Criteria for Appraisal from the Riba Angle

Let us recall that since pre-Islamic times Arabs were trading with the Roman, Persian and 'Himyaritc territories. The Prophet (pbuh) himself went on a trading trip to Syria with his uncle before Nabuwwah. Many companions too had trading links beyond the Arabian Peninsula. Thus foreign trade was a familiar activity during the time of the Prophet (pbuh). Roman, Persian and other sovereign states had their own coins. Usually these were full-bodied metallic coins, cither silver- or gold-based. The silver-based coins were generally known as dirhams and the gold-based ones dinars. Dc facto, their existed foreign exchange markets in order to serve practical needs of the people.

These facts prove that all existing international transactions — except perhaps international lending, borrowing and direct foreign investment — have their analogues traceable to the first Islamic era. Indeed, human experience has added to sophistication. But the basic purpose and nature of most transactions are still the same. In this background, one approach for our purpose can be to compare existing international transactions with their earlier Islamic equivalents and draw necessary conclusions. But a practically more efficient approach is to do the needful in the light of some general principles for appraising existing transactions from the riba angle as well as identifying the Islamic options. We follow the second approach. Four principles in this regard are as follows:

Riba And A Ribawi Transaction

 Riba is mentioned in four places in the Qur’an: Ayah 39 of Surah al-Rum, Ayah 161 of Surah al-Nisaa’, Ayah 130 of Surah Aale 'Imran and Ayat 275-281 of Surah al-Baqarah, in the order of revelation. A close look of these Ayat reveals three points:

  • Whenever riba is condemned in the Qur’an, infaq (spending for the sake of Allah) is commended.
  • While riba is castigated in Ayah 275 of Surah al- Baqarah, Allah approves trading and,
  • The final command on the prohibition of riba is given undoubtedly in the context of loans. These loans may be in monetary terms or commodity forms. Furthermore, these loans can arise in the ordinary borrowing and lending process or in credit transactions — sales on deferred payment or vice versa.

Another related point is as follows:

  • Both the Qur’an and Sunnah support business partnership.


It is notable that infaq is a one-way transaction. Trading involves a two-way exchange in which items of different types change hands — money versus good or one good versus another good. Loans are also two-way transactions, but the same item — money or some good — is exchanged by both parlies in the course of the transaction. A business partnership is essentially exchange of one’s money (financial capital) or other resources with the partner in return for the latter’s services. It is pure coincidence that in the end the partner’s services too assume the same form as the financier’s capital.

Keeping in view these differences in the nature of all these transactions, one may define riba as follows:

Riba is the discrepancy in a direct exchange of items of the same general kind, which arises as a result of contractual obligations of the concerned parties.

By analogy, a direct exchange of items of the same general kind with a discrepancy will render it a ribawi transaction. As to the meanings of “items of the same general kind,” several Ahadith conclusively establish that qualitative and other minor differences between items on the two ends of an exchange are to be ignored in assessing riba. For example, dates are to be viewed as dates even if those given and taken are of two different varieties. Similarly, gold is to be treated as gold, whether in the form of full-bodied coins, pieces or jewellery.

A word of caution is warranted here. The relevant Ahadith on riba pointedly mention direct exchanges involving six items: gold, silver, wheat, barley, dales and salt. These Ahadith emphasise that in a like-for-like trade of these items, the principles of hand-to-hand exchange and equality in exchange are to be observed. Fuqahaa’ mostly looked at the nature of these six items and brought all other items with similar attributes under the scope of this proviso. However, let us note that trading of, for example, dates for dates represents a special case of a loan of dates with zero time lag in the give- and-take (back) process. This being so, the ahkam in Ahadith are to be viewed as rationalising the trading practices with the ahkam on riba in the Qur’an. Note that the Qur’anic Ayat on riba are absolute and they cover loans in terms of all commodities. The only exception traceable to Sunnah relates to camel-for-camel loan transactions. Thus, in our view, comparable loan transactions — not credit sales — should not give rise to riba.' In all other eases, one has to guard against any discrepancy in die exchange of items of the same general kind.

Diagnosis in Transactions with Sub-Transactions

 Let us take the ease of an export transaction between a Pakistani exporter and a US importer. The principal deal between the two parties may involve a string of contracts between the exporter and a shipping company, the exporter and his bank, the exporter’s bank and the importer’s bank and, finally, the importer’s bank and the importer. Each of these sub-transactions involves an exchange between two parties. All these sub-exchanges have to be riba-free for the master transaction between the Pakistani exporter and the US importer to be free from riba. This principle of tracing riba in a transaction is generally applicable.

Strlctlrk of Transactions with No Qualms

If a transaction docs not involve direct exchange of items of the same general kind, the issue of riba does not arise. On the contrary, if a transaction involves the exchange of items of the same general kind, such as a loan, it has to be on a one-to-one and equal basis to be riba-free. When exchange of items of the same category becomes essential, riba can also

be avoided by replacing the direct exchange by an indirect one. For example, according to Ahadith of Abu Saeed Khudri, the Prophet (pbuh) ordered the substitution of a direct exchange of poor quality dates for good ones on unequal terms by an indirect exchange involving the use of sale proceeds of inferior dates to buy the preferred dates. This is akin to a transaction with the exchange of similar items based on valuation of both of them at their respective market prices.

Dr Sayyid Tahir


Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Repulished with permission.
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