Menu
Home
Log in / Register
 
Home arrow Business & Finance arrow The art of RF (riba-free) Islamic banking and finance
< Prev   CONTENTS   Next >

Riba al-Fadl

This type of riba is defined as taking a loan for payment at a later date for a higher value, or selling an item for a profit (the word fadl means an excess or a premium over the original price or the acquisition cost). An example of this type of riba in today's lingo would be taking a $100,000 personal consumer loan from a bank and promising to pay $120,000 back in two years, or borrowing 10 pounds of rice and promising to pay it back in the form of 20 pounds of rice after one year. Another practice in the marketplace was the bartering of goods of different types, natures, and qualities. For instance, one would exchange 10 pounds of small-sized and low-quality dates for 2 pounds of larger, high-quality dates. The critical question in these types of transactions is the level of the premium used, what makes it 20 to 50 percent higher at a later date, and what index should be used to determine that premium. Another factor in these transactions is how to regulate transactions to minimize deception, speculation, and hoarding activities in the marketplace, thus establishing a fair market price. Such practices are all prohibited by the Prophet Muhammad (pp) in order to ascertain healthy open markets that reflect the true market forces of supply and demand. This type of riba has been regulated by the law in order to organize the barter-based trading to ensure that it is riba free, and it prohibited it for items of the same material, element, or food. It is believed that the RF regulation purpose was to achieve the following goals:

■ To minimize, if not remove, deceptive practices from the process of business dealings and transactions, such as those involved in barter trading. This prohibition also helps stabilize the market forces of supply and demand, which will eventually help to stabilize market prices and to minimize, and eventually remove, deception or gharar (deceptive practices, including misrepresentations about quality, supply/demand factors, pricing, and product types and specifications). The big question and most challenging issue has been (and it is believed that it still is) how to obtain the most fair and representative market value of an item in a free market system and how to price it, especially in a world that was at the time dealing with nonstandardized currencies made of different materials (as opposed to today's world, in which fiat [paper] money is used everywhere). This issue will be discussed in more detail in Chapters 5 and 6.

■ To prevent the application and charging of riba al-nassee'aa, in case the indebted person is not able to service his debt due to conditions that are out of his/her control.

 
Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
 
Subjects
Accounting
Business & Finance
Communication
Computer Science
Economics
Education
Engineering
Environment
Geography
Health
History
Language & Literature
Law
Management
Marketing
Philosophy
Political science
Psychology
Religion
Sociology
Travel