PART-1: EXPLAINING RIBA

Author: Ismail Nizam

The literal meaning of the Arabic word riba is increase, addition or growth, though it is usually translated as 'usury'. As the following discussion shows, usury is not to be regarded solely as the practice of taking interest on a loan.

There are many classifications of riba. The two commonly defined classification of riba are riba al-fadl and riba an-nasiah, and two kinds of transaction into which these elements may be incorporated are riba al-buyu and riba al-qard.

Riba al-fadl involves a hand-to-hand exchange of unequal qualities or quantities of the same class of commodities, and could be described as the usury of surplus. Riba an-nasiah - the usury of waiting - involves the deferred exchange of equal qualities and quantities of the same commodity and does not therefore involve a surplus but only a difference in the timing of exchange. Some writers employ the term riba an-nasa to define such an exchange.

An exchange in which person-A gives 10 kg of rice now in return for 10 kg of rice to be received from person-B tomorrow can be described as riba an-nasiah. An exchange in which person-A gives 10 kg of rice now in return for 15 kg of rice to be received from person-B now can be described as riba al-fadl.

It is argued that modern day interest bearing loan is a combination of both riba an-nasiah and riba al-fadl as there is both a delay and a surplus involved in such transactions. It is one of the widespread forms of riba. The debt may arise from either lending money or from the purchase of an item on credit. In either case, the debtor enters into a contract to repay the lender a pre-agreed amount of wealth in addition to the original debt in return for a delay in the timing of repayment.

Riba al-buyu - the usury of trade - is a second major form in which the elements of riba al-fadl and riba al-nasiah may appear. In order to avoid riba al-buyu, both the quality and quantity of the exchanged items must match and the exchange must be simultaneous. Hence, if dates are to be exchanged for dates, the quality and quantity of the dates must be the same and the exchange must be made on the spot.