Riba
Riba
Riba
DEFINITION
The basic principle of Islamic financial
“money is a commodity”.
Addressing this misconception
Interest is the rent paid for the use of
money. The lender rents you the money
at a rental rate called interest. In a
legal sense, “interest” implies that
excess amount which a creditor settles
to receive or recover from his debtor in
consideration of giving time to the
debtor for repayment of his loan.
Thus, riba and interest are the same.
The equivalence of riba to interest has
been recognized by the majority of
Muslim scholars. They explicitly and
clearly equate riba to interest
2. There is no difference between Interest and
Profit
Argument
Bank interest resembles profit in murabaha
commodity
The prohibition of riba dictates that money
commodities
◦ Money is not an objective in itself. Treating
money as a commodity (trading in money)
goes against the original wisdom behind its
creation (medium of exchange.
◦ Money has no intrinsic value. It, in itself,
cannot be used for direct fulfillment of
human needs.
◦ Commodities can have different qualities while
money is perfectly homogeneous.
◦ In a commercial transaction, specific
commodities are identified for exchange
whereas money is generic.
Treating money as commodity directs economic
activities towards money out of money, and
against providing real goods and services. In the
contemporary world economic setting, most of the
money that is transferred around the world in
daily basis is for purely financial transactions, and
has no link to transactions in the real economy.
Another critical repercussion of the prevailing
monetary system (which treats money as a
commodity) is that the system, by design,
promotes inflation
10. Time Value of Money
Argument
Time value of money (time preference) is an
important concept of modern conventional
financial system. In simple terms, it means
that money has a time value. Having money
now is more valuable than having it at some
future time. A rational person would prefer to
have BD1000 today rather than having it later
because the BD1000 today may not be same
as BD1000 tomorrow.
Sacrificing present consumption for future
consumption must be compensated.
Addressing this misconception
Islam does not permit the reward for time but