RIBA IN QURAN AND HADITH

Riba in Quran "That which you give as interest to increase the peoples' wealth increases not with God; but that which you give in charity, seeking the goodwill of God, multiplies manifold." (Surah al-Rum, verse 39) "And for their taking interest 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', verse 161) "O believers, take not doubled and redoubled interest, and fear God so that you may prosper. Fear the fire which has been prepared for those who reject faith, and obey God and the Prophet so that you may receive mercy." (Surah Al 'Imran, verses 130-2) "Those who benefit from interest shall be raised like those who have been driven to madness by the touch of the Devil; this is because they say: "Trade is like interest" while God has permitted trade and forbidden interest. Hence those who have received the admonition from their Lord and desist, may keep their previous gains, their case being entrusted to God; but those who revert shall be the inhabitants of the fire and abide therein for ever."(Surah al-Baqarah, verses 275) "God deprives interest of all blessing but blesses charity; He loves not the ungrateful sinner." (Surah al-Baqarah, verses 276) "Those who believe, perform good deeds, establish prayer and pay the zakat, their reward is with their Lord; neither should they have any fear, nor shall they grieve." (Surah al-Baqarah, verses 277) "0, believers, fear Allah, and give up what is still due to you from the interest (usury), if you are true believers." (Surah al-Baqarah, verses 278) "If you do not do so, then take notice of war from Allah and His Messenger. But, if you repent, you can have your principal. Neither should you commit injustice nor should you be subjected to it." (Surah al-Baqarah, verses 279) "If the debtor is in difficulty, let him have respite until it is easier, but if you forego out of charity, it is better for you if you realize." (Surah al-Baqarah, verses 280) "And fear the Day when you shall be returned to the Lord and every soul shall be paid in full what it has earned and no one shall be wronged." (Surah al-Baqarah, verses 281) Riba in Hadith From Jabir : The Prophet, , may cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: "They are all alike [in guilt]." (Muslim, Kitab al-Musaqat, Bab la'ni akili al-riba wa mu'kilihi; also in Tirmidhi and Musnad Ahmad) From 'Abdallah ibn Hanzalah : The Prophet, , said: "A dirham of riba which a man receives knowingly is worse than committing adultery thirty-six times" (Mishkat al-Masabih, Kitab al-Buyu', Bab al-riba, on the authority of Ahmad and Daraqutni). From Abu Hurayrah : The Prophet, , said: "On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had received interest." (Ibn Majah, Kitab al-Tijarat, Bab al-taghlizi fi al-riba; also in Musnad Ahmad) From Abu Hurayrah : The Prophet, , said: "Riba has seventy segments, the least serious being equivalent to a man committing adultery with his own mother." (Ibn Majah) From Abu Hurayrah : The Prophet, , said: "God would be justified in not allowing four persons to enter paradise or to taste its blessings: he who drinks habitually, he who takes riba, he who usurps an orphan's property without right, and he who is undutiful to his parents." (Mustadrak al-Hakim, Kitab al-Buyu')

Islamic Banking and Finance


There are different terms that are used for Islamic banking and Finance as Islamic Banking, Islamic Finance, Halal Finance, Halal Investment, Halal Mortgages, Islamic Investment, Islamic Loans, Sharia Banking, Sharia Finance and Sharia Investment etc.

Islamic banking and finance or Islamic Finance refers to a system of banking or banking activity(s) that is consistent with Sharia based principles and rules and guidelines of Islamic finance.

Islamic law prohibits interest (usury) commonly called riba, the collection and payment of interest, trading in financial risk (which is seen as a form of gambling). In addition, Islamic law prohibits investing in businesses that are considered unlawful, or haraam.

Islamic finance has been gaining momentum on a global scale for the last few years. Many Islamic Banks have sprung up over the last few years. These changes are occurring both in Muslim and in western countries, and are driven by a global trend amongst Muslims to become more observant of their faith. It might have been the reason why Islamic Banking emerged, however, today Islamic Banking is sought by Muslims and non-Muslims due to the benefits it offers.

MODES OF ISLAMIC FINANCE


There are different modes of Islamic Finance that are used by Islamic Financial Institutions in financial transactions. Here is a brief summary of modes of Islamic Finance. For more details please visit links in mode of finance.

Mudarabah
Musharakah
Diminishing Musharakah
Murabaha
Ijarah
Ijarah-Wal-Iqtina
Istisna
Salam
Istijrar


Mudarabah


Mudarabah is a special kind of partnership permitted by Sharia where one partner provide funds to another for investments it in a commercial enterprise (mortgage, insurance, credit, financing and other business). The partner who invests is called "rabb-ul mal", while the management and work is an exclusive responsibility of the other, who is called "mudarib".

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Musharakah


Musharakah means a joint enterprise formed for conducting some business in which all partners contribute to capital and management is done by all and any one acting for all. Profit is shared according to a predetermined specific ratio while the loss is shared according to the ratio of the contribution (capital).

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Diminishing Musharakah


Another form of Musharakah, developed in the near past, is 'Diminishing Musharakah'. According to this concept, a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share until all the units of the financier are purchased by him so as to make him the sole owner of the property, or the commercial enterprise, as the case may be.

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Murabaha


Literally it means a sale on mutually agreed profit. Technically, it is a contract of sale in which the seller declares his cost and profit. Islamic banks have adopted this as a mode of financing. As a financing technique, it involves a request by the client to the bank to purchase certain goods for him. The bank does that for a definite profit over the cost, which is stipulated in advance.

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Ijarah


Ijarah is a contract of transfer of known and proposed usufruct against a specified and lawful return or consideration of a product or service. In other words, Ijarah or leasing is the transfer of usufruct for a consideration which is rent in case of hiring of assets or things and wage in case of hiring of persons.

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Ijarah-Wal-Iqtina


A contract under which an Islamic bank provides equipment, building or other assets to the client against an agreed rental together with a unilateral undertaking by the bank or the client that at the end of the lease period, the ownership in the asset would be transferred to the lessee. The undertaking or the promise does not become an integral part of the lease contract to make it conditional. The rentals as well as the purchase price are fixed in such manner that the bank gets back its principal sum along with profit over the period of lease.

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Istisna


It is a contractual agreement for manufacturing goods and commodities, allowing cash payment in advance and future delivery or a future payment and future delivery. Istisna can be used for providing the facility of financing the manufacture or construction of houses, plants, projects and building of bridges, roads and highways.

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Salam


Salam means a contract in which advance payment is made for goods to be delivered later on. The seller undertakes to supply some specific goods to the buyer at a future date in exchange of an advance price fully paid at the time of contract. It is necessary that the quality of the commodity intended to be purchased is fully specified leaving no ambiguity leading to dispute. The objects of this sale are goods and cannot be gold, silver or currencies. Barring this, Bai Salam covers almost everything, which is capable of being definitely described as to quantity, quality and workmanship.

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Istijrar


Istijrar means purchasing goods time to time in different quantities. In Islamic jurisprudence Istijrar is an agreement where a buyer purchases something from time to time; each time there is no offer or acceptance or bargain. There is one master agreement where all terms and conditions are finalized.

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