An Assignment on: Rent and Riba
By: Nauman Zahid BBA-18 (8 semester) Course Islamic Banking & Finance
Submitted to: Madem Saba Sehrish
Date: 13 Oct, 2011
What is Riba? The Quran and Hadith have used the term Riba which has been translated by the scholars as usury or interest. Renowned researchers, interpreters of the Quran and the jurists of Islam have explained the meaning and nature of Riba in light of Quran, Hadith. At the time of emergence of Islam, the Arabs widely practiced Riba, both in money lending and barter transaction of commodities. It was deeply rooted in the economic life of the people; the Holy Quran gave the verdicts with respect to charging for borrowing money and barter trade. Here is a verse of the Holy Quran about Riba. i. O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful. (3:130) In the above verse, the believers of ALLAH are told not to double, quadruple their money, assets through Riba, this would lead them to success. Here is what bible says about money: ii. "For the love of money is the root of all evil" (6:10)
Abu Sayeed al-Khodri reported that the Messenger of Allah said: iii. Dont sell gold for gold unless like for like and dont increase something of it upon something, and dont sell silver for silver unless like for like and dont increase something of it upon something, and dont sell the absent there from for the present. (Bukhari, Muslim) Omar reported that the Messenger of Allah said: iv. Gold for gold is interest unless in hand to hand (transaction); silver for silver is interest unless in hand to hand (transaction); wheat for wheat is interest unless in hand to hand (transaction), barley for barley is interest unless in hand to hand (transaction), and date for date is interest unless in hand to hand (transaction). (Bukhari, Muslim)
Uthman reported that the Holy Prophet said, v. Sell not one dinar for two dinars, nor one dirham for two dirhams. (Mutta)
On the basis of practice prevailing at the time of appearance of Islam and keeping in view the Ahadith of Prophet Muhammad (PBUH), the Muslim scholars have classified Riba into two types, namely: Riba-an-Nasia (in cash) and Riba-al-Fadl (in barter transactions).
Rent Rent is the amount paid for use of an asset. Rent is charged on the lease of land, building, plant and machinery, furniture and fixtures, motor vehicles or on use of other capital goods. Interest and rent are both different from each other in nature. i. In rent the owner of the property or asset remains involved in and concerned with its use by the user throughout. But it is not so with interest, because the lender becomes unconcerned with the use of the loan after his loan is secured and interest thereon guaranteed, therefore capital is rendered liable to abuse. ii. Since the element of loss is very much present in the case of rent, a house, flat, vehicle when not used have a holding cost to owner. iii. The question of private property rights in cultivable land has been one of the most controversial issues in Islamic economics. It is agreed that the best course for a person having excess land he does not use is to give it to his landless brother for cultivation free of charge. However, rent is not forbidden but there is no consensus regarding its form. Some jurists permit only cash rent, some only mezuzah or share-cropping, and there are still others who would allow both. iv. On balance, share cropping is preferred. For the outcome of cultivation being uncertain, predetermined amount of rent would be a kind of riba. Here the landlord would be indifferent to the actual yield from land the same way as the banker is to the actual return from business.
v.
A fixed amount may turn out to be unjust to either of the parties, land owner or the cultivator when crop value becomes known. This could be avoided if rent is settled as a proportion of the crop. Thus, Islam does not approve a pre-fixed return to capital and prefers the rent also to vary with the outcome of cultivation.
Reference 1. Fundamentals of Islamic Economic System by Dr. Muhammad Sharif Chaudry, online at: [Link] 11
2. Hasan, Zubair (2008) Theory of prot from Islamic perspective, MPRA Paper No. 8129 online at: [Link]