Prohibition activities in investment

1.1 Riba

Literally, riba from Arabic means increase, extra, addition, accretion or growth. It also
implies anything more in measure, amount, quantity and other than that. Islamic terminology
interest means effortless profit or profit that increases the principal amount without putting
any effort. Thus, riba is an unearned income, which comes as a growth or increase to the
owner of money. Riba is seen as unjustified earning where a person could receive a monetary
advantage in a business transaction without giving a just counter value.

In addition, Abu al ‘Ala al- Mawdudi defined riba as a predetermined excess or surplus
over and above the loan received by the creditor conditionally in relation to a specified
period. Also, Ibn Arabi defined riba as an excess or an increase accrued without any
equivalent monetary input. Besides that, Ibn Jarir said “ All sorts of excess benefit which
lender accrues because a borrower delay or unable to return the original loan in full at term”
as the meaning of riba.

According to Ibn Rushd, scholars agree that al-Riba is mainly found in selling, that is,
selling forward the six basic commodities for the same genre, for the example, one bushel of
wheat in exchange for one bushel and a half to be delivered at a future date and liabilities
arising from a sale, a credit (salaf) or any other transaction. He also mentioned that scholars’
opinions varied on whether repaying a debt before maturity for a discount is riba or not. In
the view of Sheikh R. Rida, is not riba since the latter implies an increase, whereas the
discount is a decrease in liability for early settlement. Riba in exchanging the basic six
commodities is widely known as riba al-Qard (excess) or riba al-Buyu’ (sale), while riba in
one’s liability is known as riba al-Jahiliyyah or riba in debt.
Riba Duyun (Riba in Debt)

Riba Duyun is debt usury that occurs in lending and borrowing. Any unjustified increment in
borrowing or lending money, paid in kind or in money above the amount of loan, as a
condition imposed by the lender or voluntarily by the borrower is defined as Riba Duyun.
This kind of riba is the extra amount of money over and above the principal of the loan and
charge is either, imposed by the lender or borrower in the contract and promised by borrower
in the contract. Riba Duyun can be classified as:

Riba Qardh is any predetermined benefit for the owner of debt stated in the contract, which
the debtor need to fulfil, for the example, interest stated in loan contract and riba Jahiliyyah is
the surplus or excess payment above the original debt as a penalty to the debtor due to his
inability to service the loan repayment within the stipulated time. In addition, real and
primary form of riba. Premium paid to the lender in return for his waiting, giving or taking of
every excess amount in exchange of a loan at an agreed rate irrespective of whether it is low
or high, such as interest in credit card transactions due to the delay in the repayment.

Riba al-Buyu’ (Riba in Sale)

It occurs in trading transactions. A transaction (trading/sale) in which a commodity is

exchanged for the same commodity but unequal in amount and the delivery of at least one
commodity is postponed. This kind of riba may occur out of an exchange between two ribawi
materials of the same kind. Riba Buyu’ can be classified into two as follows:

Riba al-Fadl, any additional quantity or inequality in the exchange of goods from the similar
type of the ribawi items. Riba al-Fadl is about of quantity factor. An example, the exchange
of 10 kg of excellent-quality dates for 20 kg of poor quality dates. Riba al-Nasiah, any delay
in the exchange of the ribawi items from the same type and category and it is about time
factor. An example: the sale of 1 kg of gold at $10,000 on a deferred basis, whether one or
both countervalues are deferred.
Ribawi item

Prophet Muhammad (saw) said,

Meaning:

“Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by
dates, and salt by salt - like for like, equal for equal, payment being made on the spot. If the
species differ, sell as you wish provided that payment is made on the spot”.

(Reported by Muslim)

From this hadith, we can conclude that there are seven ribawi items, which are gold, silver,
currency, wheat, barley, dates and salt.

The rational behind the prohibition of riba

Riba is forbidden because it can bring harmful effects to the economic, social and society.
Some of the example are injustice towards debtors. This is because the debtors have to pay
extra amount or interest to the capital owner and this will also contribute to the misallocation
of resources in the economy. Second, unemployment and inflation. Debt keep on
accumulating and multiplying leading the indebted individuals and nations to suffer from
rising unemployment and recessions. After that, psychological of the society will be effected.
Riba will create lazy capital owner because they can gain profit and interest without any
significant effort and riba will also lead to other bad and evil attitude like materialism,
selfishness, arrogance and inhumane. Lastly, wide gap between the rich and the poor. Riba
will divide the people into classes like upper class, middle class and lower class. This will
generates envy and hatred among the poor toward the rich, resulting in social disorders,
conflicts and at times breeds revolutions and movements.