How many types of riba, interest financing, are there?
There are many types of riba, interest financing, in the worldly philosophies that form the bases of today’s material, market-centered economies. (What Is Riba and Why Is It Forbidden in Islam?)
Most Muslim scholars of transactional law in Islam (fiqh al-mu‘ammalat) single out two kinds of riba that Allah in the Quran and the Prophet, on him be peace, specify as riba and forbid:
Riba Al-Nasi‘ah (pronounced na-see-ah): “The interest of delay”
Riba Al-Fadl: “The interest of excess.”
Why is it important to know about the kinds of riba-interest?
The great Companion and Second Caliph ‘Umar ibn Al-Khattab, Allah be pleased with him, reportedly prevented both buyers and sellers from entering the marketplace without proving they knew the rules of riba-interest.
You can’t live as a Muslim in the economies of today and responsibly engage in transactions of almost any kind without knowing how Islam defines riba-interest and why. Ignorance will be no excuse before Allah, in this life or before His Judgment – and we ask Allah to forgive us for our many mistakes and shortcomings.
Can you explain these two forms of riba-interest?
We can sum up the riba-interest that occurs in these two basic financial arrangements (and the many variations on these two types in our times) as follows:
1. The most common and heinous form of riba, or interest transaction, is riba al-nasi‘ah (pronounced na-see-ah), meaning “the interest of delay.” This is the addition of a surplus or an extra amount to an originally transacted sum for the party awaiting delivery of what he or she has transacted for. Loans today almost always fall into the category of riba al-nasi‘ah. Any commodity that gains its increase simply because of time passing is riba al-nasi‘ah.
Any transaction that may lead to riba al-nasi‘ah time-exclusive increase – is also riba and forbidden. This leads to the second Islamic legal classification of riba:
2. Riba Al-Fadl, “the interest of excess,” the Prophet, on him be peace, specified as a haram, or forbidden, business transaction. Riba Al-Fadl is the unequal exchange of like commodities. One trades gold, silver, wheat, etc. for a greater amount of the same commodity from another. This is spot trading, in which the passage of time holds no significance.
The Prophet, on him be peace, said:
Sell gold for equal [amounts of] gold, sell silver for equal silver, sell dates for equal dates, sell wheat for equal wheat, sell salt for equal salt, sell barley for equal barley. Should one transact in excess, it is riba (interest). Yet sell gold for silver as you like hand-to-hand, sell barley for dates as you like hand-to-hand.
Scholars differ about whether the six commodities the Prophet, on him be peace, specified for these sales are the only ones that count as so-called “riba commodities,” or amwal al-ribawiyah, or if the Prophet’s statement, on him be peace, implies this restriction of equal quantity for equal quantity between all like commodities traded between parties.
The majority of scholars conclude that any commodity traded by weight and that can be used as currency certainly falls under this prohibition as riba, or interest, when it is (a) exchanged like for like in unequal amounts and also (b) if the sale of such commodity is deferred. That is, both characteristics of transaction – weight and use as currency – are present in the commodity to declare it subject to the prophetic restrictions of riba al-fadl.
Here, briefly, are the qualifying characteristics identified by each of the four schools of Islamic law for “riba commodities”:
Hanafis: Commodities transacted by weight or volume (either)
Malikis: Commodities transacted that are preservable edibles (both)
Shafi’is: Commodities transacted that are currencies or edible (either)
Hanbali: Two recorded positions identical to (1) the Hanafi and (2) the Shafi’I positions.
A third Hanbali position specifies edible commodities transacted by weight and volume (three characteristics present together).
Is riba al-fadl (inequality or delay in like for like commodity exchange) still practiced and why is it forbidden?
Yes, people still engage in riba al-fadl, although it Islam forbids it, many out of ignorance.
Islam bans it because it presents a back-door means to riba al-nasi’ah, the notoriously evil interest of delay. Riba Al-Fadl’s first precarious step is the argument for the superior value of one form of the same commodity (gold for gold, barley for barely, etc.) to another. The next logical step is justification of riba as sales, which Allah has explicitly forbidden (Surat Al-Baqarah, 2:275; see below).
Note that this includes selling, say, 24k gold for 18k gold. It can still only be like weight for like weight; otherwise, it is riba.
In addition, even if one is selling gold for gold, silver for silver, barley for barely, or even gold for silver, it must be a spot transaction (immediate or hand-to-hand), both items present at the time of transaction without deferred time, and this includes the now common trading phenomenon of transacting a commodity one does not actually own at the time of sales.
Can you give a historical example of riba al-fadl?
It is said that when Jesus, on him be peace, violently overturned the tables of the moneychangers in the Temple during his da‘wah, or call, it was precisely because they were dealing in riba al-fadl as an end-around Allah’s absolute prohibition on riba-interest in the Torah and in the Injil, or his Heavenly Book, the Evangel.
The moneychangers exchanged silver half-shekel coins with no Roman images on them with pilgrims to Holy Jerusalem for their full silver shekel coins stamped with Roman images. Pilgrims did not want to taint their devotions with graven images and pagan representations as Judaism barred such images and the occupying Romans were idolatress persecutors.
In other words, the moneychangers exchanged a like commodity for a like commodity – silver for silver – that was both currencies and for twice the weight of their “imageless” shekels, reaping double the increase in value.
This is the very definition of riba al-fadl, a perfect illustration of the economic injustice of the moneyed and advantageously positioned devouring the wealth of the vulnerable poor and needful – precisely what the Prophet, on him be peace, sought to outlaw among Muslims. Obviously, his closest prophet-brother, Jesus, on him be peace, saw it exactly the same way and literally toppled the tables.
Are there any permissible forms of riba, interest?
No. Islam outlaws all business transactions of interest. Allah has forbidden devouring the wealth of the vulnerable in all its forms and ways.
Riba, as an interest transaction – profit made from renting money, not from sales – is one of those forbidden arrangements. It is an evil financial mechanism that privileges those with excess wealth to add “freely” to their wealth-holding by consuming the wealth of others in need of the wealth means they possess, selling nothing and setting up transaction models that guarantee one-sided gain and one-sided loss.
In other words, “riba is money creation out of nothing but that money,” typically by the rich leasing out their money to the needy.
Does Allah contrast riba with any other kind of economic activity?
First, Allah distinguishes the unlawful profit of riba-interest from the lawful gain of sales. (‘Usury’ and ‘interest’ are completely synonymous as English translations for riba).
Those who devour usury shall not rise on Judgment Day, except as one rises whom Satan has battered with the touch of madness. That is because they say: Indeed, selling is just like usury — while Allah has made selling lawful and has prohibited usury. So when an admonition comes to one from his Lord, and he quits usury, then to him belongs what was formerly gained. And his affair henceforth rests with Allah. But whoever returns to usury— then these are the Companions of the Fire of Hell. They shall abide therein forever. (Surat Al-Baqarah, 2:275)
In addition, Allah contrasts riba, or interest-loans with sadaqah, charity, because in Islam all loans are by divine definition charitable acts not instruments of profit.
Specifically, this makes riba-interest the exact opposite of Zakat. Riba takes a percentage or portion of material value from people in need based upon the material value people with abundance let those people in need “use” from their wealth, or in exchange for the same kind of wealth. This is the original meaning of interest’s formal name ‘usury,’ a fee for the ‘use’ of money.
Zakat, on the other hand, is an obligatory charitable transaction that pays the poor and needful a due percentage or portion assigned to them by Allah from eligible types of wealth that Allah alone has given to Muslims in quantities that have reached thresholds of abundance (nisab) which Allah and His Messenger, on him be peace, have specified as surplus plentifulness.
Zakat’s yearly percentage or portion subtracted from the wealth of the affluent believer and redistributed to the poor and deserving ‘increases’ the Zakat-payer both in spiritual and material purity and benefit. Nor does Zakat diminish its givers’ financial holdings because Allah promises to replenish and add to it.
Yet beware, for whatever you give others in usury — to gain increase from the wealth of people — shall never increase with Allah! But blessed is whatever you give of the Zakat-Charity — desiring only the Face of God. For it is such as these who shall have a much-multiplied reward. (Surat Al-Rum, 30:39)
The Prophet, on him be peace, said, as well:
Charity reduces nothing from wealth; and Allah increases a worshipper who pardons someone in nothing but honor; and no one lowers himself to another for the sake of Allah but that Allah elevates him. (Muslim)
Allah, in the Quran, and the Prophet, on him be peace, in his verified statements, have prohibited riba-interest completely, and Scholars of Islamic Law have confirmed this prohibition by consensus (ijma‘).
In summary, Muslim scholars define riba broadly as any value increases in business deals forbidden by Allah and the Prophet, on him be peace.
More specifically, riba is any wealth-gain that comes to one either solely based on the passage of time on his or her wealth-holding without the legitimate sale of something else with intrinsic value to be lost or added (a commodity, labor, or the like). This is riba al-nasi'ah.
Or, riba-interest is profit that comes to one as an excess from the basic exchange in like commodity kinds (gold for gold, wheat for wheat, etc.). This is called riba al-fadl.
