Prohibition of Riba’ Generally Riba’ means that prohibition on any interest. In Islamic Finance system, investors and lenders are strictly disallowed to charge or receive interest. In the Shari’ah, “riba” technically refers to the premium that must be paid by the borrower to the lender along with the principal amount as a condition for the loan or for an extension in its maturity. According to Chapra (2006), term of riba is used in the Shari‘ah in two senses. The first is riba al-nasi’ah and the second is riba al-fadl..
The term nasi’ah comes from the root nasa’a which means to postpone, defer, or wait, and refers to the time that is allowed to the borrower to repay the loan in return for the ‘addition’ or the ‘premium’. Hence riba al-nasi’ah is equivalent to the interest charged on loans While, prohibition of riba al-nasi’ah implies that the fixing in advance of a positive rate of return on a loan as a reward for waiting and no difference whether the rate of return is small or big, or a fixed or variable per cent of the principal.
It is important to note that, according to the Shari‘ah, the waiting involved in the repayment of a loan does not by itself justify a positive reward. Gharar is known as unacceptable risk taking which is another fundamental principle of Islamic finance central to the structuring transactions. It also can be considered some level of risk remains a fundamental aspect of commercial life and risk allocation a necessary component of Islamic finance; only disproportionate risk, speculative trading and transactions meeting exceeding limitations.
According to Tabari (2011) gharar may rise from unacceptable levels of settlement risk, inadequate or inaccurate information and complex contracts where multiple transactions are not identifiable with multiple independent contracts. Besides, according to Iqbal (1999) Gharar in a contract arises where there is a lack of knowledge or there is a reasonable doubt about the control of either party to the contract over the completion of the exchange. The best example of gharar is gambling which have kind of unacceptable risk and gambling is disallowed in Islam.
As a consequence, the major terms and conditions, such as the price, subject matter or time of delivery, must be determined when concluding the corresponding agreement. The main reason riba is prohibited because it prevents people from undertaking real economic activities. For example when a person having money is allowed to earn more money on the basis of interest, either in spot or deferred transactions, it becomes easy for him to earn without bothering himself to take pains in real economic activities.
This leads to hampering the real interests of humanity, because the interests of humanity cannot be safeguarded without real trade skills, industry and construction. It support by Siddiqi (2004), Riba corrupts society and ultimate effect is negative growth. It must be a reason why Islam prohibits gharar, according to Gurulkan (2010), in a general context, the unanimous view of the jurists held that, in any transaction, by failing or neglecting to define any of the essential pillars of contract relating to the consideration or measure of the object, the parties undertake a risk which is not indispensable for them.
This kind of risk was deemed unacceptable and tantamount to speculation because of its inherent uncertainty. Speculative transactions with these characteristics are therefore prohibited. In conclusion, riba’ and gharar will cause negative in social economics and that is a main reason, Islam prohibit these elements in business transaction. Even though, the debate still continue but prohibit it will save economics.
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more