Loans and Ribaa
One of the greatest religious educators and scholars of our time, Shaykh Muhammad ibn Saalih al-Uthaimeen, authored a short concise booklet on the different types and ways in which one can give and receive a loan, and the ruling of each type. It is necessary in this space of currencies, investment, and making money, to understanding how legitimate loans take place and what types of loans constitute Ribaa. So this article I will attempt to translate the key points mentioned in this book regarding these various types, and the ruling the shaykh gave to each, and I will attempt to give modern day parallels where necessary to demonstrate how these contracts take place regularly all around us. All direct translations from the shaykh will be coloured, and my additions will be in black.
The book I am partially translating is called:
المداينة
Which translates to ‘lending’, and it was published 1423H which coincides with 2002 by the publishers Dar alWatan.
We have only chosen to translate the parts referring to the different types of lending, and the section where he dedicated to the prohibition and evil of Ribaa can be found here.
Money Lending
Islam has come to mankind with a clear guidance for all avenues of life, such as affairs of worship, like praying, fasting and performing the Hajj to affairs of social interactions, such as marriage, divorce, buying, selling, and the topic of this article, lending. Islam takes a very strict approach regarding money lending and how that contract between two people plays out. We are going to explore the various scenarios of lending money.
Tap on the scenarios to reveal the details.
Example:
Abdullaah: That bag of sugar you have for 1kg, can I buy it off of you? It says £5, but I don’t have the money on me now. Can I give it to you tomorrow and take the sugar now?
Faatimah: Yeah, take the sugar, I’ll write it down that you owe me £5 in my books.
Abdullaah: Thanks. I’ll bring the money tomorrow.
Verdict
This is halal, no matter how long he takes to pay it back.
Example:
Abdullaah: That bag of sugar you have for 1kg, can I buy it off of you? It says £5, but I don’t have the money on me now. Can I give you £6 tomorrow and take the sugar now? I’ll give you an extra £1 extra for your trouble.
Faatimah: Yeah, take the sugar, I’ll write it down that you owe me £6 in my books.
Abdullaah: Thanks. I’ll bring the money tomorrow.
Verdict
This is halal
Example:
Such as buying some wheat for a fee to be paid later on. This fee will be more than the current fee in the market, so they can take it to another country (for example) to sell it for more, or they hold onto it in their same land, but wait for its price to increase.
Abdullaah: That bag of sugar you have for 1kg, can I buy it off of you now for 10% extra than what you’re currently selling it for? I want to see if I can do some business with it and make some money on top.
Faatimah: Yeah, take the sugar, I’ll write it down that you owe me £5, which is it’s current sale price, plus the 10% you suggested.
Abdullaah: Thanks. I’ll bring the money tomorrow.
Verdict
This scenario and the previous ones are all halal, and according to shaykhul Islam ibn Tayimiyyah, the evidence is established from the Qur’aan, the Sunnah and The Ijmaa of this Ummah
Example:
Such as selling a hand made table or 100kg of rice to be given next month, or next year, but receive the money for it now. This can be found in the books of hadeeth, both Bukhaari and Muslim, where ibn Abbaas said:
“The messenger of Allaah صلى الله عليه و سلم came to madeenah and found the people conducting in these transactions called ‘salam’ for their produce, for up to a year or two, so he صلى الله عليه و سلم said: ‘Whoever does Salam, then let him do so using exact volumetric measure, or an exact weight, to an exact designated time’”
Abdullaah: Hey sister, I have a farm but don’t have the money to buy the seeds. Can you give me £900 and I’ll give you 1 Tonne of rice once the crop has come to harvest, next year June 25th?
Faatimah: Yeah sure, as 1 tonne of rice is normally £2000, so getting that for £900 is a bargin. Here, take the cash.
Abdullaah: Thanks. I’ll bring the rice at that date or before.
Verdict
This scenario is halal and is called Salam.
Example:
Abdullaah: Listen up sis, I need some money, but you know Riba is haraam, so what I’ll do is I’ll buy your car for £10,000 that I’ll pay you back later on, and then I’ll sell you back the car now for £8000 now, you give me the cash
Faatimah: Yeah, cool, so lets write this contract down. I’ll write here ‘Abdullaah owes me £10,000 for the purchase of my car to be paid September 30 this year’. Please sign this.
Abdullaah: Nice. Here I’ve signed it. Now I have the car due to this contract, I am now selling it back to you for £8,000. Give me the money and I’ll give you the receipt.
Faatimah: Here, there’s the money, and thanks for the receipt.
Verdict
This scenario is haraam, as the messenger of Allaah mentioned in a Hadeeth:
“…if the people start trading in ‘Eenah’ (which is this scenario)…Allaah will descend upon them punishment that He will not raise up until their return to their religion”
This is because it is just a ruse for Ribaa. In reality it is only a means to get money now and give back more later on, and the product was only entered into the discussion to ‘get out of’ the prohibition of Ribaa.
Example:
Abdullaah: Faatimah, How much do you want for your car?
Faatimah: I’ll take £5,000, why do you ask?
Abdullaah: Can I buy it off of you? I haven’t got the money on me now, but I will give you the money next month? Is that ok?
Faatimah: I’ll agree to that if you take it for £6,000
Abdullaah: Ok, cool, and I’ll pay you back next month.
Faatimah: Done, here is the keys to the car.
Abdullaah: Thanks.
A few moments later
Abdullaah: Yo, Khaalid, you want to buy this car off of me, bargain price, £7,000!
Khaalid: No way, that car looks like its been through a few journeys. I’ll take it for £4,000
Abdullaah: How about £5,000?
Khaalid: £4,500, last offer, I’m quite busy at the moment.
Abdullaah: Ok, Deal.
Verdict
This scenario the scholars have differed in regards to its permissibility. From the scholars are those who say it is permissible because he will either want the product itself or something else he can get in exchange for the product, and in both scenarios, it’s permissible. The other scholars say that it is not permissible because his ultimate goal is to just get money for money, and the product only got involved to make it ‘halal’ as a ruse. Ruses don’t remove the ruling of prohibition, nor remove its harm at all. The messenger of Allaah said:
“Verily actions are determined by their intentions, and everyone will receive (in reward or sin) exactly what they intended”
The opinion of prohibition was adopted by Shaykhul Islam ibn Taymiyya and also in a narration from Imaam Ahmad. As a matter of fact, Imaam Ahmad placed this along with a narration of Abu Dawood in the topic of “Eenah” (a form of riba), as transmitted by ibn Qayyum.
However, looking at the need of the people today for money and the few that are able to get normal halal loans, we need to issue the verdict of it being allowed with the following conditions:
- That they are in need of money, and its not permissible if they don’t need money.
- They can’t get money by any other permissible way, such as a normal loan, Salam, etc. If he can get money from other ways, then this is not permissible.
- The contract must not consist of any scenario or conditions that resembles the standard Ribaa forms. So that would be like saying “I want to buy this item that is £10 for £11”. This will be either disliked or out right Haraam. Imaam Ahmad said “It is as if it is just Pounds for Pounds, and therefore not allowed”. The correct way to do it would be for the one with the item, who will ultimately be owed the money later to, to know the price of the item, and the the amount of profit, and then say to the one who will ultimately owe him money “I will sell you this item for X amount for a year”.
- The one who buys the initial item on credit cannot sell the item until AFTER taking possession of it, because the messenger of Allaah forbade selling something until he has taken possession of it in his own storage location.
So if these 4 conditions are fulfilled, then the opinion of it being permissible is the preferred opinion so that we don’t place people in unnecessary difficulty. However it MUST be understood that you can’t sell the item back to the original person for less than he bought it for under any circumstances, because that is the very definition of ‘Eenah’
Example:
Abdullaah: Listen up bro, I need some money, but you know Riba is haraam. I need £1,000, what can you do for me?
Khaalid: Yeah, cool, I have a plan. Lets agree from now to owe me £1,200, can we agree on that?
Abdullaah: Errm, but thats Ribaa, I only want £1,000, I don’t want £1,200.
Khaalid: Bro, it’s cool, don’t worry. I’m not lending you £1000, just trust me. Can we agree?
Abdullaah: Ok, I agree to pay you £1,200 in instalments or later on. I don’t know what for, but I agree.
Khaalid: Don’t worry, it will make sense in a minute. Lets go shopping.
Abdullaah: …??!? Ok.
Khaalid and Abdullaah go to a TV shop.
Khaalid: Excuse me sir, I wish to buy a TV, I need it for £1,000.
Suyaan (worker at TV shop): Sure, there is this Sony 360PX-wq which is for £1,000 and there is the Samsung WE450 which is also £1,000. Do you want me to tell you about their specifications?
Khaalid: No need, just give me the Sony, here is the money.
Sufyaan: Cool, let me get the TV for you and process this payment.
A few moments later
Sufyaan: Here you go sir, your TV and your receipt.
Khaalid: Thanks, take care.
Khaalid and Abdullaah leave the shop with the TV
Khaalid: Abdullaah, I want to sell you this TV for £1,200. The money you agreed to pay me back later on.
Abdullaah: But I don’t want a TV bro, especially not the Sony, I would have preferred the Samsung one tbh if I wanted one.
Khaalid: Don’t worry. Buy this off of me, I’ll hand over to you the receipt, and you can go back into the shop and sell the TV back to the shop keeper for the £1,000 you wanted.
Abdullaah: Ahaa…I get what’s going on now. So I buy the TV off of you for £1,200 that I’ll pay you back in the summer holiday, and I give the TV back to the shop keeper for £1,000 that I wanted. I get it now. Cool
Abdullaah takes the receipt and TV back to the shop
Abdullaah: I want to sell this TV to you for £1,000
Sufyaan: Sorry sir, we don’t really buy TV’s, we sell them.
Abdullaah: But I have a receipt. It was purchased from you not too long ago. So either you buy it back off of me for £1,000 or I just ask for a refund, here is the receipt.
Sufyaan: Errm, ok. Here is the £1,000. Let me just check the TV isn’t damaged and I’ll finalise this.
Sufyaan checks the box
Sufyaan: Here you go sir. Have a nice day
Abdullaah takes the £1,000 he wanted, and now he owes Khaalid £1,200
Verdict
This scenario is haraam without any doubt. Shaykhul Islam ibn Taymiyyah specified in many places that this is Haraam and never mentioned any ikhtilaaf in this issue, except in the previous scenario of Tawarruq. He said: "This is Haraam by consensus of the scholars”.
Any person who looks at this with a clear heart and without any greed will see the following:
- The whole purpose of the transaction is money for money. This is shown by the fact they negotiate from the beginning the amount and the profit, and have no interest in the actual item that is being purchased and sold. They don’t really care what the product is, it could be a car, a TV, a phone, whatever, as long as its the same value as the money they they are negotiating with. So this is a transaction that has no substance to it, it’s just a ruse. Another proof is that if the process is broken at any of the steps, there are already procedures in place to undo every step of the transaction, ie the money lender, after buying the item, he already has a way to give it back without incurring any cost or risk.
- If the purpose of the transaction is just money for money, then this is Ribaa and its just put the third person into it as a ruse. The one who does a ruse is worse than just doing the sin, as:
- They are doing the sin anyway,
- And they are trying to play games with the religion, and trying to deceive Allaah, not realising that Allaah Knows their intentions.
- In this lender has made profit from the borrower before even purchasing the product from the shop. He’s made profit before even knowing the product, its specifications, its type, anything, he’s already made profit. He’s made profit from something he has not taken into his custody, and the messenger of Allaah has forbade making profit from something without taking any liability for it, “Dont sell what you don’t own”. No real transaction took place, no haggling on product price, nothing.
- This transaction basically means it took place before taking possession of the item, as the sahaabee Zaid ibn Thaabit said in a Hadeeth collected by Abu Dawood “The prophet صلى الله عليه و سلم forbade selling an item before taking possession of it in ones own secure location”
Example:
Abdullaah: Sister, I know I own you £100 today, but I haven’t got the money right now. I’m really sorry.
Faatimah: Yeah, cool, so let's sort this out. I’ll give you a loan of £120 that I will use to cover this debt, and then you pay back this second loan in 2 months time.
Abdullaah: Are you going to give me the extra £20 on top?
Faatimah: No…just agree, and now you can just pay back this new debt in the next 2 months time.
Abdullaah: Errm, ok.
Verdict
This is what Allaah was referring to when He said:
“ يَا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا الرِّبَا أَضْعَافًا مُّضَاعَفَةً ۖ وَاتَّقُوا اللَّهَ لَعَلَّكُمْ تُفْلِحُونَ”
O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.
This type of money lending is what they used to do in the days of Jaahiliyyah, when a person could not pay back their debts on time, they would increase it on them to pay back more. The main difference is that in Jaahiliyyah, they used to increase it directly onto the debt, whereas this scenario does so via a ruse. If someone cannot pay the debt on time because they just don't have the money, there are only two options.
- Wait until they can
- Let the debt go
As for whether they are able to pay the debt back, but just don’t, then the lender can force them to pay back the debt, because it is Haraam to delay paying back a debt one is able to, as the Messenger of Allaah said “The rich man delaying in paying back a debt is oppression”. Everyone is aware that all forms of oppression is haraam.
Example:
Abdullaah: Sister, I know I own you £100 today, but I haven’t got the money right now. I’m really sorry.
Faatimah: Yeah, cool, so let's sort this out. Go to Sufyaan, tell him I sent you, and he’ll give you a loan of £120 that I will use to cover this debt, and then you can pay back this second loan to him in 2 months time.
Abdullaah: You want me to go to get the money from him to give to you?
Faatimah: No…just get his agreement, I’ll sort out the details with him later on. Just go to him, get his agreement, and then you can just pay him back the £120 to him later on.
Abdullaah: Errm, ok.
Verdict
This is a ruse to convert the loan to a higher amount using a third party. There is usually an explicit agreement between both lenders, or indirect agreement, like a ‘general understanding’, and that way the both profit from each others delayed loans. It is haraam, just like previous examples, both for the Ribaa and for the ruse.