Understanding Islamic Finance - Doha Academy of Tertiary Studies

52 Understanding Islamic Financeprohibition in sale contracts and other exchange transactions. This type of Riba is termed“Riba Al-Fadl”.Exchange rules are different for different contracts and types of assets. We have brieflydiscussed contracts in the preceding section. Assets could be consumables, durables, monetaryunits or media of exchange like gold, silver or other currencies, shares representingpools of assets, etc. Goods other than monetary units are traded on market-based pricing.Gold, silver or any monetary units (Athman) are governed by specific rules that have beendiscussed by jurists under the caption of Bai‘ al Sarf (sale of Athman). Usufructs and servicesare covered by the rules of Ijarah or Ujrah (leasing/hiring of services). Loans and debts aregoverned by the rules relating to their repayment and assignment.The well-known Hadith on the exchange of six commodities and the other traditions aboutthe exchange of low quality dates for a lesser amount of better quality dates deal with Ribain exchange transactions and have far-reaching implications in respect of business activitiesin the Islamic framework. Later jurists have extended the scope of this kind of Riba to othercommodities on the basis of analogical reasoning (Qiyās) and the ‘Illah (effective cause) ofprohibition.According to the rules of exchange of monetary units (Bai‘ al Sarf), if any article issold for an article of the same kind, the exchange must be on the spot (without delay) andthe articles must be equal in weight. In this context, jurists have held lengthy discussions,keeping in mind the two types of ‘Illah that play an effective role in the exchange: the unitof value (Thamaniyyah) and the edibility. The commentator of Sahih Muslim, Imam Nawavihas summarized these rules in the following way:• When the underlying ‘Illah of the two goods being exchanged is different, shortfall/excessand delay both are permissible, e.g. the exchange of gold for wheat or dollars for a car.• When the commodities of exchange are similar, excess and delay both are prohibited,e.g. gold for gold or wheat for wheat, dollars for dollars, etc. 21• When the commodities of exchange are heterogeneous but the ‘Illah is the same, as in thecase of exchanging gold for silver or US Dollars for Japanese Yen (medium of exchange)or wheat for rice (the ‘Illah being edibility), then excess/deficiency is allowed, but delayin exchange is not allowed.In the present scenario, the major ‘Illah, or cause, on the basis of which one may extendthe rules of Riba to other commodities by analogy is their being used in lieu of money.There is consensus among scholars that the rules of Riba apply to anything that serves thefunction of money. This may be gold, silver, any paper currency or IOUs.Connotation of the Term RibaOn the basis of the above detailed discussion, we are now in a position to explain whatthe term Riba connotes in the perspective of present-day business and finance. The literalmeaning of Riba is excess and in the terminology of the Sharī´ah, it means an addition,however slight, over and above the principal of a loan or debt. Nasiah means delay ordelaying the delivery of a commodity in a contract. The term Riba Al-Nasiah, therefore,21 The nature of the transaction must be kept in mind; this prohibition is for business or sale transactions. Nonremunerative contracts(Uqood Ghair Mu‘awadha) like Qard and Dayn are exempt from this rule.