Riba / Interest in Islamic Finance – What does it mean? PART 2

Certified Islamic Finance Analyst (CIFA) Series on Islamic Finance

Ms narayana rahim assalamo alaikum peace be upon you welcome to the cephas series on islamic finance in today’s segment we continue our discussion of river last time we discussed river from a very general sense today we want to narrow down and look at river and credit transactions and our next discussion will consider reba in exchange transactions of the same

Type of money or different types of money modern banking as we know it is a relatively new phenomena but the concept of private lending with interest has existed for a very long time certainly the ancient arabians knew it one of the companions the prophet osama bin zaid reported the prophet peace be upon him said there is no river except in waiting ornacia the

Delay comes from one of two common transactions the first is that one lends money to another person intel’s i want my capital back and an increase on my capital the second is that one offers credit for sales transaction or rental transaction and the customer later complains that he or she cannot pay on time in exchange for giving more time the creditor demands an

Increase so these are the two forms of ribbon asiya or the riba of waiting or delay or indeed credit one of the companions of the prophet omar bin khabar borrowed money from omar atia on ho when you return the money he brought a gift of dates to omar omar complained that he was afraid that the river was in the gift of dates that it was an increase for having given

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The loan and was contemplating rejecting it the borrower returned the money instantly and said i have no desire to prevent you from enjoying the taste of the dates which i’ve always given to so we wanted to break up in this example the concept of an increase and alone these observations show that the ancient arabian certainly understood interest or river as they

Would have called it and then one of the important aspects of the concept of interest is that it means that money by itself grows it has no need to be put to work in a business transaction but shariah requires us to take money and put it into a risk burying transaction either i share risk with you as your business partner i appoint you my business agent or i take

Risk in some form of commercial transaction my commercial transaction may result in credit risk i buy goods and sell them to you i buy equipment and lisa to nonetheless it’s still a different type of risk than pure and simple credit risk when we start the process in these examples the time value of money is not ribba per se we are actually allowed to look at the

Total situation to credit the business risk and the time value of money when we calculate our price the first time but if we’ve gotten it wrong or our customer falls into trouble later on we’re not allowed to adjust the price just because the clock has ticked or the time has gone on some people contend that river is only the doubling and quadrupling of money and

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Indeed this is a form of ribba nonetheless this abuse is not the whole story and we often forget that the latin word usury which might come from doubling or quadrupling a sum over time is in fact the latin word for simple interest nowhere in the quran or the hadith is there any specific evidence that the mere passage of time denies won the right to a profit it’s

Rather important how do you get to the profit whether you engage in investment or other business activities therefore the lending of money as opposed to the lending of equipment or property or the sale of goods is the problem so let’s summarize the prophet peace be upon him said that there is no reba in a transaction which is conducted hand the hand on us even

Malik reported that prophet peace be upon him said that if someone amongst to lend someone to another person the former should not accept from the ladder any gift or ride except that both have been dealing with each other in that way prior to the loan these hadith have been distilled to encourage us to consider the following points as the definition of river free

Transactions either a product or a service other than the delivery of money must be delivered and in order for party to profit it must commit to a commercial or financial risk in other words there must be a bona fide e transaction and one must be prepared to accept a loss as well as a profit thank you for joining us today in the cephas series on islamic finance we

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Look forward to you joining us in our next episode when we intend to cover river bottom you

Transcribed from video
Riba / Interest in Islamic Finance – What does it mean? PART 2 By learnCIFA