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What is "Riba" & Why "Haram"
07-10-2005, 04:33 PM
Post: #1
What is "Riba" & Why "Haram"
Assalmalikum Dears,
i enjoyed the discssion very much last time which was about the <font color="red">"interest"</font id="red"> and the <font color="red">"reasons</font id="red">" why it is declared as <font color="red">"Haram"</font id="red"> by the almighty ALLAH. in the Holy Quran.
and why is this specific Act is declared as "WAR WITH THE ALLAH"

But like other forum members i also did'nt had adequate knowledge to justify the the mean while my Exams came in and i had to go away form net and other activites.

now once the exams are no more in action.
i decided to know about this burning topic i searched books of "Muoulana Taqi Usmani sahib" and some relevent stuff form net

The findings were very relevent and useful so i wish to share it with forum members as well.

<font color="red">Jaan_Jaan540<font color="red"></font id="red"></font id="red">
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07-10-2005, 04:48 PM
Post: #2
It is worth to present an example to start with the subject, a factual example from existing interest based banking methodology that is valid and current, which can be well understood by a common person. One should consider the following facts before going through the example. The facts are

Only Banks create money.

The created money is then supplied in to the economy only in the form of loan at some specified interest.

There are no other institutions that create money other than banks.

The example - an astonishing fact

As all the banks are creating money and supplying in to the economy on interest and without any doubt all of them are practicing the same technique, so let us consider there is only one bank in our example that creates some money and supply in to the people's economy.

Suppose Bank XYZ creates Dirhams 100,000 and supplies it at an interest rate of 10% per annum to several entrepreneurs and governmental units active in the economy, remember there is no money available in the economy from any other source. The bank has taken substantial collateral or guarantee as security of its money from each borrower. See in the following diagram - the borrowers intake loan and repayment liabilities at the end of the first year
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07-10-2005, 04:53 PM
Post: #3
It is very simple and clear that at the end of the first year, a combined sum of Dirhams 110,000 is due on all borrowers to repay to the loaning bank.

But the money available in the economy is only Dirhams 100,000 as the bank is only supplier of money, so from where the rest 10,000 would come that is the difference in the borrowers intake and total repayment amount...... from NOWHERE. Yes, that is right from nowhere because that money does not exist in the economy.

Look at the scene, the bank is the only supplier of money, it creates and supplies 100,000 in the economy and that is the total money available in the economy, but as per loan agreements - these borrowers collectively have to pay back 110,000. How is that possible? There is no way. Don't you believe, it is 100% like this - no less. This is cheating and criminal foul play.

So what will happen, at least one or more of these borrowers would default on their loan(s) and would loose their personal assets or belonging that they had put as security to the bank for the repayment.

The money creator has designed a mechanism that would force few of the borrowers each year to default so that bank could forfeit the security assets and gain wealth by foul play.

This is an eye opening example for those who previously had no idea about the mechanism of banks as how they operate and cause artificial shortage (scarcity) of the money in the societies. This is happening every where in this world from USA to the smallest country on this beautiful planet. This artificial scarcity of money is the root cause of people's problems from hard struggle for surviving to the loss of happiness from their lives.

In a Riba (interest) based system, people are not aware of this foul play - borrowers think that they will manage to repay the principal plus Riba (interest) as they think it would be coming from some where else, but the fact is - every borrower would be in battle with others where some borrowers have to lose in order for others to win, some would fail to pay their loans in order for others to get the sum they need to pay off the Riba (Interest). When seen in totality, the supply side is always in deficit and the liability is always in excess due to Riba (interest), the total combined supply cannot discharge the liability.

After going through the above real example, I believe, now we are close to find out why Riba was declared Haram in Quran and Sunnah.

Let us begin with the economic reasoning of WHY

The availability of each produce is limited, the liability cannot exceed the availability limit.

In any transaction, if a liability of produce "in excess" of "the produce available" is created, that extra liability would be artificial because excess quantity of produce does not exist.

This universal economic code applies to each and every type of produce; to further get in to the explanation of the rule, let us now identify what represents "the produce", "the transaction", and "extra liability"

The Produce
In its general expression "the produce" is any thing available to human beings for their use or consumption, but here specifically those produce that can be involved in a transaction, it is best to take historical standards of transactions which are based on produce like gold, silver, grains, currency etc. because throughout history all transactions are carried out in publicly acceptable produce only. These produce have served the societies as "medium of exchange", so it is more appropriate logically and historically to consider the produce as "the medium of exchange" which is again a general expression and can accommodate any other commodity/produce that may be used in a transaction.

The Transaction
In this universal economic principle, the transaction is based on a single produce and naturally it can only be a transaction of loan or exchange and nothing else. Although donations/grants also involve only one produce but that is not a transaction because a transaction means exchange of good(s) and/or service(s) either on spot or in any specified time frame involving one or more types of produce.

Extra Liability
Riba (interest, usury) is that extra liability created in excess of the produce available and that does not exist. Every liability is a demand in practice, the basic rule of economics known to every one is that to maintain economic equilibrium (stability) in the society, the supply side should be equal to the demand, if the demand is more than the supply - a shortage will occur. Creating an extra liability means creating an extra demand without increasing equal supply, this will start a never ending mechanism of perpetually increasing the shortage of that produce in the society.

Riba was prohibited just to prevent the creation of "extra liability/demand" because that is fake and "does not exist" physically, this artificial "extra liability/demand" creates scarcity of the produce in the society and unjustly accumulation of the produce in few hands. Riba (interest, usury) is a mechanism and dangerous weapon that has a power to get hold of assets/properties of individuals, enterprises, and nations deceitfully. This is unfair and against the nature, so ALLAH banned Riba (interest, usury) very strictly to stop this criminal action.

<font color="red">The above economic reasons are the only base for the prohibition of Riba, ALLAH has allowed everything that is natural but given its strict judgment to stop any behavior, agreement, and practice that is not natural.</font id="red">
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07-10-2005, 04:57 PM
Post: #4
Sorry i not able to present the diagram


<font color="red">Jaan_jaan540</font id="red">
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07-10-2005, 05:05 PM
Post: #5
<font color="green">Defination</font id="green"> of <font color="red"><font size="5">"RIBA"</font id="size5"></font id="red">

"A <b>forced</b> "<b>increase of Value</b>" in "<b>the Medium of Exchange</b>" that is <b>Loaned </b> or <b>swapped</b> is <font color="red">Riba</font id="red">.
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07-10-2005, 05:10 PM
Post: #6
<font size="4"><font color="red">Explanation </font id="red">Below is explanation of different meaningful parts of this definition</font id="size4">

A <b>forced</b> means demanded, desired, claimed, requested, practiced, agreed etc.
Any of the above or similar words would fall under the "forced" category that define and create a liability on other party.

<b>Increase in value</b> means the increase in terms of value which comprises the quantity and the quality, there is no issue of the minimum or maximum increase, fixed or variable increase, just increase no matter how small or large it is and how that increase is defined.

<b>The medium of exchange </b> means any thing that can serve the purpose of exchange of good(s) and/or service(s) in the society at any level i.e., international, national, or local. We all know and recognize currency and gold etc. as the best examples of the medium of exchange, but still for instance in some parts of the world, agro-labour are paid in grains from the harvest they had worked upon, and that grains serve as the medium of exchange on a very localized level and certainly that would fall under the classification of "medium of exchange". Other than this, any thing would become a "medium of exchange" if the loaning party forces the borrower to pay in extra on return.
That is loaned or swapped </b> means the same medium of exchange that was given as loan or used in the exchange. It is generally understood that exchange is "on spot" and loan is "time related" but both the transactions are based on a single produce, no increase either on spot or in a time frame is allowed because there is a definite potential of using the exchange mechanism for riba if it were only banned in loan transaction. Some people question about the sense of allowing exchange of equal quantity and quality on spot, why some one would do that? The answer is very simple, if one has a currency note of 100 and need to change it into lower denominations, what he gets must be equal to 100 in any combination of lower denominations.

Summarizing the rules for the analysis of riba in a transaction, we might conclude the following

Riba is only present in a transaction of single produce, generally "the medium of exchange".

1.Riba is not necessarily time related; it can be on spot or in any time frame.

2.Riba is the "increase", not the "decrease".
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07-10-2005, 07:53 PM
Post: #7
out of curiosity! dont you think we should reffer to Quran and Sunnah while we address issues like this. I mean common sens cant not always provide sufficient answers all the time.
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07-11-2005, 02:24 AM
Post: #8
i agree with ehson. we shud not test our wits against the quranic teachings.

Dear Mr. Jaan
In ur example the bank is lending 100,000 dirhams to some entrepreneurs. The objective of an entrepreneur is to make profit. Assuming that he uses all the 100,000 in paying for the cost of materials, factory overhead and other costs and incurs 10,000 financial charges ( the interest on the loan), the entrepreneur must be planning to attain some profit. i.e his revenue should exceed his costs. if he cannot make profit it makes no sense for him to carry on his business. his revenue should exceed 110,000 dirhams.

in ur example the money supply is limited to 100,000 dirhams which is creating a liquidity crisis. The economy can expand but there is not enough money there to oil the wheels of economy so the central bank will have to inject some more money.

there is no fault on the part of the bank because bank has to bear the risk of defaults by the debtors as well as the bank has to pay some interest on the deposits maintained with bank by the depositors. So in order to run the business profitably the bank has to charge interest on the advances. Otherwise the whole banking system in ur example would collapse.

My point is that bank is not the culprit for liquidity crisis in ur example. the real culprit is the central bank in ur example which is totally absent in ur example.
BOTTOM LINE money supply should be increased with the growth in economy. it shuld ideally grow at the same rate as the growth rate of economy.

CONCLUSION Riba is totally haram (as we all know from quran). However the example quoted by u cannot be quoted in support of the quranic teachings.


I being a responsible muslim would advise u to be careful while posting things related to religion because non-muslims and muslims of weak faith may also read ur posts and draw wrong conclusions and get wrong ideas from ur post.

May Allah increase our faith.

Ice Blue
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07-11-2005, 02:39 AM
Post: #9
one more thing, money is only a medium of exchange. it was invented to remove the defects of barter system.

If we remodel ur example to a barter system and the bank lends out goods ( let say worth 100,000) and wants goods worth 110,000 back in payment of the loan. then the entrepreneurs wud be able to sell goods and make profit in the form of goods and payback the bank the loan in the form of goods.
assuming the economy is expanding and there is no limit to which goods can be mined and manufactured, the problem of "liability exceeding assets" as quoted by u wud never arise.

I dont mean to humiliate u, neither do i want to prove that i am a genius. I merely want to point out that u have been reading the writing of some "pseudo-intellectual" and recommend the u maintain ur faith in Allah and dont resort to such "supporting examples".
Please dont take offence. I am doing this in good faith and i have firm faith the Riba is Haram.

Ice Blue
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