Introduction to Islamic Finance (2 of 4): How to tell if something is Riba (interest)?

Summary

In this video, the speaker addresses the three major corruptors of business dealings in Islam, as outlined in the Quran and Sunnah. They begin by explaining the concept of 'Reba' (interest), discussing its prohibition due to its exploitative nature, particularly in the form of charging more than the original price for a product. Using practical examples, the speaker clarifies how Reba works and why it is harmful. The segment concludes with an introduction to the second corruptor, 'M' (gambling), setting the stage for further discussion on unethical financial practices.

Takeaways

• 😀 Reba refers to the practice of increasing debt, specifically charging interest on loans, which is prohibited in Islam.
• 😀 The Quran explicitly forbids Reba, warning believers of severe consequences, including war from Allah and His Messenger.
• 😀 If a loan involves charging more than the original amount lent, it constitutes Reba and is considered unethical in Islamic finance.
• 😀 Interest charged on debt is a clear example of Reba, as it involves a guaranteed return for the lender, regardless of the borrower's financial outcome.
• 😀 Charging more than the cash price for goods on deferred payment can also involve Reba, as the seller provides financing along with the product.
• 😀 The reason for paying more than the original price in deferred payment transactions is that the buyer receives two services: the product and the financing.
• 😀 Islam views Reba as a form of exploitation, where the lender does not share any risk but seeks an increase in the loan amount, which is unjust.
• 😀 A transaction involving Reba is considered exploitative because it takes advantage of the borrower’s need for money or financing.
• 😀 In Islam, business dealings should involve mutual benefit and risk-sharing, unlike transactions involving Reba, which focus solely on profit for the lender.
• 😀 The second major corruptor of business transactions mentioned in the script is 'M', which refers to gambling, another practice prohibited in Islam.

Q & A

What is Reba and how is it defined in the script?

Reba refers to an increase in indebtedness, specifically when a lender charges interest on a loan or extends the debt, requiring more than the original amount to be paid back. It is explicitly prohibited in Islam as outlined in the Quran and Sunnah.

How was Reba practiced before Islam?

Before Islam, Reba involved lending money with the condition that the borrower would pay back more than they borrowed after a certain period. The lender could offer an extension of time, but in return, the borrower’s debt would increase.

What does the Quran say about Reba?

The Quran warns believers to leave what remains of Reba, stating that if they do not repent, they will face war from Allah and His Messenger. It stresses that both paying and receiving interest are forms of Reba and are prohibited.

What are the key criteria for identifying Reba in business transactions?

Reba is present if a loan agreement involves a lender contractually receiving more than the original loan amount. If a person lends money and demands repayment of more than what was initially lent, then Reba is involved.

Is charging interest on debt considered Reba?

Yes, charging interest on a debt is considered Reba. It involves an increase in the original amount owed and is forbidden in Islam.

What does the script say about charging more than the cash price for goods as Reba?

The script argues that charging more than the cash price for a product, especially when payment is deferred, is a form of Reba. The reason is that the seller is not only providing the goods but also lending money, since the buyer does not pay the full price upfront.

What is the distinction between paying a higher price and receiving financing?

The distinction lies in the fact that the buyer is paying a higher price because they are receiving two services: the product itself and the service of financing (deferred payment). The financing part, when it involves paying more than the product’s cash price, constitutes Reba.

Why is Reba considered unconscionable in Islam?

Reba is considered unconscionable because it imposes a one-sided agreement, where the lender’s profit is guaranteed without regard for the borrower's circumstances. It exploits the borrower’s need and creates a situation of unfairness and exploitation.

What does the script suggest about the risk associated with Reba?

In a Reba-based transaction, all the risk is placed on the borrower, while the lender is guaranteed to receive their money back with an increase. This lack of shared risk makes the transaction unjust and exploitative.

What is the second major corruptor of business transactions mentioned in the script?

The second major corruptor mentioned is 'M', which is roughly translated into gambling. The script suggests that gambling is another corrupt practice that undermines fairness in business dealings.