The 1,200-year-old Mystery of the Coins
A man lends another person 5 Kilograms of Gold coins; the number of coins was 100 pieces.
At the time of repayment, the borrower gives the lender 9 choices for paying back the Qard:
- The same Weight of coins, and the same Number of coins
- The same Weight of coins, and a lesser Number of coins
- The same Weight of coins, and a greater Number of coins
- A lower Weight of coins, and the same Number of coins
- A higher Weight of coins, and the same Number of coins
- A lower Weight of coins, and a lesser Number of coins
- A higher Weight of coins, and a greater Number of coins
- A higher Weight of coins, and a lesser Number of coins
- A lower Weight of coins, and a greater Number of coins
Which of the above choices (if any) would NOT be permissible as a combination of repayment and why?
This exercise is based on a discussion found in the book entitled “Buhooth Fi Fiqh Al-Mu’amalat Al-Maliyah” or “Research into Understanding Financial Transactions”, the second edition of 2009, by Dr. RAFIC YUNES AL-MASRI, of the Islamic Economics Research Centre King Abdulaziz University, Jeddah. It, in turn, was based on a discussion found in “Al-Mudawwina Al-Kubra” attributed to Imam Sahnoun circa mid 9th Century A.D. and based on conversations by Imam Sahnoun Al-Tanoukhi with Imam Abdulrahman Al-Itqi, based on rulings by Imam Malik.
In it the position of Imam Malik is the following:
1), 2), 3), 4), and 5) are all permissible since the original Qard was either done by weight or number of coins, and therefore in all cases, either the same weight or same number is being returned, depending on how the loan was taken.
For rules on Qard (Loan), AAOIFI Shariah Standard No. 19 is quite helpful:
“3/4 It is stipulated for the subject matter of the contract that it be known fungible (Mithli) marketable wealth.
3/4/1 The borrower comes to own the subject-matter of Qard (the wealth loaned) through possession, and he becomes liable for (the repayment of) a similar subject-matter.
These are cash, things subjected to cubic measure, weight, linear measure and very similar countable things that do not differ to an extent that their difference will lead to a difference in their value.”
No. 6) is permissible because a Hiba by the lender is acceptable in forgiving part of the debt.
No. 7) is permissible as it could be considered “Husn Al-Qadaa” or a commendable act by the borrower who can pay extra as long as it was Not Stipulated, Nor by a Tradition.
AAOIFI Standard explains the permissibility quite well:
“The basis for the permissibility of giving an excess, in terms of quantity or quality, at the time of repayment by way of generosity and goodwill, when these are neither stipulated nor is there a practice of paying them, is the Hadith reported from Abu Rafi’, may Allah be pleased with him, that the Messenger of Allah (peace be upon him) borrowed a very young camel from a man and then wished to present to him one of the camels of the Sadaqah (Zakat), so he asked Abu Rafi’ to repay the man his camel. Abu Rafi’ returned it to him and said, “I do not find anything there except a full grown four year old camel.” The Prophet (peace be upon him) said, “Give him this camel. The best people are those who do better in of repayment”.(4)
It is reported from Abu Hurayrah that a man came to the Messenger of Allah (peace be upon him) seeking alms. The Messenger of Allah (peace be upon him) borrowed food amounting to one-half of a Wasq and gave the man this. When the lender came demanding his loan, he gave him a full Wasq saying, “One-half of this is your repayment and the other half is a present from me”.(5)
(4) Related by Muslim in his “Sahih” in the Book of “Musaqat”, chapter on the person who borrows may return what is better.
(5) Related by Al-Bayhaqi, “Al-Sunan Al-Kubra”, [5: 351].”
Numbers 8), and 9) are Not permissible as the difference in Weight seems to be compensated by the Number of coins, which made Imam Malik view them as Compensation or “Mu’awadah” and as such they are no longer a Qard and become a Sale “Bai’” which would introduce Riba.
Even in the book, the question was asked as to why Imam Malik believed it would become a sale: “What is the difference between them?” but the answer was simply that it would become a sale.
Dr. Al-Masri discusses these options and queries as to why Numbers 8) and 9) would be looked at as an Exchange (Mu’awadah) different than the 7 previous choices. Because in each case, one can use the same logic as given before for them to be acceptable forms of repayment.
Whether the person borrowed by weight or by numbers, combinations 8) and 9) do not seem different than the others if viewed with good intent.
For example, if the borrower had taken the loan in number of coins, then the rule is that he must return the same number of coins regardless of the then weight. If he returns either of these options, then it could either be considered a commendable act because he gave back more without stipulation, or that he didn’t have enough coins to repay the debt, in which case, the lender could forgive him the remainder.
And the same goes if he borrowed the gold in weight.
It’s not clear as to why this should give rise to a suspicion that it’s an exchange. But perhaps that’s what it was, just a suspicion, and therefore it was somehow viewed as better to forbid these two options as a possible method that could be a path to the forbidden.
Of course, by definition, it means that the coins were not the same weight and uniform, otherwise these situations could not occur.
There is a short discussion of sales in the section on “Muratala”, (which is an exchange of money based on weight), within the “Book of Sales” in Imam Malik’s famous book “Al-Muwatta” written in the 8th Century. In the section, a spot sale based on weight should not include any compensatory factors, lest it transgress the rules on Riba Al-Buyou (Riba of Sales), which demand equality in weight when exchanging gold and silver, as well as immediate exchange.
There’s also a repeat of the above by Al-Baji, a scholar of the 11th Century in his “Kitab Al-Muntaqa” which is an explanation of Malik’s Muwatta, as well as in a few other books such as by Al-Zarqani (1645-1710 A.D.) who also wrote an explanation of Al-Muwatta. However, this also was based on sales and not loans.
I was not able to find any further discussion on this issue in any other book, so it’s difficult to be able for sure to define the reasons behind this pronouncement.
Of course in a sale, it’s well known that gold against gold must be of equal weight (a difference is called Riba Al-Fadl), and immediately exchanged (a delay is called Riba Al-Nasaa’), where an increase and a delay would lead to the complete Riba, otherwise known as Riba Al-Nasee’a.
The rules of exchange of certain food items and metals such as gold and silver are well known to any student of Islamic Finance. However, it would be best to remind ourselves of the reasons.
Riba Al-Fadl which takes place when items of the same type such as Wheat against Wheat or Gold against Gold, were introduced to ensure that such an increase does not over time descend into a Delay which would then result in Riba Al-Nasee’a, the main Riba where there is a delay and an increase.
Ibn Al-Qayyim (1292-1350 A.D.) states in “A’alam Al-Muwaqqi’in” that: “They have been forbidden to engage in Riba Al-Fadl (Increase) for fear of arriving at Riba Al-Nasee’a, because if they sold one Dirham for two, they would slowly move to a delay in the exchange resulting in Riba Al-Nasee’a.
Riba Al-Nasaa which only involves delay between similar types such as Gold against Silver or Dates against Wheat, was introduced because of fear that over time, any delay over the allotted time period in the exchange, might result in another form of Riba Al-Nasee’a which is when an increase is requested due to further delays at the time of payment.
Ibn Al-Qayyim states again: “They were forbidden Riba Al-Nasaa (Delay), which if permitted would result in “Delay further and Increase the amount.” This is where the item to be delivered is delayed and then agreement takes place to increase.
So both of the rules were meant to ensure that no manipulation takes place, which would result in the main Riba.
And of course, a Qard is an exception, since it’s essentially a contract of Irfaq (kindness), and as such, a delay is permitted by lending gold for example for a period of time without increase.
But if we look into the chapter entitled the Book of Sales in Malik’s Muwatta and to the section entitled: Selling Gold for Gold and Silver for Silver by Weight, otherwise known in Arabic as “Muratala”, perhaps we can begin to make some sense of the ruling:
Malik said, "According to the way things are done among us there is no harm in selling gold for gold, and silver for silver by counterpoising weight, even if 11 dinars are taken for 10 dinars hand to hand, when the weight of gold is equal, coin for coin, even if the number is different. Dirhams in such a situation are treated the same way as dinars."
Malik said, "If, when counterpoising gold for gold or silver for silver, there is a difference of weight, one party should not give the other the value of the difference in silver or something else. Such a transaction is ugly and a means to usury because if one of the parties were permitted to take the difference for a separate price, it could be as if he had bought it separately, so he would be permitted. Then it would be possible for him to ask for many times the value of the difference in order to permit the completion of the transaction between the two parties.”
Malik said, "If he had really been sold the difference without anything else with it, he would not have taken it for a tenth of the price for which he took it in order to put a 'legal front' on the transaction. This leads to allowing what is forbidden. The matter is forbidden."
This means that when exchanging certain items, absolute equality must take place, and no difference can be compensated, as it might have a price on its own, and then in time delay occurs, which leads to Riba Al-Nasee’a.
This could have been what’s on Imam Mailk’s mind when deciding that the last two choices were forbidden. He saw them as exchanges where a difference was compensated and delayed causing Riba Al-Nasee’a. Basically he would have seen this as a manipulative trick to circumvent the rules of exchange.
We could also see it from a different light, and perhaps the story would become clearer. If we look at the number of coins and the weight of coins as currencies, then perhaps we can see what was envisaged.
When an amount of a currency is exchanged against another currency, there has to be immediate delivery of the currencies within the session of contract. And when a currency is borrowed, then this is the amount that has to be returned, and this is not based on what value it had at the time of borrowing against another currency, regardless of the fluctuation of prices.
If you borrowed $ 100, and at the time of borrowing, it was worth Sterling 100, then when the date of repayment is due, you owe only $ 100, regardless of any fluctuation against Sterling. Say Sterling appreciated against the US Dollar, and now $ 100 is only worth Sterling 80. Do you compensate the lender for the difference by paying more US Dollars? Would you take the appreciation into account and repay $ 125 to compensate the lender for the appreciation of Sterling?
No, say the rules on borrowing, you pay only what you borrowed.
Paying back the loan in US Dollars based on the original value of Sterling is viewed as forbidden and a form of Riba, and against the rules of Sarf (currency exchange) which demand immediate delivery of both currencies.
However, you can take the equivalent of another currency based on the currency value AT the time of repayment.
So stated the Council of the Islamic Fiqh Academy in its pronouncement of 1988. Full text below:
“RESOLUTION N° 42 (4/5)
CONCERNING CURRENCY RATES FLUCTUATION
The Council of the Islamic Fiqh Academy, holding its Fifth session, in Kuwait-City (State of Kuwait), from 1st to 6th Jumada al-Oula 1409 H (10 to 15 December 1988);
Having reviewed the research papers presented by the members and experts on "Currency rates fluctuation" and after having listened to the discussions held on this issue;
Having taken cognizance of resolution n° 2 (9/3) adopted by the Council of the Academy at its 3rd session, in which it was agreed that Bank notes, being legal currencies, possess all characteristics of valuables, are in general governed by Shari'a provisions applied to gold and silver, and namely rules relating to Riba (usury), Zakat and Salam (sale by advance payment);
It is significant that a fixed debt is repaid in its own currency and not by its counter value, because debts are settled in the same currency. Thus it is not permitted to attach fixed debts, whatever their source, to currency fluctuation.”
But the problem here is the last statement: “not permitted to attach”, which means an agreement to attach the currency fluctuation to the original loan agreed at the start of the loan.
However, this is not to say that you cannot agree to take the loan in another currency. It’s just that you have to accept the other currency against the price of the loan At the time of repayment, and not based on the time of the taking of the loan. As stated by Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him):
“So if you and he agreed that he will give you Egyptian pounds instead of dollars, provided that you do not take more Egyptian pounds than whatever was the value at the time of payment when you decided to change the currency, then there is nothing wrong with that. For example, if 2000 dollars is now equal to 2800 pounds, it is not permissible for you to take 3000 pounds, but it is permissible for you to take 2800 pounds, and it is permissible for you to take two thousand dollars from him and no more. In other words, you can take according to the day’s price or less, but not more.”
In the case of the coins, there was no agreement to attach the number of the coins to the weight or vice versa. Any reduction or increase in weight or number was simply made at the end.
So perhaps, although no pre-agreement or collusion took place between borrower and lender to “attach” any fluctuation or compensation to the fixed debt, it was seen as a possibility that could take place and potentially a method to circumvent the rules of exchange which would lead to Riba, and thus better to forbid it from the beginning.
What’s really important to remember is that the Riba of Sales (Riba Al-Buyou) which governs the rules of exchange between certain goods, and lays down rules relating to Delay and Increase, is in fact forbidden due to it being a means to arriving at the main Riba, which is Riba Al-Nasee’a, where there is a Delay and an Increase.
Yes, perhaps. But Riba is such an important issue, that it requires time and effort for a true understanding of its insidious nature. Studying such stories exercises the mind, and gives us a real appreciation of the wisdom of our great scholars of the past.
And Allah Knows Best.