How To Get Registered Riba

What is riba or involvement? What are the types of riba? Is riba is limited to a loan contract? Can riba happen in a sale contract?

Riba and Its Types

The word riba ways excess, increase, or addition. From a Shariah point of view, it can be interpreted every bit: an excess compensation or unjustified return in a lending, borrowing, or sale transaction. The about mutual example is taking a loan from a conventional bank: the banking concern gives a loan, and the borrower repays the money at a later appointment with a percentage increment over the original amount.

But riba is not limited to an increase in a loan contract. which is imposed due to deferment of fourth dimension in payment. The Quran does not specify any particular type of riba. Yet, Muslim scholars take explained two types of riba based on general texts of the Quran and a number of Ahadith (sayings) of the Prophet Muhammad ﷺ.

At that place are two types of riba:

riba in loan contract (Riba al-Nasiyah)
riba in sale or exchange contract (Riba al-Fadl)‍

Riba in loan contract (riba al-nasiyah)

This is the commonly understood type of riba. It's an increase in payment from a borrower to a lender over the original loan amount charged past the lender due to filibuster in fourth dimension of payment. Notation that this blazon of reba only applies to a loan, not a credit auction (more on this later).

It does not thing whether the increase over the loan amount is stock-still at the showtime of the contract, or at the end of the contract if the borrower didn't pay (in the case of default). Any pre-determined or pre-agreed increase, or any extra amount over the original loan amount charged by the lender is considered reba. This could include, for example, if the borrower offered to pay an increase over the loan amount equally a condition for repaying the loan because the increment is pre-agreed every bit a condition of the loan.This type of riba is called riba al-Quran because, the Quran has specificaly prohibited this form of riba as it was unremarkably practiced in Arab gild at that time.

Optional Gift in Repayment Allowed

What if a borrower repays the money, but wants to give thanks the lender by offering some gift? Is this immune? Yeah!

The key divergence hither is that an optional gift or increase paid by the borrower must not be pre-agreed and must not exist stipulated past the lender. Something coming out of the good will of the borrower to show their gratitude is allowed, and is fifty-fifty recorded in a hadith:

Narrated Jabir bin Abdullah: "I went to the Prophet while he was in the Mosque. After the Prophet told me to pray 2 Rakat, he repayed me the debt he owed me and gave me an actress amount." [Sahih Bukhari]

Commonplace Examples of Riba al-Quran

Hither's a brusk list of just a few examples y'all may have heard of. All of these types of products and contracts include reba and are classified equally haram or not permissable for Islamic finance:

Credit cards (note: debit cards are OK)
Home mortgage
Car/automotive loan
Personal loan from a conventional banking concern
Banking concern certificate of deposit ("CD")
Capital market bonds
US Government Savings Bonds

Riba in sale contract (riba al-fadl)

This one is non as obvious as riba in a loan. It tin happen in a sale or exchange transaction of a article. Note that this type of riba only applies to commodities; things like: dates, barley, rice, wheat, oil, carbohydrate, cotton, etc...

If two people commutation the same commodity but in unequal amounts, the extra would be riba. This type of Riba is too called Riba al-Hadith in the literature of scholars because, it is not directly mentioned by the Quran. The Prophet (ﷺ) has classified information technology as riba in a following hadith:

"Gilt for gold, silver for silvery, wheat for wheat, barley for barley, engagement for date, salt for salt, must be equal on both sides and mitt to hand, whoever pays more or demands more (on either side) indulges in Riba" [Sahih Muslim].

According to this hadith, there are 2 main criteria that authorize a auction as having riba:

Filibuster in fourth dimension or deferment of the exchange of bolt
Deviation in quality in commutation of similar commodities

To summarize, when ii similar commodities of are exchanged with each other, the post-obit two rules must exist observed strictly. Otherwise, the transaction has riba.

Rule of Exchanging Counter Values

Offset: the commodities must be exchanged on spot, meaning at the same time. If 1 of the commodities is delayed, then it becomes Riba. For example, if yous give your friend 1 kilogram of dates today, and he gives you one kilogram of dates tomorrow, so this transaction is non valid. You should exchange the dates together on the aforementioned 24-hour interval.
Second: the similar bolt must be equal in quantity. For instance, if someone exchanges wheat for wheat or salt for salt, it must be equal, for example, 1 kg for 1 kg. Note that this but applies if y'all are exchanging the same article; this would not apply to exchange wheat for salt. The rules of riba differs when unlike items are exchanged. The details tin be seen in classical books of scholars.

Examples in Exercise

If that all seems a chip abstruse, let's consider the post-obit examples:

Instance one: Trading Wheat for Wheat

If wheat is exchanged for wheat, and so both rules are applied meaning:

The amount of wheat must be equal in quantity
The wheat must be exchanged at the aforementioned time (on the spot)

Instance two: Trading Wheat for Barley

If wheat is exchanged for barley, and so only ane dominion applies:

The amounts of wheat and barley can exist unlike; since the commodities are of a unlike type, the dominion of similar quantity does not apply
The wheat and barley must be exchanged at the same time (on the spot)

Applied Example: Trading Your One-time Jewelry

A store offers a service: trade your one-time gilded jewelry for new golden. The shop weighs your gold and checks the purity. Your jewelry weighs 12 grams and is of the quality 14k. Based on the weight and purity of your gilded, the shopkeeper offers to trade you for 5 grams of 24k gilded bullion and they will give you the gilded on the spot. Is this transaction halal or does information technology involve reba?

Answer: this transaction contains riba. Remember: exchanging like commodities means that both the dominion of similar quantity and on the spot transaction employ. The shopkeeper is offering to pay yous the gold on the spot - so that is fine. Merely detect that you are giving 12 grams merely simply receiving 5 grams. Technically in the shariah, this transaction is not allowed.

To make this transaction halal and remove reba, a ameliorate option would be to accept cash for your old jewlerly. Then after yous take greenbacks, you can buy whatever you like: any quantity of gilt or anything else you similar.

How about a credit sales?

A credit sale is when the seller agrees to accept delayed payment for something. For example, if yous sell your car to your friend and instead of paying in greenbacks up forepart, she agrees to pay yous every month for 12 months.

When a credit auction is made between the original heir-apparent and seller, it is completely halal and in that location is no riba.

What if the seller charges more for credit sale?

Suppose your friend offers to sell you her machine for $5,000 greenbacks today. Merely y'all ask her to sell you the car on creedit, and you will pay her $500 each month for ten months. Sorry, she says, for a credit sale I would charge $10,000 for the automobile. Is this OK?

Yes! You may exist surprised that this transaction is completely permissable in shariah. Why? Because there is NO LOAN invovled here. She is selling her car - and as the possessor of the car, she has the lawful right to charge any price she likes. The credit sale is halal whether she charges $one or $ane meg dollars.

A credit sale becomesriba if there is a third political party involved providing a loan with involvement. For example, when you lot buy a motorcar from a dealership and they offering you financing. The financing is a loan contract from a bank - not a credit sale with the dealership - and the loan contract hasriba. Unfortunately most modern sales for high toll items are structured in this style with a third party providing a loan - and this isriba.

What's the difference?

In a loan, the item of auction ismoney;whatsoever pre-agreed increase over the original money isriba
In a credit auction, the particular of sale issomething(a production, service, item, etc...); the price of the credit sale can be any price the buyer and the seller hold upon, fifty-fifty if it the price for a credit auction is higher - provided the sale is between them and not a tertiary party providing financing

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