NEGATIVE ELEMENTS IN TRANSACTIONS Usury or Interest (Riba) Islam encourages helping others by way of giving loan as the lender

is very likely to be wealthy and the borrower poor. Islam commands that the creditor should demonstrate benevolence and charity and grant the debtor a beautiful loan (qardh alhasan). Riba, on the other hand, discourages people from doing good to one another. The needy person will be required to pay back more than what he has borrowed without giving him something in exchange. It leads to exploitation and poverty whether the creditor is an individual, countries, or institutions such as IMF. It also concentrates the wealth in few hands and widens the gap between the rich and the poor. This subsequently can cause enmity among members of the society and destroys the spirits of cooperation and leads to social disorder, conflicts, and revolutions. Furthermore, dependence on interest prevents people from working to earn money. It encourages the rich to increase their wealth without working for it. He will not run a business or risk his money in trade or industry. Risk is entirely taken by those who borrow money. He depends and lives on the efforts of others. His potential is spoilt and the money is not invested by him in productive works, which could have provided provide job opportunities for others. In this way riba kills the enterprising skills of individuals which subsequently reduces national productivity. Usury is also responsible for the growth of private, national, and international indebtedness. The nations who borrow on interest from the rich nations and the IMF will have generations that are born borrowers. While poverty is spiraling the wealth of the nations is spent to service the debts which makes the present economic system unsustainable. Today riba is either directly or indirectly the root cause of all the sicknesses with which human societies are riddled. The Quran and the Hadith have forbidden usury and all usurious transactions in the strongest terms. The Quran has warned those who practice usury that they are at war with God and His Apostle (2: 279). The significance of this prohibition could be judged from the fact that the Prophet pbuh in his final sermon and farewell hajj again stressed it. There are two varieties of riba which are Riba on credit (riba alnasiyyah and riba on cash (riba al- fadhl). A. Riba on Credit (riba al- nasiyyah) Riba literally means increase in anything or an addition. Technically, riba alnasiyyah refers to the additional fixed amount, which a debtor pays to his creditor in consideration of the time he was given to use the creditors money. It is a fixed charge payable by the borrower to the lender irrespective of what the loan money produces. The additional amount is determined in relation to the amount of debt and the period of the loan. Thus, any gain that comes from a loan transaction is usurious. Accordingly the scholars consider any advantage that is derived from the loan as usurious. This type of riba is prohibited by the Quran (30:39; 4: 160-1; 3: 130; and 2: 275-281). The hadith of the Prophet p.b.u.h. states: Jabir said that Allah's Messenger (may peace be upon him) cursed the accepter of interest and its payer, and one who records it, and the two witnesses, and he said: They are all equal.
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Riba usually arises when the parties to a certain transaction deal with properties which are perishable and homogeneous. These, for example, may include gold, silver, money, dates, salt, etc. While lending these properties the creditor is not allowed to charge the debtor for their use. In contrast, a person may charge another for the use of his usable property such as house or a car as their future benefit is certain. A question may arise that if a person can charge another for the use of his house why he shouldnt charge him for the use of his money. House and money belong to two different types of properties. House is a usable property while money is considered perishable property in a sense that a person can use it only once. For example a person who uses his money to buy a computer cannot use the same money to buy another thing. The same applies to other homogeneous properties such as rice, sugar, oil, etc. These properties can only be used once and therefore, Islamic law prohibits renting these properties. However, it is allowed to lend or borrow these properties. While lending these properties, any condition for additional return is considered usury. Assigning time value to money is equivalent to accepting that money can be rented out. Islamic law therefore prohibits renting money which amounts to usury and allows renting other usable properties. Furthermore, when a house is rented it is certain that the tenant would get benefit or usufruct from the house. Money, on the other hand, had to become part of an enterprise and combined with efforts in order to give benefit/profit. The money would have to be invested and there could be the possibilities of profit and loss. Charging an extra amount for the time, irrespective of the outcome of the enterprise is considered injustice. Instead of renting money Islamic law recommends profit/loss sharing contracts. In contrast conventional banks in practice are renting money and not lending money. Some scholars have differentiated between usury and interest on the ground that the former involves loans for consumption while the latter involves loans for production. Interest, they argue, is an extra charge imposed on a debtor who borrows money for production purposes such as investment, industry and trade while usury is an extra charge imposed on a debtor who borrows money for consumption such as his own personal day-to-day needs. They argue that interest is a reasonable charge for the use of money employed in productive purposes while usury is unjust and forbidden. Abdallah Yusuf Ali argues that economic credit, the creation of modern banking and finance should be excluded from the definition of riba. This view however could not be maintained. A debtor who borrows money for investment, trade, and business may face one of the four possible situations. He may make enough profit to pay the interest and keep the balance for himself. Secondly, it is also possible that he may make profit enough to pay for the interest while he may not get any profit. Thirdly, there is the possibility that he may not earn any profit in which case he has to return the capital and pay the interest. Fourthly, he may suffer losses. In these three out of possible four situations the transaction is not fair to the borrower. Thus charging interest on loans granted for productive purposes could also be exploitative and unjust. Even in the first example the transaction is not fair to the creditor as it is possible that the debtor may keep a larger share of the profit for himself and return a smaller percentage to him. It is therefore argued that riba includes all types of loan
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whether for consumption purposes or for productive purposes. Loans should not be granted for productive purposes. The parties instead should enter into musharakah or mudharabah contracts where they have to share profit and loss on more equitable terms. B. states: Abu Sa'id al-Khudri (Allah be pleased with him) reported Allah's Messenger(may peace be upon him) as saying: Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt, like by like, payment being made hand to hand. He who made an addition to it, or asked for an addition, in fact dealt in usury. The receiver and the giver are equally guilty. In another hadith it is narrated: Abd Sa'id reported: Bilal (Allah be pleased with him) came with fine quality of dates. Allah's Messenger (may peace be upon him) said to him: From where (you have brought them)? Bilal said: We had inferior quality of dates and I exchanged two sa's (of inferior quality) with one sa (of fine quality) as food for Allah's Apostle(may peace be upon him), whereupon Allah's Messenger (may peace be upon him) said: Woe! it is in fact usury; therefore, don't do that. But when you intend to buy dates (of superior quality), sell (the inferior quality) in a separate bargain and then buy (the superior quality). Gold, silver, wheat, barley, dates, and salt are also called ribawi properties. The Zahiris have maintained that riba al-fadhl may only happen with regard to these six specific commodities. They do not extend the hadith to other commodities. All other Fiqh Schools are of the opinion that the hadith is of general application and is not necessarily confined to these six items but could be extended to other commodities through qiyas. However, they differ among themselves as to the reason (illah) for the prohibition. According to the Malikis the unequal exchange of gold against gold and silver against silver is prohibited as they belong to the class of moneys. They also say that the four other commodities which are mentioned by the hadith are types of foodstuffs, which can be stored or preserved. They argue that the illah is the quality of storability therefore all foodstuffs that can be stored are covered by the hadith. The Shafiis and Hanbalis while agree with the Malikis on gold and silver contend that storability is not necessary and the hadith could be extended to all foodstuffs. The Hanafis, however extended the hadith to all commodities that are normally sold by weight or measurement. The combined effect of these two hadith is that when ribawi properties are exchanged against each other they should be exchanged on equal basis and any such exchange should be immediate. Riba al-fadhl arises when one of these commodities is exchanged for an unequal amount of the same commodity or when the amounts are equal the delivery of one of them is deferred. It is, for example, usurious either to sell
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Riba in Cash (Riba al-fadhl) Riba al-Fadhl is prohibited by the hadith of the Prophet p.b.u.h. The hadith

or exchange one measure of wheat for two measures of wheat or one kg of dates for two kg of dates or one measure of wheat for two measures deliverable at a future period. If the parties are not willing to exchange their commodities such as dates on equal basis then one of them should sell his dates and use the money to purchase the dates from the other party. Equality is not a condition where different ribawi commodities are exchanged against each other. However, such an exchange should take place immediately and from hand to hand. For instance, the sale of ten grams of gold for fifty grams of silver, and the sale of two loads of barley in exchange for one load of wheat are not usury because these commodities are not of the same type. However, the exchange should be immediate. It is not lawful to sell ten grams of gold for fifty grams of silver or one measure of wheat for two measures of barley payable at a future time. The same principle applies to the exchange of different types of currencies. The conditions of equality or immediateness of delivery are not applicable to properties that fall outside ribawi commodities. Properties that are not sold by weight, measurement, or counting could be exchanged based on the agreement of the parties. For instance the parties may agree to exchange one car for two cars or one sheep for two sheep. The wisdom (hikmah) behind the prohibition of riba al-fadhl could be that the value of a ribawi commodity such as dates cannot be ascertained by other dates. For instance, the value of a lower quality dates cannot be ascertained with reference to a higher quality date. Its value has to be established with reference to some other measures such as gold or silver. Furthermore, once such a relation is established it may not be permanent. For instance, if the price of a superior quality dates is RM 10 per kg and the price of an inferior quality dates is RM 2 per kg a ratio of 1-5 is established between the two types of dates. This ratio however should not be established on a permanent basis as the prices of both types of dates are subject to changes due to various factors which also include supply and demand. Consequently the ratio 1-5 between the two dates may also change. There is therefore a need for the parties to mark their ribawi commodities with the market whenever they want to exchange them. The ratio in which they are traded should reflect the ratio of their current prices in the market. In this way justice is ensured between the parties. Uncertainty (gharar) The Quran prohibits all those dealings where the intention is to deceive one of the parties in a contract. The Quran states that Muslims should not devour one anothers property wrongfully (4:29). It also condemns those who give short measure (83: 1) and commands Muslims to Give measure and weight with (full) justice (6:152). The Sunnah of the Prophet p.b.u.h. has specifically prohibited transactions which involved elements of gharar. These include transactions determined by throwing stones, by mere touching without proper inspection, or by chance. It follows from this that the main reasons for the prohibition of gharar are that contracts involving gharar are fraudulent. They also amount to obtaining the property of others unlawfully which may subsequently lead to disputes and disagreements between the parties. 2.

Gharar literally means uncertainty, risk, danger, or peril. Technically Gharar refers to uncertainty in a contract that may lead to unknown results. The parties or one of them may not know what could be achieved from the contract which they have concluded. Imam Malik in his Muwatta has illustrated the concept of gharar by providing an example of a person who has lost his camel the price of which is (say) fifty dinar. A person may offer to purchase the runaway camel for twenty dinar. If the purchaser finds it the seller loses thirty dinar. However, if the camel is not found the purchaser loses twenty dinar. Uncertainty in a certain contract may arise when its pillars are not clearly defined. For instance, gharar may arise when the subject matter of a contract is non-existent, not deliverable, cannot be acquired or is not clearly defined. Thus the sale of fish in the water, the sale of bird in the air, the sale of a foetus in the womb of an animal, and the sale of runaway animal are prohibited. In all these cases the sale is void due to the existence of uncertainty as the seller may not be able to deliver the sold item and the purchaser does not know whether the item will later come to his possession or not. Similarly, sales in which the buyer has no sufficient knowledge of the subject matter of the contract are prohibited. Gharar may also arise when the effect of a certain contract is not known and one of the parties may not know what he would achieve from the contract. For instance, a contract of employment (ijarah) may contain elements of gharar when the rights and duties of the parties are not clearly defined. Similarly, a musharakah or a mudharabah contract may suffer from gharar if the percentage for the division of profit is not clearly defined. Such contracts are, therefore, considered void on the ground of gharar or uncertainty as they may cause harm to one of the parties and unjustified enrichment to the other. More frequently ambiguities in a certain contract are designed to commit fraud and cheat one of the parties. It is vagueness in rights and liabilities that can be exploited to deceive people into thinking that they are getting a better deal which in reality is not the case. These uncertainties are designed to defraud one of the contracting parties and lead to unlawful profit to the other. They are therefore distinguished from uncertainties that may exist concerning the possibilities of loss or profit in a lawful business. These are not meant to cheat others. Gharar is also distinguished from uncertainty or risk that is naturally associated with certain business ventures. For instance, manufacturers, importers, exporters, and traders are uncertain whether their products and goods could find a suitable market or not. They are uncertain about the amount of profit and the possibility of loss. This type of uncertainty is not intentionally created by the parties neither are they designed to commit fraud. The parties make all the efforts to minimise losses. However, they cannot totally eliminate the possibilities of loss and guarantee profit. Denial of this type of risk goes against the principle which states that liability justifies return. The parties also do not leave success of the business to chance. Unlike gambling where pure chance decides the winner and the loser, in business the parties have to render all the necessary efforts in order make profit. This type of risk is combined with efforts that may eventually lead to profit. This type of uncertainty or risk could also be found in musharakah where the partners have to take the risk of loss and in mudarabah where the owner of the capital has to suffer losses. It is also possible to argue that since a gambler takes the risk of loss he is also entitled to whatever he wins. However, this is different from trade where a trader who takes
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the risk of loss and is entitled to profit gives his goods in return for a price. Whereas a gambler who wins does not give anything in return. In contrast, futures, options, and derivatives are rendered controversial due to the existence of gharar. In forwards and futures the object of sale may not exist at the time the contract is concluded. Islam has permitted, under certain conditions, the contracts salam and istisna where the object of sale is not in existence. However, contemporary forwards and futures do not satisfy these conditions as in these contracts both the price and the goods are delivered at a future date. The payment terms also depend on some fluctuating standards such as market price or the rate of interest. Furthermore, the object is sold before it is taken into possession. Similarly, conventional insurance has become controversial for making the contract conditional upon the occurrence of some future uncertain events. In order to eliminate the possibilities of gharar, Muslim jurists have laid down various conditions for different contracts. Generally in a certain contract all conditions concerning offer and acceptance, the parties, and the subject matter should be fulfilled. For instance, in order to prevent gharar the quality and quantity of the subject matter, its price, the date of payment if the payment is deferred, the date of delivery, and any other pertinent and necessary details of the contract must be agreed on by the parties. Similarly, in an ijarah contract the usufruct or the service and the rent or wage should be clearly defined. In a musharakah or a mudharabah contract the parties should agree on a clear distribution of profit among them in order to eliminate the possibility of gharar. However there are certain transactions where the degree of uncertainty is minimal and are customarily accepted. For instance, in some parking areas all users are charged equally irrespective of the time they take. The parking time is the subject matter of the contract which is not specified. However, since this is customarily accepted Fiqh also tolerates it. Similarly, in mudharabah contract the amount of efforts put in by the mudharib cannot be known and defined in advance neither they can be quantified. The uncertainty is tolerated and is left to the trust and agreement between the parties. Maysir or Qimar Maysir literally means a way of obtaining something too easily, and deriving unearned profit, hence gambling. The term Maysir was originally applied to a preIslamic game of arrows in which seven participants gambled for shares of an allotted prize (5:90). The term Maysir includes all kinds of gambling. It applies to all activities when risk is taken and which are based on chance. In gambling the winner has not earned that which he has won, and the loser loses on the mere chance (ittifaq). Gambling risks entail loss and gain where the hope of gain motivates the choice towards risk. According to Ibn Taymiyyah, gharar leads to maysir and consequently to hatred and enmity. It also allows one of the parties to consume others property unlawfully and unjustly. Gambling gives rise to hostility, deception and impunity. Thus, all contracts that involve elements of maysir or qimar are void. 3.

Deception Al-Ghubun Deception may happen due to the ignorance of the buyer as to the true price of the commodity. It can be of two types. Slight deception where goods are bought for a price that is higher than its market price up to 10%. Serious deception refers to a situation where goods are bought for more than 10% of its market value. If deception is serious, the contract can be invalidated on that ground. To the Hanafis, ghubun alone does not entitle the cheated party to cancel the contract. However, if ghubun is accompanied by taghrir that is if the sold item is wrongly prescribed then the buyer has the option to cancel the contract. They made exceptions with regard to properties owned by Bait al-mal, waqf properties, and properties owned by minors, lunatics, and prodigals where the mere existence of ghubun will invalidate the contract. (See Wahbah Zuhaili, 222) To the Hanbalis the existence of ghubun whether accompanied by taghrir or not, affects the validity of the contract. According to them, the party deceived has the right to cancel the contract in case of talaqqi al-rukban, najash or where he is ignorant of the actual price and relied on the honesty of the other party. (Ibid, 223) To the Shafiis, a person cheated, should have known the actual price, or should have asked those who had experience. The Shafiis attribute this to the fault of the party cheated. The Shafiis, therefore, do not give the option to rescind the contract. (Ibid, 224) Void Conditions The Shariah wants a contract to be based on mutual consent so that both parties may mutually benefit from the contract. It also wants a contract to be free from uncertainties, fraud, and usurious elements that may lead to injustice. The purpose is to create and maintain the balance of interest between the parties. In order to achieve this it prohibits all those conditions that may favour one of the parties at the expense of another or conditions that may lead to usury. Any transaction in which one persons gain results in anothers loss is unlawful, while any transaction which is fair and beneficial to all the parties concerned and which is transacted by mutual consent is lawful. (4:29) Even in a halal trade businessmen and traders were commanded to adhere to moral or legal considerations. The Shariah, for instance, prohibits all those conditions that may compromise or jeopardize free consent. Thus it is not allowed that a certain contract may comprise two agreements one of which is a condition for the other. For example, a person is not allowed to sell an item on the condition that the purchaser sells him something else to replace it, or buys some other article, or rents him the article sold, or lend him either its price or some other sum, or when a loan is given on the condition that the borrower should buy a certain item from the lender. Such conditions are null and void whether they are imposed by the seller or by the buyer. Some of these conditions amount to legal tricks or subterfuge which may be used to evade the ban on usury. (See Wahbah Zuhaili, p.204-5; Nayla, p.38) 5.

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6. Haram Properties The property on which a certain contract is concluded should be permissible and valuable (mutaqawwim). A contract which involves a prohibited property is void. For example, contracts involving wine, intoxicants, pigs, blood, idols, crosses, and statues are not valid as Muslims are prohibited to do business in forbidden things. Any earning from such businesses is sinful. The Prophet pbuh is reported to have stated: Surely, Allah and His Messenger have prohibited the sale of wine, the flesh of dead animals, swine and idols. In another narration from the Prophet we are told: When Allah prohibits a thing, He prohibits (giving and receiving) the price of it as well. Prohibiting the sale of haram things to a great extent prevents people from indulging in them while permitting their sale amounts to their promotion and propagation among Muslims. However, contracts involving forbidden things could be concluded by the non-Muslim citizens of a Muslim country. The purpose for which a certain transaction is concluded should also be lawful. It must not go, for example, against public interest, public order or morality. Contracts with immoral aims or those, which are harmful to the public morality, are void. For instance, when a rented house is used as a gambling casino or rented machineries are used to produce alcoholic beverages. In both cases the house and the machineries are valuable properties but the purpose for which they are used is prohibited.

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