Riba Al Fadl - Explained
The second classification of Riba is Riba Al Fadl. Since the prohibition of this Riba has been established on Sunnah, it is also called Riba Al Hadees.
Riba Al Fadl actually means that excess which is taken in exchange of specific homogenous commodities and encountered in their hand-to-hand purchase & sale as explained in the famous hadith:
The Prophet said, "Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (Riba). However, sell gold for silver anyway you please on the condition it is hand-to-hand (spot) and sell barley for date anyway you please on the condition it is hand-to-hand (spot).”
This hadith enumerates 6 different commodities namely:
These six commodities can only be bought and sold in equal quantities and on spot. An unequal sale or a deferred sale of these commodities will constitute Riba. These six commodities in fiqh terminology are called “Amwal-eRibawiya”. Does this hadith apply only to the items mentioned in it? Does it concern sales of barley or wheat but not rice? Of dates but not raisins? A complete legal definition differs in every fiqh. Scholars such as Taoos and Qatada hold that Riba Al Fadl includes these specified types only, however a majority of Islamic scholars believe that some other commodities should also be included. In order to answer the question, which other commodities should be included, some fiqhs hold that the characteristics which are common amongst these items can be used as basis (illat) for Riba Al Fadl. An illat is the attribute of an event that entails a particular divine ruling in all cases possessing that attribute; it is the basis for applying analogy. Ribawi goods are therefore goods that exhibit one of the efficient causes occasioning application of Riba rules. Various schools define these causes differently:
Imam Abu Hanifa
Imam Abu Hanifa sees only two common characteristics namely:
Meaning all these six goods are sold by either weight or volume. Therefore all those commodities, which have weight or volume and are being exchanged, with the same commodity will fall under the rules of Riba Al Fadl.
The two characteristics observed by Imam Shafi are:
1) Medium of Exchange or
Therefore this law will apply on everything edible or having the natural ability of becoming a medium of exchange (currency).
Imam Maalik identified the following two characteristics:
1) Eatables and
Imam Ahmad Bin Hanbal
Three citations have been related to him:
i) First citation conforms to the opinion of Imam Abu Hanifa.
ii) Second citation conforms to the opinion of Imam Shafai.
iii) Third citation includes three characteristics at the same time namely edible, weight and volume.
After a detailed study of the above schools of thought, it has been declared by Islamic scholars that if a commodity bears both of the two characteristics namely; it has weight and can be used as a medium of exchange, then the following two kinds of transactions are not allowed when the same goods are being exchanged:
A deferred sale of goods (A deferred sale is when the goods are returned/or paid for after some undetermined period)
A sale of unequal quantities of the same goods
However, when only one of the two characteristics is present to term the sale as Riba Al Fadl, then exchange of unequal goods are allowed but deferred sale is not allowed.
Wisdom behind the prohibition of Riba Al Fadl
The prohibition of Riba Al Fadl is intended to ensure justice and remove all forms of exploitation through ‘unfair’ exchanges and to close all back-doors to Riba An Nasiyah because in the Islamic Shariah, anything that serves as a means to the unlawful is also unlawful.
The laws of Riba Al Fadl
After closely analyzing the meaning and interpretation of the above ahadith and their explanation in further ahadith along with issues raised in reference work of Hanafi fiqh, the following rules and laws governing Riba Al Fadl are derived:
- It is evident that the exchange of homogeneous commodities will only be required if they differ in quality and characteristic e.g. different genus of rice and wheat, superior quality gold and inferior quality gold, mineral salt and sea salt etc. The exchange of any of these six commodities with itself, but differing in types/quality (which is called barter in modern terminology), even when considering market rate, is prohibited in unequal amount. The reason being that by exchanging these commodities in unequal amounts there is a fear of developing the rationale in a person eventually leading to interest (sood) based earnings and illegal benefits. Such transactions might also lead to defrauding. For example, a shrewd trader may claim that a kilogram of a specific brand of wheat is equivalent to 3 kilograms of the other kind because of the excellence of its quality, or this unique piece of gold ornament is equivalent in value to twice its weight in gold; in such transactions there undoubtedly is defrauding of people and harm to them.
As a step to prevent this state, the Shariah has made it a law that exchange of any of these six commodities with itself but differing in quality, is allowed in only one of the following forms:
- Any difference in value/quality should be ignored and the commodities should be exchanged in equal amounts (equal weight and volume).
- Instead of direct exchange of commodities of the same kind, a person should sell his commodity against cash at the market value and buy someone else’s commodity in exchange of cash proceeds at the market value.
- One of the ways of transacting commodities of the same kind is that a person has a raw material and someone else has a product made of that material and both decide to exchange their product. In this case, one has to see whether:
- The characteristics of this product has been totally changed by the industry: For eg. the remarkable changes that transform raw cotton into cloth or iron into machinery. In this case, it is permissible to transact lesser amount of cloth against greater amount of raw cotton or raw iron having more weight against machinery having lighter weight.
- Little difference has been made to its original form after its formulation: For eg. gold which changes its shape in the form of jewelry. In this case, the Shariah’ holds that such a transaction should not happen in the first place or if it does, the exchange should be in equal weights in order to discourage unfair deals. Another alternative would be to sell gold against cash and the cash proceeds are used to buy the needed jewelry. This is because it is not possible in a barter transaction, except for an expert, to visualize the fair equivalent of one commodity in terms of all other goods. Hence, the equivalent may be established only approximately thus leading to some injustice to one or the other party. The use of money could therefore help reduce the possibility of an unfair exchange.
4. Different commodities can be unequally exchanged but deferred payment is not allowed. For eg. one kg wheat can be sold against 2 kg date or one gram of gold can be exchanged against 4 grams of silver on the condition that they are spot transactions reason being that such a transaction will surely be carried on the market rate. For eg. a person who wants to exchange silver for gold on spot will only transact as per the market rate. However, if the transaction is on credit, there is a possibility, no matter how minor, of stepping into interest that cannot be ignored. For eg. a buyer who has traded 80 tolas silver on credit today on the understanding that it will be exchanged against 2 tolas gold after a month has in fact no means to find in advance that 40 tolas silver will be equivalent to one tola gold after a month. Therefore this ascertaining of value in advance actually signifies its roots in interest and gambling. Similarly the seller who has accepted credit has in fact yielded to gambling by hoping that the ratio of gold and silver might come down from 1:40 to 1:35. The law of exchanging different commodities only at spot has been established due to this reason.
The general conditions of sale, however, should be borne in mind while making a trade transaction so that the goods are specified in addition to the cash aspect of the transaction. The correct way of specifying is that gold and silver should be under the possession of the sellers or delivered at the place of contract because both goods have the original (natural) price, which cannot be specified until they are delivered.
This rule applies to only exchange of gold and silver. Other goods can be exchanged against each other without delivery and can be specified any other way but will be restricted to cash transaction.
For eg. Zaid made a spot sale of one kg wheat to Bakar with 2 kg salt against future delivery after having identified their goods, this transaction is allowed in Shariah since it meets both conditions:
The transaction is on spot.
It is also specified.
However, if Zaid was selling one tola gold to Bakar against 40 tola silver, then it is necessary that both take delivery of their purchased goods at the place of contract because without delivery, goods cannot be specified.
To sum up, the Hanafi jurists maintain that in case of commodities that weigh or measure, it is illegal to transact unequally or on credit. But in case of different commodities unequal exchange is legal but credit remains illegal; the transaction in this case too should be spot.
Source: Dr. Muhammad Imran Ashraf Usmani, Meezan Bank’s Guide to Islamic Banking.