba al-fadl:
It describes as excess over and above the quantity of the commodity advance by the lender to borrower. This is known as exchange of something with different amount of quantity. And this also considers as riba which has been prohibited in Qur’an and Sunnah.
Riba and investments in Shares:
Regarding shares and stock market investments, Ulama' have classified this under the category of Awraq al-Naqdiyyah. Basically this is something, which is allowed, with certain conditions and it is also subjected to Zakah payment, provided that it fulfils the Nisab and Hawl and its Nisbah is 2.5% of its value.
"Shares is defined as, one of the equal parts into which the capital of a company is divided, entitling the holder of the share to a proportion of the profits. Dealing in shares is permissible in the Shari'ah."
Shaikh Syed Mutawalli ad-Darsh mentioned that:
"Money in Islam has a role to play. It should not be kept away, hoarded in a vault or safe but should circulate to allow people to make use of its benefits. That is why the books of Fiqh say that the guardian of an orphan must invest that inheritance in a good manner so that Zakah would not deplete the wealth of the child”.
One may buy shares in any company, which is offering good services to the community, and companies, which do not pursue unlawful trade. For example, we are not allowed to buy into the banking sector because it is ridden with interest. We are not allowed to buy shares into breweries because they are producing something, which is Haram. We are not permitted to buy shares in chemical companies, which produce products, which damage people and the environment. But companies, which are good, pose no problem.
Riba in the Qur’an:
Riba has been mentioned in 12 verses in four surah in the qur’anic: these entire sources represent Riba as a opposite of positive activities of trade daily activities. These Qur’anic verses were the 1st to prohibit Riba among Muslim believers such as Surah al-Nisa verses 160-161.
“For the iniquity of the Jews We made unlawful for them certain (foods) good and wholesome which had been lawful for them; in that they hindered many from Allah’s Way” And “That they took usury, though they were forbidden; and that they devoured men’s substance wrongfully; we have prepared for those among them who reject faith a grievous punishment.”
These verses remind Mankind about Riba, which regarded to the practice of Jewish and it was prohibited between Jews. Riba has been the first mentioned in the Qur’an. It has prohibited for the Muslim Ummah. In the verse 130 of Surah al-Imran, Qur’an has been mentioned any person involve in any transaction that double or multiplied the value are in the case of Riba.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”.
The nature of Riba is under the entire tribes sign the indebtedness to the lender. This practice was common in the pre-Islamic usurers, the repayments amount was double of the original loan .It was prohibited compound usury.
Surah al-Baqurah 2:275-281 says to the effect: that whose involve in Riba will accompanies by a treat of the hereafter. “Those who devour usury will not stand except as stand one whom……but who repeat the ( offence) are companions of the five, they a hide there in (for ever)" (2:275-281).
The meaning of Riba and interpretation of the verse (30:39) was confirmed the subject in which Allah, the most high commended among the acts of the Jews in taking Riba and it had been prohibited for them. Riba in the Qur’an has mentioned as a system of economic injustice and it will lead to evil. Riba comes from exploitation and oppression that is sometime canceled in ultimate disguised .It is essentially the lending of money on interest and the influence of Riba was directed toward the realization and preservation of social justice and unity of society. Riba is the most powerful and most dangerous attaches upon mankind.
In the early era, Riba has been described as ‘ increase in capital at the expense of wealth of other’ it can be understood as Riba is the loss of one the power become poor and the gain of other (the rich become richer) .It is not fair for the Muslim ummah . Allah (swt) does not allow us to do this. This business transaction does not the good attribute of the business, rather than it is the opposite of business of religious. Allah, Almighty allows only the permissible transaction (Halal) and Riba is forbidden (haram). In Islam, all aspect of business transaction should be done in mutual consent and each of the parties should gain the satisfaction among themselves in the business transaction. This was stated in Surah al Nisa 4.29:
“O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill (or destroy) yourselves: for verily Allah hath been to you Most Merciful.”
The first teaching of Islam spreaded to mankind in the Qur’an regarding the matter of Riba. It was specifically related to the case of lending and borrowing. Lending should be use only for the purpose of helping those are in need and it is humanitarian institution, the lenders and borrowers have bond close relationship of spiritualized. And this relationship ought to be a human, fraternal. When the lenders do not involve in any Riba (give higher rate (interest) to the user) lender will become predator. On the other hand, lenders’ wealth will become witnessed in destroying at fraternity and destabilizing the social order. Riba will be the case of destroying the concept of society as family where formerly the community was the insurance, which insured individuals against losses; now individuals have to find for themselves such as in the insurance case. This type of transaction is closely inter-linked with Riba. There is evil life for those were engaged in Riba for the purpose of seeking the wealth of mankind. The Qur’an has stated that
“Those who engaged in Riba and never give up his action then he will take note of war from Allah (swt) and His messenger"
Riba, which has been existed in the Prophet Muhammad (saw)lifetime and it practice until modern day.
Case of Riba:
If RM.100 000 were lent at a compound rate of 10% per annum for two years, the borrower would be called upon to repay RM 121 000 at the end of the contract. The lender can achieve the same goal by offering RM.100 000 at the simple rate of 21%. What would be the grounds for distinguishing between the two arrangements? Likewise, the term "exorbitant rate of interest" is also arbitrary. A 10% rate of interest may be exorbitant for one person while 21% may be normal for another depending on their respective financial positions and prospective uses of funds.
Riba in Hadith:
There are several hadiths suggest the divine prohibition of riba. The Prophet (saw) had explained the various injunctions against riba to his companion. There are two hadith relevant to the concern of riba, which has been the most influential in shaping the fiqh conception of riba:
“Every loan that attracts a benefit is riba”. Gold for gold.., if it is hand to hand”.
The Hadith on riba in sale:
The actual concept of this riba is going beyond compensation for lending money. This is no interest in loan but it is a sale of excess or delay in exchange of certain type of property such as foodstuffs and currency. Therefore, we need to consider riba in sale to has a full meaning of its. And this type of exchange was fully mentioned in the hadith that we can be used in this practice as long as the exchange with equal amount. There is no excess or increase value in delay. Due to the first form of riba, the Prophet advises conducting such exchange through the medium of money that mean one selling his good for cash and then buying other’s good with cash. Such this transaction is applicable in Islam.
The Sunnah on Riba in loan:
The second hadith is related to common practice in the modern economic life. Profit on loan is banned without regard to whether the fungible subject matters of the loan. In the Hadith of Prophet Muhammad (saw) said:
“ …a man would sleep and honesty would be taken from his heart and only it trace will remain in his heart…” Bukhari.
This is a sign for those who conduct any transaction of Riba in the last Day of Judgment. Riba has blinded Muslim, Riba has destroyed value, and corrupted mankind and non-can be trusted.
Riba in Qiyas and Ijma:
In the book of Imran Hussein, he had taken one example about Riba has practiced or has been fulfilled in miserable lifetime. He mentions, “One man from othaman Khalifa had borrowed money on interest from Europe. This amount of interest is over his effort, at the end, this man submits to European financial black mail…” He has mentioned about the financial imperialism. This is common practice in the Muslim world nowadays. This action is not mentioned in the Qur’an. In the world to day Riba can be many other forms, which are readily identifiable by businessmen. Some of businessmen will glue new form of Riba. Muslim must make them aware of the different form of Riba, and must exercise the greatest care to avoid them. Some forms of buying and selling money today take the form of borrowing from a bank on interest. It is a form of Riba and is strictly prohibited. The Prophet had taught that when the two things are bought and exchanged not the same in nature or equal money value is invalid such as gold for silver.
Riba technically prefers to the premium that must be paid by the borrower to the lender along the amount principal (amount as a condition for the loan) with increment amount. This can know as an extra amount in one of two homogeneous equivalents being exchanged without the increase by return for time. It is the lending of money on interest. It is the cause of any risk, independence of any labor or effort. Allah has strictly forbidden Riba. However, the world today, including the Muslim world, is influenced with Riba. The Prophet Muhammad has confirmed this teaching in Hadith reported from Abu Hurairah;
“Their will come a time, he said, when you will not be able to find a single person in the world who will not be consuming Riba. And if any claim that he is not consuming Riba then surely the rapor of Riba will reach him”.
Riba is considered as a grave sin in Islam. The Hadith above implied that no one could escape from Riba. The true believers must wage the greatest possible struggle to keep himself and his family free from Riba, to guard himself from Riba. If he does not fight himself from Riba and does not respond to oppression in the world where caused by Riba then his faith is empty.
Riba is forbidden irrespective of business nature, it prohibits in all form whether in the form of consumption or production. Any payment relates for a loan and it’s compensating of time for a high rate of return value is considered as Riba.
Riba in Arabic comes from the roof word “raba” mean to cut or to prosper and in the Qur’an had mentioned the meaning of riba. There are certain views of jurists about riba. Some of them are unanimous with the loan transaction such as Malaki held the view that the lenders or borrower can pay or receipt profit of the loan which is contradict by Allah but Shari'ah and Hambali schools are not agree in this transaction. What the amount of interest value can consider as Riba? The amount receive from the riba is prohibited event it is as small rate or high rate (from 1%-25%) It does not mean that the amount of interest as 50-100% wills the case of Riba. Riba never defines as undue profit.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”. (al-Qur'an).
Formation of Riba: Islamic law prohibits Riba as a predetermine payment on borrowed funds irrespective of the purpose for which the funds are used. According to the purpose of used, Muslim jusrists classify Riba into two forms: Riba al nasiah and Riba al- fald.
Riba al-Nasi’ah: (Usury of credit):
This term in Arabic known as to “postpone” Muslim identifies this Riba in loan as giving to the lender a fixed increment after interval of time over the fixed period and increase of credit over the principal. On the other hand riba al nasi’ah prefer to the repayment in the period which instrumental in earning for the lenders a fixed increment rather than delays in repayment. This was common practice in the pre- Islamic and in the early Islamic era. This form of riba established in all credit transaction where loan was advanced to person on the payment of monthly interest over the principal. In case the debtor unable to repay the principal and accumulate surplus, he will receive an extension of time to pay the loan but at the same time the sum of payment has increased double. In this sense of practice, the Qur’an has prohibited it in surah al-Baqarah verse 276-278.
This forbidden was not limit the transaction even this is in the consumption or product loans transaction. In legal terminology of the Shari'ah, Riba is defined as surplus, profit or increase in loan and sale and it spreads in all economic sectors, in trades commerce and credit for no equivalent return. Therefore, the practice of riba is unlawful for Islamic because the greater benefit is given to the rich who becomes richer whilst the poor and weak suffers. And from this is will creates different socio- economic classes in society. Ulama' have come to a outcome regarding the Riba in banks. In one of the legal compendiums, they declared:
"An interest transaction in banks is classified as Riba al-Nasi'ah. This can occur in two ways, when someone deposits their valuable or when someone borrows money (al-Qard) for a period of time and incurs interest either way. Therefore its unlawfulness is the same as the prohibition of Riba and this sin is the same as the sin of involving in Riba."
Riba al-fadl:
It describes as excess over and above the quantity of the commodity advance by the lender to borrower. This is known as exchange of something with different amount of quantity. And this also considers as riba which has been prohibited in Qur’an and Sunnah.
Riba and investments in Shares:
Regarding shares and stock market investments, Ulama' have classified this under the category of Awraq al-Naqdiyyah. Basically this is something, which is allowed, with certain conditions and it is also subjected to Zakah payment, provided that it fulfils the Nisab and Hawl and its Nisbah is 2.5% of its value.
"Shares is defined as, one of the equal parts into which the capital of a company is divided, entitling the holder of the share to a proportion of the profits. Dealing in shares is permissible in the Shari'ah."
Shaikh Syed Mutawalli ad-Darsh mentioned that:
"Money in Islam has a role to play. It should not be kept away, hoarded in a vault or safe but should circulate to allow people to make use of its benefits. That is why the books of Fiqh say that the guardian of an orphan must invest that inheritance in a good manner so that Zakah would not deplete the wealth of the child”.
One may buy shares in any company, which is offering good services to the community, and companies, which do not pursue unlawful trade. For example, we are not allowed to buy into the banking sector because it is ridden with interest. We are not allowed to buy shares into breweries because they are producing something, which is Haram. We are not permitted to buy shares in chemical companies, which produce products, which damage people and the environment. But companies, which are good, pose no problem.
Riba in the Qur’an:
Riba has been mentioned in 12 verses in four surah in the qur’anic: these entire sources represent Riba as a opposite of positive activities of trade daily activities. These Qur’anic verses were the 1st to prohibit Riba among Muslim believers such as Surah al-Nisa verses 160-161.
“For the iniquity of the Jews We made unlawful for them certain (foods) good and wholesome which had been lawful for them; in that they hindered many from Allah’s Way” And “That they took usury, though they were forbidden; and that they devoured men’s substance wrongfully; we have prepared for those among them who reject faith a grievous punishment.”
These verses remind Mankind about Riba, which regarded to the practice of Jewish and it was prohibited between Jews. Riba has been the first mentioned in the Qur’an. It has prohibited for the Muslim Ummah. In the verse 130 of Surah al-Imran, Qur’an has been mentioned any person involve in any transaction that double or multiplied the value are in the case of Riba.
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper”.
The nature of Riba is under the entire tribes sign the indebtedness to the lender. This practice was common in the pre-Islamic usurers, the repayments amount was double of the original loan .It was prohibited compound usury.
Surah al-Baqurah 2:275-281 says to the effect: that whose involve in Riba will accompanies by a treat of the hereafter. “Those who devour usury will not stand except as stand one whom……but who repeat the ( offence) are companions of the five, they a hide there in (for ever)" (2:275-281).
The meaning of Riba and interpretation of the verse (30:39) was confirmed the subject in which Allah, the most high commended among the acts of the Jews in taking Riba and it had been prohibited for them. Riba in the Qur’an has mentioned as a system of economic injustice and it will lead to evil. Riba comes from exploitation and oppression that is sometime canceled in ultimate disguised .It is essentially the lending of money on interest and the influence of Riba was directed toward the realization and preservation of social justice and unity of society. Riba is the most powerful and most dangerous attaches upon mankind.
In the early era, Riba has been described as ‘ increase in capital at the expense of wealth of other’ it can be understood as Riba is the loss of one the power become poor and the gain of other (the rich become richer) .It is not fair for the Muslim ummah . Allah (swt) does not allow us to do this. This business transaction does not the good attribute of the business, rather than it is the opposite of business of religious. Allah, Almighty allows only the permissible transaction (Halal) and Riba is forbidden (haram). In Islam, all aspect of business transaction should be done in mutual consent and each of the parties should gain the satisfaction among themselves in the business transaction. This was stated in Surah al Nisa 4.29:
“O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill (or destroy) yourselves: for verily Allah hath been to you Most Merciful.”
The first teaching of Islam spreaded to mankind in the Qur’an regarding the matter of Riba. It was specifically related to the case of lending and borrowing. Lending should be use only for the purpose of helping those are in need and it is humanitarian institution, the lenders and borrowers have bond close relationship of spiritualized. And this relationship ought to be a human, fraternal. When the lenders do not involve in any Riba (give higher rate (interest) to the user) lender will become predator. On the other hand, lenders’ wealth will become witnessed in destroying at fraternity and destabilizing the social order. Riba will be the case of destroying the concept of society as family where formerly the community was the insurance, which insured individuals against losses; now individuals have to find for themselves such as in the insurance case. This type of transaction is closely inter-linked with Riba. There is evil life for those were engaged in Riba for the purpose of seeking the wealth of mankind. The Qur’an has stated that
“Those who engaged in Riba and never give up his action then he will take note of war from Allah (swt) and His messenger"
Riba, which has been existed in the Prophet Muhammad (saw)lifetime and it practice until modern day.
Case of Riba:
If RM.100 000 were lent at a compound rate of 10% per annum for two years, the borrower would be called upon to repay RM 121 000 at the end of the contract. The lender can achieve the same goal by offering RM.100 000 at the simple rate of 21%. What would be the grounds for distinguishing between the two arrangements? Likewise, the term "exorbitant rate of interest" is also arbitrary. A 10% rate of interest may be exorbitant for one person while 21% may be normal for another depending on their respective financial positions and prospective uses of funds.
Riba in Hadith:
There are several hadiths suggest the divine prohibition of riba. The Prophet (saw) had explained the various injunctions against riba to his companion. There are two hadith relevant to the concern of riba, which has been the most influential in shaping the fiqh conception of riba:
“Every loan that attracts a benefit is riba”. Gold for gold.., if it is hand to hand”.
The Hadith on riba in sale:
The actual concept of this riba is going beyond compensation for lending money. This is no interest in loan but it is a sale of excess or delay in exchange of certain type of property such as foodstuffs and currency. Therefore, we need to consider riba in sale to has a full meaning of its. And this type of exchange was fully mentioned in the hadith that we can be used in this practice as long as the exchange with equal amount. There is no excess or increase value in delay. Due to the first form of riba, the Prophet advises conducting such exchange through the medium of money that mean one selling his good for cash and then buying other’s good with cash. Such this transaction is applicable in Islam.
The Sunnah on Riba in loan:
The second hadith is related to common practice in the modern economic life. Profit on loan is banned without regard to whether the fungible subject matters of the loan. In the Hadith of Prophet Muhammad (saw) said:
“ …a man would sleep and honesty would be taken from his heart and only it trace will remain in his heart…” Bukhari.
This is a sign for those who conduct any transaction of Riba in the last Day of Judgment. Riba has blinded Muslim, Riba has destroyed value, and corrupted mankind and non-can be trusted.
Riba in Qiyas and Ijma:
In the book of Imran Hussein, he had taken one example about Riba has practiced or has been fulfilled in miserable lifetime. He mentions, “One man from othaman Khalifa had borrowed money on interest from Europe. This amount of interest is over his effort, at the end, this man submits to European financial black mail…” He has mentioned about the financial imperialism. This is common practice in the Muslim world nowadays. This action is not mentioned in the Qur’an. In the world to day Riba can be many other forms, which are readily identifiable by businessmen. Some of businessmen will glue new form of Riba. Muslim must make them aware of the different form of Riba, and must exercise the greatest care to avoid them. Some forms of buying and selling money today take the form of borrowing from a bank on interest. It is a form of Riba and is strictly prohibited. The Prophet had taught that when the two things are bought and exchanged not the same in nature or equal money value is invalid such as gold for silver.
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