subject: What Are The Types Of Riba (interest?) [print this page] Good governance of Islamic economics prohibits Riba or interest. It forbids all types of interest involved in any economic activity. Literally, Riba means excess, addition or increase. In Islamic economic terminology Riba means any excess in wealth without due consideration. Let it be clear that the consideration here excludes the time value of money. There are two types Riba or interest mentioned in the Holy Quran and the Sunnah of the Holy Prophet (S.A.W).
1.Riba An Nasiyah
2.Riba Al Fadl
Riba An Nasiyah is defined by the classical scholars as the excess which is predetermined between the lender of money and receiver over and above the principle amount.
Riba Al Fadl is defined as an excess compensation which is without due consideration and which is the result of sale of goods.
The former type of Riba was in practice in the pre Islamic times and therefore explicitly mentioned the Holy Quran. This is why it is also called Riba Al Jahiliyah and Riba Al Quran. This Riba was taken as a form of trade in the pre-Islamic and in the early days of Islam, as it is the case now. But God declared that trade is lawful but not the Riba
Seized in this state they say: Buying and selling is but a kind of interest, even though Allah has made buying and selling lawful, and interest unlawful. Al Baqarah 2:275
Riba An Nasiyah has been comprehensively defined by the Holy Prophet in a hadith reported by Ali bin Abi Talib:
Every loan that draws interest is Riba
This type of Riba is actually the additional amount other than the principle amount which is paid to the lender for his waiting for the return of the actual amount. Riba An Nasiyah is that type of Riba which is forbidden in the laws of all prophets. (See Exodus 22:25, Deuteronomy 23:20) Psalm 15:5)
It is reported in the hadith of the Holy Prophet (S.A.W) that he paid his loan with some addition. But this addition was not predetermined and the Prophet (S.A.W) paid addition in the way of Ahsan or favour. It means that addition is considered Riba which is paid in addition to actual lent amount to lender at fixed or predetermined rate.
Riba Al Fadl means that excess which is charged in exchange of homogeneous commodities and encountered in their hand-to-hand purchase and sale. The fomous saying of the Holy Prophet (S.A.W) regarding Riba Al Fadl goes:
"Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to- hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand (spot).
This hadith names six items which while exchanging must be equal in quantity and their exchange must be hand to hand or on the spot. There is difference of opinions between the Islamic scholars whether only these six items are prohibited to be exchanged with different quantity or others with similar value and qualities are too subject to the command of this Hadith. Imam Abu Hanifah is of the opinion that all those commodities which have weight and volume will fall in this category. The executive education in Islamic finance must be very clear on the issue of Riba and rule out any possibility of Riba in Islamic finance. This is the test of good governance and Islamic executive education, which they have been passing through well so far and hopefully do well in future.
