Riba

1. Under what circumstances would sale transactions be considered to have an element of

Riba?

The elements of riba in sales transaction are such as:

a) There is an interest element where the lender, for example, will gain profit from the loan that he/she lend to the borrower. Meaning to say that it is considered as riba when amount on loan/debt to be paid by the borrower is above the principal value.

b) In term of exchange good or barter trade, the quantity or the qualities good exchange must be the same in value. For example, gold for gold, silver for silver and such then if one of the parties give or ask for more, he/she has dealt with riba.

2. Compare and contrast between riba al-nasi’ah and riba al-fadl.

• Riba Al Nasi’ah: refers to extending the period for a loan by charging more than the principal value.

• Riba Al Fadhl: exchanging of ribawi item (gold, silver, wheat, barley, dates and salt) for the same item but unequal in amount or quantity.

The similarity from the above types of riba is that it involve basically in increase of payment to the other parties whether it is in term of money or goods as well as the risk lies heavily to one party only especially the borrower and the customer/debtor. Meanwhile the difference, for Riba Al Nasi’ah is basically involved in the interest on loans as for Riba Al Fadhl applies more to unequal exchanges purchase of and sales of goods (barter trade).

3. Using your own words, explain why riba is prohibited in Islam.

Firstly in term of religious perspective of why riba is prohibited or haram in Islam is because Allah had already stated it so in the Quran. The practice of riba is injustice and also consider as the form of exploitation of the other people. Secondly in term of economic view, riba is one of the major contributors towards inflation as such had led to the financial crisis in 2007-2009. This is due to the most of the conventional economy today practice on debt- based system and only does...