MUQADDIMAH

Alhamdulillah praise to just Allah azzawajjala, as He gives us the oppurtunity to give our commitment in this subject assingment writing procedures. Here, we wish to give our appreciation to Dr. Azam Adil as he tried very hard to make us undersatand towards this topic, give suggestion and give motivation to us to explore beyond silibus just to ensure fully understanding about this topic, special thank to our supportive parents and fellow friends. Hopefully this small written can make you understand about riba transaction in simple way. This writen is served with dhalalah from Quranul Kareem, hadith muttaqun alaih and ijma` from islamic scholars as a prove regarding riba transaction sccording to islam.

Table of Contents
Muqaddimah..1 Introduction..............................................................................................................................................3 Definition of riba .................................................................................................................................3 Riba according to dhalalah from Quran .............................................................................................3 Riba according to hadith ....................................................................................................................7 Classification of riba8 Analyzing riba in banking system.10 Rationales not to commit riba11 False thought about riba13 Riba according to ijma`13 Comparison of riba and interest13 Conclusion..15

PROHIBITION OF RIBA ACCORDING TO SYARIAH ISLAMIYYAH

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Introduction

Alhamdulillah, praise to Allah the almighty as nowaday development of Islamic economics become a part of the revivalist movements seeking to bring about Islamic society, where an Islamic economy would be in lieu of other systems of economy, including capitalism and socialism InsyaAllah. Islam always had to deal with issues, laws, policies and institutions pertaining to economy and finance. The western colonial rules over the Islamic world ultimately gave rise to Islamic revivalism1, the movements that took inspiration from the Qur'an and the life of the Prophet and wanted to chart a new, forward-looking course for the Islamic world. As Islamic concept being concern, the awareness among muslims and non-muslims about the riba concept significantly increase.

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Definition of riba. Riba illustrated in its literal meaning as any excess, increment in something during transaction. While this term technically defined as similar as Quranul Kareem which stated that riba is every excess which does not have a tangible item (of exchange) as its equivalent. However, in economic context, it is generally considered as a contractual increase on loaned money or commodity2. This word as such or its variants have been used in numerous versus of Quran.

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Riba according to dhalalah from Quranul Kareem There is, however, a complete consensus among Muslim jurists that only in the following eight verses of Quran, this word has been used in its economic sense. The dhalalah from Quranul Kareem are as follow:

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Dr Mohammad Omar Farooq Muhammad Mazhar Iqbal

1) From surah Ar-Rum : 39

Mafhum ayat: And whatever you give for interest to increase within the wealth of people will not increase with Allah . But what you give in zakah, desiring the countenance of Allah - those are the multipliers. The verse above is the first stage in riba prohibition is Islam revealed by Allah azzawajjala. The verse above rejected the assumption from pagan arab ( jahiliyyah people) that commiting riba was a great action to taqarrub illaAllah (near to Allah). 2) From surah An-Nisaa 160-161

Mafhum ayat 160: For wrongdoing on the part of the Jews, We made unlawful for them [certain] good foods which had been lawful to them, and for their averting from the way of Allah many [people]

Mafhum ayat 161: And [for] their taking of usury while they had been forbidden from it, and their consuming of the people's wealth unjustly. And we have prepared for the disbelievers among them a painful punishment. Both verses from surah An-Nisaa above is the second revelation to prohibit Riba from Allah Azzawajalla illustrated the warning from Allah to jewish people about the great punishment if they committing riba. 3) From surah Ali- Imran 130

Mafhum ayat: O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. 4) From surah Al-Baqarah 275-276

Mafhum ayat 275: Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.

Mafhum ayat 276: Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.

5) From surah Al-Baqarah 278-279

Mafhum ayat 278: O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.

Mafhum ayat 279: And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.

Dhalalah on riba from Quranul Kareem revealed by Allah in stages and the revelation of verses from surah Al-Baqarah are totally prohibit riba as the practise by muslim.

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Riba according to hadith

On the topic of riba, there is a big number of ahadith. Here a selection of commonly quoted ahadith on riba which all of these ahadith reinforce the Quranic verse: a) The Prophet said: "There is no riba except in loaning." (Nasaee 4504) b) The Prophet said: "Verily riba is in loaning." (Muslim 2991) c) The Prophet said: "There is no riba in hand to hand (spot) transactions." (Muslim) d) At the last Pilgrimage, the Prophet said: "All of the riba of Jahilliya is annulled.

As the loyalty to Allah although in muamalah trading is corcern, there are also ahadith that refer to implicit of riba. 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 him a ride on an animal, he should not ride, unless the two of them have been previously accustomed to exchanging such favors
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mutually." (Ibnu Majah 2423)

The Prophet said: "A loan from which some benefits accrue to the creditor is one of the many different forms of riba." (al-Bayhaqi) There are also ahadith which give general discription of the concept of riba itself. The Prophet cursed all those who take riba, who give riba, who write a riba contract and the two witnesses to a riba contract. He further said: "They are all alike (in guilt)." (Muslim 2995) The Prophet said: "On the night of my ascendance to the Heavens, I came upon people whose tummies were as big as houses that were filled with snakes visible from outside. He asked Angle Gabriel as to who they were. Gabriel replied that they were the people whoreceived riba (in their lives)." (Ibnu Majah).

All the dhalalah above either from Quran or hafith, give a nutshell to muslim not to commit riba as riba is HARAM ALAIH. In corcerning riba trading, Ribawi item is concern. Ribawi items must fulfill this two conditions: 1. it is from either the categories of riba and illah 2. It is being sold or traded in manner that fulfills the condition of it being a riba item.

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Classification of riba There are two types of riba either it is trade or debt riba. Under these two types of riba,

each of them comprise of other two categories falling under them. The debt riba includes riba Al-Qardh and riba Al-Jahiliyyah. Meanwhile trade riba comprise of riba An-nasiah and riba Al-fardh. In islamic banking system or in fiqh muamalah, the most focusing types of riba is trade riba. There are two categories of trade riba include: 1. Riba An- Nasiah: This is the stipulated interest which the lender takes from

the borrower in consideration of the time given to the borrower to pay back the
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capital. It is HARAM based on the Quran and the Sunnah and the consensus of Muslim scholars.

2. Riba Al -Fadl: This applies to barter (exchanging one commodity for another), where commodities of the same type are exchanged in unequal amounts, especially the exchange of precious metals and foodstuffs, it is HARAM, by the Sunnah and the concensus of scholars; as it paves the way for Riba of An-Nasiah.

The Prophet sallaAllahu 'alayhi wa sellem said, "Do not sell one dirham for two dirhams, for I fear for you regarding Riba'.(Ahmad). Numerous ahadith have demonstrated the prohibition with regard to gold, silver, wheat,barley,dates and salt. The Prophet sallaAllahu 'alayhi wa sellem said, "Gold for gold, and silver for silver, and wheat for wheat, and barley for barley, and dates for dates, and salt for salt, like for like, equal for equal, from hand to hand (the transaction must be completed before the two sides leave each other). But if the types are different then sell as you wish, as long as it is hand to hand." (Muslim)

The Prophet sallaAllahu 'alayhi wa sellem also said, "Whoever gives more or asks for more (than what he gave) commits an act of Riba', the given and the taken are equivalent (in the sin)."(Muslim)

To lend a bank money or borrow from it on the condition of a payment of a fixed annual or monthly percentage rate of interest, say 2%, or more or less, is a form of PROHIBITED RIBA'. This is the famous example of trade riba which occured nowadays. Allah already mentioned to us that He already prohibitted riba practises. From surah Al-Baqarah 275 "...whereas Allah has permitted trading and forbidden Riba' (usury)..." Give the clear explaination to us that any muamalah involves must NOT encouraging Riba. Meanwhile the debt riba includes:

1. Riba Al-Qardh: Any predetermined benefit for the owner to the debtor which stated in the contact which debtor need to fulfill Example: the interest stated in the loan contract

2. Riba Al-Jahiliyyah: The excess payment in exchange as penalty due to inability repayment within the stipulated time. Example: the interest from the credit card due to delay repayment.

1.5 Analysing riba transaction in banking system Besides, in analysing riba trading issues, as muslims the consideration between islamic banking and conventional must be highligted. Below are the comparison between islamic and conventional banking system. Mostly trade riba involved in banking system. Islamic banking Is based on profit or rent Deals in assets Is based on profit sharing on deposits side, and on profit on assets side. Actively participates in trade, production and valid services through valid contract Conventional banking Is based on interest Deals in money or papers Is based on fixed return on both Sides of the balance sheet. Does not involve itself in trade and bussines

Nowadays, commonly islamic society always confused about the riba existed around our banking system. Some of the people think that the trade is allowed as they think that this practises cannot be eliminated from the transaction and they do not havr so much choices regarding money transaction except with existing of riba. Firstly, one must have in mind that Allah, the Most Merciful, has stated clearly in the Quran:

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 Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say : Trade is just like usury; whereas Allah permittted trading and forbiddeth usury ( Al-Baqarah : 275 ) According to the Shariah, Riba can occur in the following situations: 1) The first situation : The first is when there is a loan contract between two parties (bank and borrower). For example, in todays Banking practice: Bank A approves a loan of RM 50,000 to customer B, but the bank fixes the interest rate e.g 10 per cent a year, thus enabling the customer to have the required amount of money in his possession. However, one must realize that the amount accrued from the interest might be compounded to an unknown amount e.g. in the event where the customer is in default.The practice is regularly done using products such as Car Loan, Home Loan, Personal Loan, Term Loan and etc. That is what we called as Riba. This kind of Riba is categorized under both Riba al-Fadl (interest in excess) and Riba an-Nasiah (increases due to time), which according to Shariah is prohibited due to: revenue resulting from the interest is actually received as a result of exploiting the difficulty faced by the customer i.e. only a dire need person would go to a bank to get a loan in order to settle his/her financial problems. Unfortunately, the bank on the other hand is charging an additional amount of payment (interest) for the loan. This is why Riba leads to injustice and duress on the customer part.In addition, in the case of failure to settle the monthly payments as fixed by the bank, the customer would then be imposed a penalty, which is compounded. Whereas, In Islamic Banks practice, the Banks sell the goods to the customer at a fixed selling price and it cannot be higher than what has been fixed. If there is a default in the payment, he/she is only been charged a compensation, which is very small just enough to cover the administrations cost. If any excess occurs it will be distributed away as a charity.

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Rationales not committing riba in banking system. Thus, readers should be able to differentiate between compensation imposed by

Islamic Banks with the penalty imposed by Conventional Banks. The reason why not practising riba are:

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a)

charging interest will diminish a mans good conduct or discourage him from lending a hand to others in society. At the same time it encourages selfishness, egoism in the rich and a trait built on putting pressure on the poor, needy and those in difficulty. It actually eliminates good characteristics in people such as willingness to helping each other. Moreover, it will create ill feelings among people and lead to pressure on the poor, needy and those in difficulty. It actually eliminates good characteristics in people such as willingness to helping each other.

b)

Riba will also encourage laziness in the rich or inefficiency in the bank its employees will not have to work .

c)

The richest not only remain permanently rich, since they eliminate the possibility of suffering losses, but they will grow constantly richer, since they will be sucking the wealth which belongs to others.

Islam on the other hand prohibits profit-gaining activities, which are independent of any labor or effort, or the assumption of any risk. Islam deliberately accepts the other way, which is: Al-Kharaj Bid Dhaman meaning Profit is by taking risks. Allah, the Most High, has unambiguously declared that nothing can be had without effort or labor like in surah Hud 85:

Mafhum ayat surah Hud 85: And O my people, give full measure and weight in justice and do not deprive the people of their due and do not commit abuse on the earth, spreading corruption.

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Mafhum ayat surah As-Syuaara 183: And do not deprive people of their due and do not commit abuse on earth, spreading corruption.

Based on the verses above, Allah vouched us not to commit corruption in this earth especially related to muamalah among us.

1.7

False thought about riba Majority of muslims today just understanding the surface issues regarding riba

which is totally prohibitted according to syariah law. Below are the examples of false thought about riba. 1) Riba could exist in loan transaction only 2) Riba (interest) is an excessive rate (usury) of premiumimposed on the borrower in loan transaction. The prohibition of riba is restricted only to doubled and multiplied riba 3) Riba is prohibited in consumption loan (dharurah) and allowed in productive loan

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Riba According to Ijma` and wheather interest is Riba or not The issue whether interest is Riba is important not merely as a scholarly discourse or

polemics, but it is vitally important for Muslims, who want to abide by the guidance of Islam as entailed in the Qur'an and Sunnah, but also because they want to be convinced that nothing HARAM become HALALand vice versa. Among the contemporary educated Muslims, there is significant confusion and ambivalence about this issue of interest. The Islamic literature that equates interest with riba is voluminous and overwhelming, and reading such literature one may come across the claim of consensus (ijma') about this issue. Indeed, there is a tendency to even claim that the debate has already ended or there is no further room for debate or dispute. Below are the ijthihad from islamic scholars about this matter:

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1) "... general consensus among Muslim scholars clearly is that there is no difference between riba and interest." Tariq Talib al-Anjari. "Islamic Economics and Banking,"3 2) "The Shariah disallows Riba and there is now a general consensus among Muslim economists that Riba is not restricted to usury but encompasses interest as well." 4 3) "The consensus of Islamic jurists, fuqaha', as well as specialists in Islamic Economics has been that interest is equivalent to what is termed in the Shariah as riba, which is strongly condemned."5 4) "All the school of thought of Muslim jurisprudence hold the unanimous view that riba, usury and interest are strictly prohibited. 5) "Riba (usury), call it bank-interest if you like, is prohibited by the texts of the Qur'an and the Sunnah. This was the conclusion drawn unanimously by the Muslim jurists (fuqaha)." [Nyazee] The Islamic discourse pertaining to economics and finance is replete with such pious and absolutist statements. However, the reality is anything but. It has been a common practice among Muslim scholars and jurisprudents to be quite liberal in claiming consensus (Ijma). A concept of consensus or unanimous agreement can be viewed at merely a factual level, whether such a consensus exists or has existed or not. However, the Islamic concept of ijma has special significance. The very use of the word ijma inspires awe among the believing and Islam-abiding faithfuls, because based on the principles (usul) of Islamic jurisprudence, the concept of ijma carries the notion of religious infallibility and, thus, binding upon Muslims. In a nutshell, ijma` stated that interest and riba or usury is the same thing.

http://islamic-world.net/economics/economic_banking_01.htm;

Principles of Islamic Banking," November-December 1995, http://www.usc.edu/dept/MSA/economics/nbank1.html Mabid Ali Al-Jarhi and Munawar Iqbal. "Islamic Banking: Answers to Some Frequently Asked Questions," Islamic Development Bank, Occasional Paper No. 4,
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1.9

Conclusion

In a nutshell, Riba trading is totally HARAM or prohibitted according to syariah law based on the dhalalah existed in Quranul Kareem, hadith, ijma` and Qiyas from islamic scholar. Muslims must revert to islamic banking system to protect their right towards money and transactions.

Note: This writen used major references from Al-Quran Kareem resm Uthmaniah, Hadith from sohih Bukhari and muslim and Translation of Al-Quran Kareem of Ibn Kathir.

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