Norms Relating to Riba, Gharar, Tawun

This general principle has later been elaborated by

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Unformatted text preview: This general principle has later been elaborated by the Sunnah, which expounded the detailed rules of Shariah concerning sale including its conditions, varieties, and sales, which might amount to riba. 6 Islamic Banking Norms relating to Riba, Gharar & Ta’wun : Norms Relating to Riba – Sunnah Prohibition of Riba in Loan Contracts The Prophet (pbuh), during his last sermon addressed his revered companions, "Every form of riba (interest) is cancelled; capital indeed is yours which you shall have; wrong not and you shall not be wronged. Allah has given His Commandment totally prohibiting riba. I start with the amount of interest, which people owe to Abbas and declare it all cancelled. He then, on behalf of his uncle, Abbas, cancelled the total amount of interest due on his loan capital from his debtor" (Tafsir Al- Khazin, vol.1, p.301) 7 Islamic Banking Norms relating to Riba, Gharar & Ta’wun : Norms Relating to Riba – Sunnah Prohibition of Riba in Sale / Exchange Contracts The Prophet (pbuh) is reported to have said "Sell gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, in same quantities on the spot; and when the commodities are different, sell as it suits you, but on the spot" (Muslim) Bilal visited the Messenger of Allah (pbuh) with some high quality dates, and the Prophet (pbuh) inquired about their source. Bilal explained that he traded two volumes of lower quality dates for one volume of higher quality. The Messenger of Allah (pbuh) said: “this is precisely the forbidden Riba! Do not do this. Instead, sell the first type of dates, and use the proceeds to buy the other.” (Muslim) 8 Islamic Banking Norms relating to Riba, Gharar & Ta’wun : Norms Relating to Riba Riba in Debt Riba is the name of every increase in lieu of which there is no consideration. Conventionally, interest or the excess (increase) in loan is the consideration or compensation for the period of re-payment of loan. Since this period is not a valuable property (mal), its return has been declared as unlawful. The form of riba falling under Quranic prohibition, according to some scholars, is riba al-jahiliyya or pre-Islamic riba. Such riba manifests when the lender asks the borrower at maturity date if he would settle the debt or swap it for another larger debt of longer maturity period. The difference between the maturity value of old and new debt amounts to riba. It may be noted that the conventional system of time-based compounding of debt clearly falls in this category. 9 Islamic Banking Norms relating to Riba, Gharar & Ta’wun : Norms Relating to Riba Riba in Exchange "Sell gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, in same quantities on the spot; and when the commodities are different, sell as it suits you, but on the spot" (Muslim) What is important for financial contracting is the exchange of gold for gold and silver for silver....
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