FULL NOTE RIBA

DEFINITION
Riba is the derived from the arabic word that means extra (Al-Ziyadah), developing (An-Nuwum), increased (Al-Iftifa)
In means addition, increase
Riba literally means to increased, to grow, to rise, to add. It is however, not every increase or growth which has been prohibited by islam.
Riba technically refers to the premium that must be paid by the borrower to the lender along with the principle amount as a condition for
the loan or for an extension in its maturity.
TYPES OF RIBA
1. Riba duyun
Riba Qard
Riba Jahiliyah
2. Riba buyu
Riba Nasiah
Riba Fadhl
RIBA DUYUN Riba out of lending and borrowing. This kind of riba is the extra amount of money over and above the principal of the loan
either :
Imposed by the lender on the borrower in the contract or promised by the borrower in the contract.
Riba Qardh
Riba is imposed or promised from the beginning.
E.g.: interest stated in loan contract
Riba Jahiliyyah
There is no riba at the beginning, riba is imposed only after default.
E.g.: interest in credit card transactions due to the delay in the repayment.

RIBA BUYU riba in tranding transactions. This kind of riba may occur out of an exchange between two ribawi materials of the same kind
where the necessary rule(s) are not observed.
Riba al-Fadl
The ribawi materials (of the same basis and the same kind) exchange are of defferent weight, measurements or numbers and they are
exchanged at the same time.
Riba al-Nasiah
The ribawi materials exchanged are of equal weights, measurements or numbers but payment of the price and delivery of the goods are
made at two different times.
EVIDENCE
Al-Quran
Al-Baqarah: 275

Hadith:
From Jabir: The Prophet saw cursed the receiver and the payer of usury, the one who records it and the two witnesses to the transaction and said:
They are all alike (in guilt and sin).
From Abi Said al-Khudri: The Prophet saw said: gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt,
like for like, and hand to hand. Whoever pays more or takes more has indulged in riba. Take taker and the giver are alike (in guilt).
RIBAWI ITEMS
Commodity Money/ Currency:
Gold
Silver
Currency

Foodstuff:
Wheat
Barley
Dates
Salt

RULE CONCERNING RIBA (rule of exchange for ribawi materials)

THE RATIONAL BEHIND THE PROHIBITION OF RIBA

Barter system is not so favourable from the Shariah point of view.

The impact of riba is on the society at large compared to other crimes prescribed in hudud which impact are restricted to only a few of
people.
It is a clear burden on the borrower. In any circumstances, he is obliged to repay the principal and interest charge (Money renting).
Money and time cannot grow by themselves.
Riba is the main pushing factor for the people with surplus of money to lend their money out to the deficit units in the economy.
However, it could render to exploitation of deficit units by the surplus units.
To prevent any form of injustice, exploitation and manipulation among the parties.
The inflexibility of interest charge results in loss and unemployment in comparison with the profit-and-loss sharing system.

Security oriented vs Growth oriented. Interest-based system is not for the poor parties with poor creditworthiness.

THE RATIONAL BEHIND THE PROHIBITION OF RIBA

Inequality in loan distribution makes the rich becomes richer and the poor becomes poorer.
Interest-based system impends the innovations amongst the small-scale enterprises particularly.
Wealth creation and transfer: Riba activities do not create a new stock of wealth.
Borrowers are not exposed to any risk (except credit risk - does not commensurate the profit made).
Money is considered as commodity is an interest-based system and subject to the law of demand and supply (Allowing speculation on
money).
Interest is a component of costs in an interest-based system.

RIBA IN A MODERN FINANCIAL INSTITUTION

Charging Interest In The Banking Sector
Prohibition of riba would safeguard the interest of both financial institution and customer
In case of money deposits in savings accounts or fixed deposits, the interest is unfair because of:
Banks:
Conventional Bank: Obliged to pay interest to the depositor which is more than the principal amount deposited
Islamic Banks: Profit would be given to the depositor only if bank make profit. If they are making losses, they are not compelled
to pay any amount of profit
Customers:
Conventional Bank: Customers would be deprived from the high profit gained by bank even though they are guaranteed some
form of fixed income (interest), it is rather small compared to the huge profit gained by the banks.
Islamic Bank: If bank making huge profits for a certain period, depositor would be given a fair share of profit based on agreed
proportion

Prohibition of Riba al-Fadl:

To ban any form of unfair trade practices from the business society unfair practice in barter transaction.
The Prophet saw was actually trying to discourage barter trading and gradually eliminate barter system while suggesting a better and just
monetary system using currency.

TIME VALUE OF MONEY

Time Value of Money in TVM Islam Economic Perspective:

The concept of TVM is a fundamental concept in finance. The draft concluded that money today is more valuable than money in the
future. One million rupiah today have a value of more than one million RM in the future.

There are 3 main reasons why at least some money today is more valuable than the future,namely :
1. Money loses its value over time
The purchasing power of money continues to fall mainly due to inflation in the economy. For
example in Indonesia, one cent money
can buy a cup of coffee in the 2000s, but today the same one cent can not buy a cup of coffee. Therefore the value of one cent fall over the years.
2. Money has not cost advantage
If one have money today, he can invest the money in some business venture , thereby increasing the amount of money a person in the future. In
conventional analysis, interest income is one of the cost advantage of the money, but interest-based income is forbidden in islam.
3. The uncertainty of future cash flows

Future cash flows are hopping only. Therefore, future cash flows are uncertain risk. People appreciated the cash flow is now more valuable than
the future cash flows.

SHORT NOTE RIBA

DEFINITION
Riba literally means to increased, to grow, to rise, to add. It is however, not every increase or growth which has been prohibited by islam.
Riba technically refers to the premium that must be paid by the borrower to the lender along with the principle amount as a condition for
the loan or for an extension in its maturity.
TYPES OF RIBA
[Link] duyun - Riba out of lending and borrowing
Riba Qard - Riba is imposed or promised from the beginning.
Riba Jahiliyah - There is no riba at the beginning, riba is imposed only after default.
[Link] buyu - Riba in tranding transactions.
Riba Nasiah - The ribawi materials (of the same basis and the same kind) are exchanged at the same time.
Riba Fadhl - The ribawi materials exchanged are made at two different times.

RIBAWI ITEMS

Commodity Money/ Currency:

Gold
Silver
Currency
Foodstuff:
Wheat
Barley
Dates
Salt

RULE CONCERNING RIBA (rule of exchange for ribawi materials)

THE RATIONAL BEHIND THE PROHIBITION OF RIBA

Barter system is not so favourable from the Shariah point of view.

The impact of riba is on the society at large compared to other crimes prescribed in hudud which impact are restricted to only a few of
people.
It is a clear burden on the borrower. Money and time cannot grow by themselves.
Riba is the main pushing factor for the people with surplus of money to lend their money out to the deficit units in the economy.
To prevent any form of injustice, exploitation and manipulation among the parties.
The inflexibility of interest charge results in loss and unemployment in comparison with the profit-and-loss sharing system.

Prohibition of Riba al-Fadl:

To ban any form of unfair trade practices from the business society unfair practice in barter transaction.
The Prophet saw was actually trying to discourage barter trading and gradually eliminate barter system while suggesting a better and just
monetary system using currency.

TIME VALUE OF MONEY

Time Value of Money in TVM Islam Economic Perspective:

The concept of TVM is a fundamental concept in finance. The draft concluded that money today is more valuable than money in the
future. One million rupiah today have a value of more than one million RM in the future.

THREE main reasons why at least some money today is more valuable than the future, namely :

Money loses its value over time

Money has not cost advantage
The uncertainty of future cash flows

MIND MAP

Riba Qard

Literally means to increased, to

grow, to rise, to add

Riba Duyun

Is imposed or promised from the

Riba out of lending and borrowing

Riba Jahiliyah

Definition of Riba

Is imposed only after default

Types of Riba

Riba al-fadl

RIBA

Technically refers to the premium that

must be paid by the borrower to the
lender along with the principle amount
as a condition for the loan or for an
extension in its maturity

Riba Buyu

Exchanged are of different weight,

measurements or number

Riba in trading transactions

(two ribawi materials)

Riba Nasiah
Exchanged are made at different
time

Time value of money

Barter system is not so favourable

from the Shariah point of view

The concept of TVM is fundamental concept

finance. The draft concluded that money today
is more valuable than money in the future
MCQ
Riba is the main pushing
factor for the people with
surplus the money

The Rational
behind The
Prohibition of
Riba

It is a clear burden on the

borrower

To prevent any form of injustice, exploitation,

manipulation

1- Riba means..
a)
b)
c)
d)

Riba is imposed or promised from the beginning

There is no riba at the beginning
To increase ,to grow ,to rise ,to add .
Cash flows are uncertain and risky

2- Type of riba is
i.
ii.
iii.
iv.

Buyu
Riba al-fadhl
Duyun
Riba al-qard

a)
b)
c)
d)

ii and iv
i and iii
ii and iii
iv only

3- Define riba duyun

a)
b)
c)
d)

Riba in trading transaction

Riba out of lending and borrowing
Materials exchanged are equal weight
Is imposed or promised from the beginning

4- Two (2) types of riba buyu

i.
ii.
iii.
iv.

Riba al-qard
Riba an-nasiah
barley
Riba al-fadhl

a)
b)
c)
d)

i and iv
ii and iii
iii and iv
i and ii

5- Examples of ribawi items

a)
b)
c)
d)

Barley ,wheat ,salt and dates

Rice ,handbag , shoes and shirt
Bread ,palm oil ,cucumber and car
Coins ,turmeric powder and banana
6- In the riba it have a condition of exchange of ribawi items the condition is
a)
b)
c)
d)
7-

Halal
Full ,measuring and types
Spot ,equal and alike
Small , medium and large
And for their taking riba even though it was forbidden for
them, and their wrongful appropriation of other peoples
property, we have prepared for those among them who
reject faith a grievous punishment,
Surah al-Nisa, 161

The revelation from Al-Quran above is related to

a) Prohibition of riba
b) Obligation of riba
c) Prohibition of maisir
d) Bills of payment
8- Time value of money in islam economic perspective
a)
b)
c)
d)

The concept of time value is a purchasing money to fall mainly due to inflation
The concept of time value is a fundamental concept in finance.
The concept of time value is a premium that must be paid by the borrower
The concept of time value is a material exchange are equal weight , measurements or numbers

9- There are three main reasons why at least some money today is more valuable than the future, namely :
i.
ii.
iii.
iv.

Money loses its value over time

Time value of money
Money has a cost advantage
The uncertainty of future cassh flows

a)
b)
c)
d)

ii ,iii and iv
i, ii and iii
i , iii and iv
All

10riba is imposed or promised from the beginning

Which is the meaning for the above statements

a)
b)
c)
d)

Riba al-jahiliyyah
Riba al-fadhl
Riba an-nasiah
Riba al-qard

11- Which the holy quran verse that state o believer, take not doubled and redoubled riba, and fear God so that you may proper. Fear the fire
which has been prepared for those who reject faith, and obey God and the prophet so that you may receive mercy
a)
b)
c)
d)

Surah an-Nisa
Surah Al imran
Surah al-baqarah
Surah al-rum

12- which of the first stages of prohibitions in the holly quran

a)
b)
c)
d)

Surah an-Nisa
Surah Al imran
Surah al-baqarah
Surah al-rum

13-there are ___ types of duyun

a)
b)
c)
d)

1
4
2
7

14- riba is derived from the arabic arab words that means extra
, developing and .......
a)
b)
c)
d)

Increased
Full
Exchange
borrowing

15- the ribawi materials of the same basis and same kind exchanged are of different weights, measuremets or numbers and they are exchanged
at the same time the statements are refers the meaning of riba ..
a)
b)
c)
d)
16-

Riba al-fadhl
Riba buyu
Riba duyun
Riba al-jahiliyyah
Future cash flows are hoping only. Therefore, future cash flows
are uncertain and risky. People appreciate the cash flow is now
more valuable than the future cash flows

There are three main reasons why at least some money today is more valuable than the future ,there is description about three main reason which
one ...
a)
b)
c)
d)

Money has a cost advantage

Money loses its value over time
The uncertainty of future cash flows
Premium that must be paid

17- define riba jahilliyah..

a) Riba is imposed or promised from the beginning
b) The ribawi materials if the samebasis and same kind exchanged are of different weghts, measurements or numbers and they are exchanged
at the same time.
c) Riba in trading transactions
d) There is no riba at the beginning, riba is imposed only after default.
18- Define riba buyu ..
a)

The ribawi material exchanged are of equal weight ,measurements or numbers but payment of the price and delivery of the goods are made
at two different times
b) Riba in trading [Link] kind of riba may occur out of an exchange between two ribawi materials of the same kind where the
necessary rues are not observed
c) To ncrease , to grow to rise to add.
d) There is no riba at the beginning, riba is imposed only after default
19- define riba al-fadhl
a)

Refer to the premium that must be paid by the borrower to the lender along with the prncipal amount as a condition for the loan or for an
extension in its maturity
b) To increase to grow to rise to add. Not every increase or growth which has been prohibited by islam
c) The ribawi materials of the same basis and same kind exchanged are of different weight ,measurements or number and they are exchanged at
the same time
d) There is no riba at the beginning, iba is imposed only after default

20- riba has

____ types , it is ___ and ____

a)
b)
c)
d)

2 , buyu and duyun

2 , nasiah and yad
2 , qard and jahiliyyah
2 , buyun and nasiah

ESSAY QUESTION

1.
2.
3.
4.
5.

What is definition of Riba?

List the ribawai item.
What is the condition of exchange ribawi item.
What is the definition of Time Value Money?
Explain about the money losses its value over time.

CROSS WORDS
1.
2.

5.

4.

3.

7.

8.

9.

6.

VERTICLE
2. Riba is imposed or promised from the beginning.
5. The concept of time value of money is a fundamental concept in __________ .

6. There are 3 item of commodity money which is gold, silver and ___________ .
7. _________ system is not favourable from the shariah point of view.
9. Future cash flows are ___________ only .

HORIZONTAL
1. Riba means to increased, to ________, to rise and to add.
3. Riba duyun out of lending and __________
4. The ribawi materials exchanged are of _________ weight, measurement or number but
payment of the price and delivery of the goods are made at two different times.
8. The purchasing power of money continues to fall mainly due to inflation in the _________
10. Riba buyu have 2 type of riba which is riba nasiah and ____________

WORD SEARCH

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1. property

[Link]

2. prohibition

9. gold

3. lender

10. exchange

4. beginning

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5. maturity
6. equal
7. purchase

CASE STUDY
KUALA LUMPUR: The proposed merger between CIMB Group Holdings Bhd, RHB Capital Bhd and Malaysia Building Society Bhd
is set to transform the finance industry as it would create a mega Islamic bank, CIMB group chief executive officer Datuk Seri Nazir
Razak said.
He said the Islamic finance industry needed time to reflect where it is heading to as there is too much obsession on non-riba or
non-interest issue and more focus should be given on syariah principles, instead of interests issue.

Alluding that currently, Islamic finance is focused on global sukuk issuance and corporate lending to allow cheaper borrowing, he
said Islamic finance could add value, if it enabled those who could get financing, to get financing.
If this (merger) is successful, this is a new segment of business that we would like to try, he said at the 8th Malaysian Student
Leaders Summit 2014 organised by the UK and Eire Council of Malaysian Students on Saturday. Bernama

1. Identified means of riba

Riba means addition, to increased, to grow, to rise. Riba refers to the premium that must be paid by the borrower to the lender
along with the principle amount as a condition for the loan or an extension in its maturity.
2. What happen in the Modern Financial Institution now
Charging the interest in the banking sector

-prohibition of riba would safeguard the interest of both financial institution and customers
-in case of money deposits in saving accounts or fixed deposits, the interest is unfair because of obliged to pay interest to the
depositer which is more that the principle amount deposited
3. The impact if involved in the riba transaction
-the eater and giver of riba will war with Allah swt
-loss the berkah of property and life
-one of the seven biggest sin
4. The prohibition of riba, given the essential the rational behind the prohibition of riba
-the impact of riba is on the society at large compared to other crimes prescribed in hudud which are restricted to only a few of
people
-it is the clear on the burden
-riba is the main pushing factor for the people with surplus of money to lend their money out to the deficit units in the
economy, it could render to exploitation of deficit units by the surplus unit
-interest-based system impends the innovations amongst the small-scale enterprises particularly

answer
essay
1. Riba literally means to increased, to grow, to rise, to add. It is however, not every increase or
growth which has been prohibited by islam. Riba technically refers to the premium that must
be paid by the borrower to the lender along with the principle amount as a condition for the
loan or for an extension in its maturity.

2. Gold ,Silver, Currency, Wheat, Barley, Dates, Salt

3. Spot
Alike
Equal
4. The concept of TVM is a fundamental concept in finance. The draft concluded that money
today is more valuable than money in the future. One million rupiah today have a value of
more than one million RM in the future.
5. The purchasing power of money continues to fall mainly due to inflation in the economy. For
example in Indonesia, one cent money can buy a cup of coffee in the 2000s, but today the
same one cent can not buy a cup of coffee. Therefore the value of one cent fall over the years.

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E

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X

A
C

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H

C
A

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P
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N
D
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N
O

N
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L
C

D
N

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Case study
1) Identified means of riba
a. Riba means addition, to increased, to grow, to rise. Riba refers to the premium that must be paid by the borrower to the
lender along with the principle amount as a condition for the loan or an extension in its maturity.
2) What happen in the Modern Financial Institution now
a. Charging the interest in the banking sector
b. -prohibition of riba would safeguard the interest of both financial institution and customers
c. -in case of money deposits in saving accounts or fixed deposits, the interest is unfair because of obliged to pay interest
to the depositer which is more that the principle amount deposited
3) The impact if involved in the riba transaction
a. -the eater and giver of riba will war with Allah swt
b. -loss the berkah of property and life
c. -one of the seven biggest sin
4) The prohibition of riba, given the essential the rational behind the prohibition of riba
a. -the impact of riba is on the society at large compared to other crimes prescribed in hudud which are restricted to only a
few of people
b. -it is the clear on the burden
c. -riba is the main pushing factor for the people with surplus of money to lend their money out to the deficit units in the
economy, it could render to exploitation of deficit units by the surplus unit
d. -interest-based system impends the innovations amongst the small-scale enterprises particularly