The Objectives of the Prohibition of Riba By: Elhadi Habbani

Riba and interest;
As the paper explained before, that the Riba mentioned in Quran was referred to the Riba which was dominant among Arabs trading life before Islam. Based on that, as also explained before, Riba in Quran refer to Riba Aljahiliyah or Riba Al-nasi'ah which means the extension of the maturity of an existing debt against additional charge to the outstanding balance of the debt, or granting a new loan with an increment to be paid after deferred period of time either on an installments structure or pullet payment. The Qur’an itself (said Prof. Monzer Kahf) implies this definition as it states: “But if ye repent ye shall have your principal, doing no injustice (against others) and no injustice is done against you” (2: 279). This part of Verse 2: 279 has two important indications: 1) it defines Riba as any increment above the principal of a debt or a loan; and 2) it describes such an increment as unjust. The exclusion of profit, being an increment in sale, is given by Verse 2:275 “But God made sale permissible” . So the increment either on the issued loan or on the existing debt is done based on the time that the creditor has to wait until full payment which means that, like the dominant concept of Interest in the contemporary financial industry within which time represents the corner stone based in which interest rate, in any financial market, is defined and fixed because time, by nature not as an abstract meaning, implies uncertainty or risk. Nobody exactly knows what is going to happen tomorrow or even after one second, but future can be predicted using different methods of financial analysis and risk assessment and then decide how to evade, get around, and mitigate the future uncertainty. So, interest rate in contemporary financial era, like Riba, defined as an increment on a loan or extending the maturity of existing loan and some time as the return that entrepreneur need on his/her capital or investment which is also can be applied in the concept of Riba, interest rate is also defined as a product of a compounding of risks premiums, such as, inflation risk premium, default risk premium, maturity risk premium, and liquidity risk premium which also can be applied to Riba since time element is there. But a lot of papers criticized this point of view based on the following:

1- They assert that interest doesn't refer to Riba because interest, as used in the present day of economical and financial terminologies, extends further than fixed rates of return on loans in-kind, and more general and broad-spectrum claiming that Islamic finance doesn't accept the concept of "time value of money". This is not correct because in Islamic Shariah, based on most of scholars, "time has a share in the price" . certainly, this justify that all of Islamic financial institutions working with different kinds of deferred sales instruments with (cost + profit) such as Murabahah, Musawamah, Ijarah which are represents 72% for Murabahah and Musawamah in 2008/2009 and 13% for Ijarah in the same period.
The additional excess over cost in Islamic institutions is totally acceptable as a compensation to creditor for the deferment because deferment has a share in the price. So, given the Islamic institution complied with some certain Islamic Shariah conditions explained in the Ribawi items of Abu Said Al Khudri, selling one item for one price on cash basis, and the same item for a higher price on a deferred basis, is quite permissible in Islamic finance. So, it is quite obvious that Riba, as mentioned in Quran, and Interest have got the same meaning.
But it is very important to distinguish between the concept of the term "time value of money" in conventional banking and Islamic banking. While the former completely linked time to no asset rather the money or the cash that has been loaned to the customer which is not able to create value or add an increment in itself by nature because money in the form of currency from an economic point of view considered as a store of value and so its purchasing power always dependent on the real values of products and services that can exchange, and the impact of inflation on the value of them. The later, or the concept of time value in Islamic Finance, is quite linked to a real asset not money because it is based on a real sales contract within which money is only way or tool of exchange and the impact of inflation and the other economic forces will affect directly on the value of the real asset being the subject of the sale contract not on the money or the cash.
2- They also claim that since Riba Al-fadl was not mentioned in Quran and isn't like Riba Al-nasi'ah which is similar to the concept of interest, that Riba doesn't mean Riba and so, interest is more general and broader than Riba. But this argument also is not valid. Despite that Riba Al-fadl has not been clearly mentioned in Quran. Although Riba mentioned in Quran refers clearly to Riba Al-nasi'ah which is the extension of the maturity of a debt against additional charge, or granting new loan with an increment, I can see no different, in the general concept, between the two types of Riba for the following justifications:
• Loan in Shariah is not a sale contract, it is a contributory and not for profit contract. Although it transfers ownership and create debt, but doesn't create any value and the debt has no specific maturity and cannot be charged.
• Since the for profit contracts that create debt are based on either exchange contracts, or sharing contracts, it is not permissible to impose any additional charge on the outstanding of the debt created through these Islamic contracts.
So since finance, in general, refers to the means to acquire assets by creating deferred obligations or debts, and interest-free lending (or contributory contracts) and deferred sale of goods and services contracts constitute the main sources of creating deferred obligations or debt the difference between Riba Al-nasi'ah and Riba Al-fadl is not important as far as there is a deferred obligations or debt in the two cases.

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