AHMAD KAMAL BIN ROSLAN

2009658166

SHAZANAH BT SARWAR KHAN

2009826226

QUESTION 12

Describe the following features which have been prohibited in Islam:

a. Riba b. Maysir

RIBA

DEFINITION :- Literally - increase, addition,

and augmentation Technically: 1) increase in trade

transactions Muhammad Ala Thanwi

“An increase without any corresponding consideration which has been stipulated in favour of one of the two parties in a contract of exchange”

2) increase in loan transactions

Abu Bakar Jassas ; “It is a loan given with

stipulated increase on the principle payable by the loance”

PROHIBITION OF RIBA IN Al-QURAN

4 stages

Surah al- Rum: 39 Surah al-Nisa: 161 Surah ali-Imran : 130

Surah al-Baqarah275-281Compare riba with

Zakat& charity-Praised zakat&

charity but not riba

Riba was prohibitedfor jews

however,they continued

to practice riba & Incurred the wrath of

Allah (s.w.t)

Prohibited thecharging ofdouble and

multipleriba Conclusively

prohibitedall forms of riba

PROHIBITION OF RIBA IN HADITH

From Jabir (Gbpwh);“ the prophet (pbuh) cursed the receiver and the payer of interest , the one who records it and the witnesses to the transaction and said: they are all alike [in guilt] From Anas ibn Malik (Gbpwh); “ The prophet said: when one of you grants a loan and the borrower offers him a dish, he should not accept it,and if the borrower offers a ride on an animal, he should not ride, unless the two of them have been previously accustomed to exchanging such favours mutually Bilal (Gbpwh) once visited the Messenger of Allah (Pbuh) with some high qualities dates. The Prophet (Pbuh) inquired about their source. Bilal explained that, he traded two volumes of lower quality dates for one volume of higher quality dates. Due to this, the Prophet (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 others”

MUSLIM JURISTS OR SCHOLARS VIEWS ON RIBA Abd al-Rahman al-Jaziri in his book ‘al-Fiqh

'ala al-Madhahib al-Arba'ah’ stated that, in fiqh terminology, riba means an increase in one of two homogeneous equivalents being exchanged without this increase being accompanied by a return.

Muhammad ibn Abdullah ibn al-Arabi who is a Qur'an commentator and Maliki jurist states that, riba literally means increase, and in the al-Baqarah: 275, it stands for every increase not justified by the return.

CLASSIFICATIONS OF RIBA

Types ofRiba

Riba al-Buyu’(riba in

trade transaction

Riba al-Duyun (riba in

loan transaction)

Riba al-Nasiah

Riba al-Fadl

Riba al-Qardh

Riba al-Jahilliyah

CLASSIFICATIONS OF RIBA (cont)

Riba al- Buyu’ (riba in trade transaction):- Riba al-Nasiah (riba of delay)

-charged based on deferment of completion of an exchange - Eg: if 5 kg of gold is exchanged with another 5 kg of gold, with a delay of one year, the said trade transaction will amount to riba al nasiah since there is an existence of delay in the said transaction

Riba al-Fadl ( riba by way of access)-arises when there is any additional quantity or in equality in the exchange of goods -Eg: an exchange of 5 kg of wheat with 6 kg of wheat amounts to riba al-fadl

CLASSIFICATIONS OF RIBA (cont)

Riba al- Duyun(riba in loan transaction):-

Riba al-Qardh :any predetermined benefit, for the owner of debt stated in the contract, which the debtor needs to fulfill. This form of riba could be viewed in loan contracts.

Riba al- Jahilliyah:a form of interest, which is charged above the original debt as a penalty to the debtor due to his inability to service the loan repayment within the time agreed. This form of riba could be viewed in credit card transactions where, the delay of repayment of the debt by the debtor will result the debtor to pay an additional or surplus amount to the creditor

RATIONALE ON THE PROHIBITION OF RIBA

The paramount reason or rationale behind the prohibition of riba are to prevent any forms of injustice, exploitations and manipulations among the parties involved in a trade or loan transaction.

In order to appreciate the rationale underlying the prohibition of riba in Islamic transactions, one shall generally analyse the advantages of performing an interest-free transaction in Islamic banks as compared to an interest-based transaction in the conventional banks

RATIONALE ON THE PROHIBITION OF RIBA (cont)Islamic banks Conventional banks

will reward the depositors only in the event where the banks are gaining profits. In the circumstances where the Islamic banks are suffering losses, the banks will not be compelled to pay any amount of profit to their depositees

would be obliged to pay to the depositors more then the principal amount deposited regardless whether the financial institution is having financial difficulties or suffers loss

the clients of an Islamic bank will receive a fair share of profit based on the proportion agreed

clients of a conventional bank are guaranteed to receive a fixed income from the bank, the income agreed is only a very small portion as compared to the total amount of profit gained by the banks

RATIONALE ON THE PROHIBITION OF RIBA (cont)Islamic banks Conventional banks

have resorted contract of exchange as the best accommodative mode of mobilising funds under an Islamic finance framework. Due to this, various innovative instruments based on the contract of exchange have been developed.Eg: BBA (deferred payment sale), murabahah (mark up sale),ijarah (leasing),ijarah thumma al-bay (islamic hire purchase) and bay-al dyn (sale of debt)

Accumulate profits through interest- based transactions

RATIONALE ON THE PROHIBITION OF RIBA (cont)

Islamic banks Conventional banks-has explored the contract of security to mobilise the funds and present product available based on hiwalah (transfer of debt). -have also maintained the contract of services -E.g: Letter of Guarantee based on kafalah, fees for money transfer and the like.

-Accumulate profits through interest- based transactions

MAYSIR Definition:

Maysir derives from the word “Yusrun” which denotes wishing something valuable with ease and without paying any equivalent compensation for it, or without working for it, or without undertaking any liability against it, or by way of a game of chance.

MAYSIR Definition:

Professor Mohammad Hashim Kamali: Maysir is a purchase and sale of an asset

in the expectation of a gain from the changes in the price of the asset.

However, it is difficult to provide a comprehensive definition since there are distinguishing lines between investment, speculation and gambling.

MAYSIR Definition:

Ibn Taymiyyah: gharar is one of the branches of gambling. whether or not the transaction involves gambling

and unlawful devouring of the property of others (akl mal al ghayr bi’l batil).

Gharar thus occurs in a contract when one of the parties takes what is due to him but the other does not receive his entitlement.

If his right continues to be unfulfilled, the first becomes guilty of the wrongful devouring of the property of his counterpart in the transaction, and a gharar sale of this kind engages in gambling and punting (al-qimar wa’l maysir)

MAYSIR Why Maysir is prohibited?

Dr. Mohd Ma’sum Billah: Gambling, which includes raffling or a lottery

makes a person dependent on chance, luck and empty wishes, thus, making that person less inclined to work seriously and productively.

In Islam, an individual’s property is sacred and it may not be taken away from the owner except through lawful exchange, or unless he or she gives it away freely to charity.

Accordingly, taking the property of a person as gambling losses is unlawful.

MAYSIR Prohibition of Maysir in Al-Quran:

They ask Thee concerning wine and gambling. say: "In them is great sin, and some profit, for men; but the sin is greater than the profit." They ask Thee How much They are to spend; say: "What is beyond your needs." Thus doth Allah make Clear to you His Signs: In order that ye may consider

(al-Baqarah:219)

MAYSIR Prohibition of Maysir in Al-Quran:

O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination,- of Satan's handwork: eschew such (abomination), that ye may prosper. Satan's plan is (but) to excite enmity and hatred between you, with Intoxicants and gambling, and hinder you from the remembrance of Allah, and from prayer: will ye not then abstain?

(al-Maidah: 90-91)

MAYSIR Prohibition of Maysir in Al-Quran:

Forbidden to you (for food) are: dead meat, blood, the flesh of swine, and that on which hath been invoked the name of other than Allah…; (forbidden) also is the division (of meat) by raffling with arrows: that is impiety.

(al-Maidah: 3)

MAYSIR According to a tradition reported by Abu Huraira,

Allah's Messenger (pbuh) forbade a transaction determined by throwing stones, and the type which involves some uncertainty. The form of gambling most popular to Arabs was gambling by casting lots by means of arrows, on the principle of lottery, for division of carcass of slaughtered animals. The carcass was divided into unequal parts and marked arrows were drawn from a bag. One received a large or small share depending on the mark on the arrow drawn. Obviously it was a pure game of chance.

MAYSIR Why conventional Life Insurance is

prohibited? First, a life insurance contract

involves unlawful elements, which can never be binding as the Prophet (saw) says to this effect:“… the Muslims are bound by the conditions except the condition which prohibits the permitted one or the one which permits the prohibited one.”

(al-Tarmizi)

MAYSIR

MAYSIR Why conventional Life Insurance is

prohibited? Third, it contains the element of

maysir (gambling). When gambling, a gambler pays a certain

amount of money in the hope that he will gain an additional large amount of money.

Similarly, in a life insurance policy the assured hopes for a chance to make a gain. This is the same as gambling which is prohibited by the Shari’ah.

MAYSIR Why conventional Life Insurance is

prohibited? Fourth, it contains the element of Riba.

Many Ulama oppose life insurance practices, because they contain elements of both kinds of riba, i.e. riba al-fadhl and riba al-Nasiah.

For example, if the insurer pays the insured or his beneficiary more than what the insured had paid by way of paid-premium, it becomes riba al-Fadhl;

the payments made by the insurer to the assured after a particular period of time become riba al-Nasiah.

MAYSIR Why conventional Life Insurance is

prohibited? Fifth, it has an element of al-Gharar

(uncertainty). The contract is deemed to be null and void ab

initio. In a life insurance contract, the subject matter

of the contract is the death of the assured and it is not certain whether the assured’s death will occur during the policy period or not.

This uncertainty in the policy leads it to be invalid.

MAYSIR Speculation in the Stock Market:

Short Selling? Short selling of stocks is not permissible

because it is seen to be speculative in nature.

Under this practice, when a person foresees that a share price will fall, that person will borrow from and instruct his remisier to sell the shares in that company, even though he does not own the shares.

Later, when the price of the shares do fall, that person will purchase the stocks and close its position.

MAYSIR Speculation in the Stock Market:

Short Selling? This practice is clearly prohibited under

the Shari’ah principles because it involves the selling of something which the seller does not as yet own.

MAYSIR The Effect of the Contract Entered Into:

A void contract is an agreement which is merely null and incapable of conformation.

The Mejella defines a void contract as “a contract which is not good in its foundation”.

According to Dr. Hussain Hamid Hassan: “A void contract has no existence in the eyes of the law, it does not confer a right, does not become obligatory and does not transfer any property.”

MAYSIR The Effect of the Contract Entered Into:

Among the circumstances whereby a contract is said to be void or bathil:

(1) A contract which involves immorality; (2) A contract which object is unlawful; (3) A contract which involves illegality against

public policy; (4) A contract which foundation or substance is

unlawful or illegal; (5) Any other contract or agreement which

directly or indirectly contrary to the divine sanctions which would render it void ab initio; and etc.

CONCLUSION The practice of riba and maysir is strictly

prohibited under the Shariah law as provided by the Al-Quran and hadith.

The opinions delivered by the Muslims jurists have also further clarified the prohibitions on riba and maysir.

It is crucial to note that, the practice of riba and maysir are illegitimate in any Islamic form of transactions.