Interest/Riba Dilemma! - Economics

[lolwatever]

salams bros and sisters..

me and a bro where discussing whether charging 'non-real' interest to counteract inflation was halal...

because, say prices increase by 2%, that means.. in one year time, the money i have now will be wroth 2% less in one year.

Soo.. the big question is.. if i lend money to someone, and charge them for the cost of inflation, (i.e. nominal but not real interest), is that halal?

If we look in the prophets time, the superficial answer might be no... butttt we need to consider this fact.

In propehts time they use to deal with gold/silver standard right? Sooo... if prices of good/services increased, (i.e. the value of money decreaed), i could just melt my gold coins and sell them as jewellery, hence i am counteracting effects of inflation..

point is.. if i lend 1 gold coin to someone.. and then they return it back to me one year later and inflation went up by 2%... if i'm grumpy about that, i can just melt the gold coin and sell ti as a ring, that way i would hav made up for that 2% loss..

BUTT.. with paper money... you can't burn the paper and sell the ash... so can we charge nominal but not real interest?


keeping in midn that not all interest is riba....

jazakumallah khayr.. evidence please!
salams

[lolwatever]

ps: i understand that the problem above is the fault of the system, not Islam's fault, because in an islamci state they'd be running on a gold standard which means inflation would be naturally solved... but im wondering what Islam's stance is regarding dealing with paper money as far as lending and borrowing is concenred. salams

[aamirsaab]

:sl:
Wage power also increases. Trade Unions make sure of it.

[aakhirah]

Soo.. the big question is.. if i lend money to someone, and charge them for the cost of inflation, (i.e. nominal but not real interest), is that halal?

If one gives a loan to another, it must be re-paid in the same manner and equally (mithl). This is a ruling agreed upon by all the scholars.
The question arises here that, what is meant by ‘Mithl’? Does being equal mean: similarity in weight, measurement and quantity or in value and worth?

By looking into the evidences of the Qur’an, Sunnah and discussions of the great jurists of Islam, it becomes clear that the similarity which is required here is in quantity and magnitude, not in value.

There are many evidences for this. Some are mentioned below:

1) Sayyiduna Abu Sa’id al-Khudri and Abu Huraira (Allah be pleased with them) narrate that the Messenger of Allah (Allah bless him & give him peace) appointed a person as a governor of Khaybar. This governor brought to the Prophet (Allah bless him & give him peace) high quality dates of Khaybar. The Messenger of Allah (Allah be pleased with them) asked: “Are all the dates of Khaybar like this?” He replied: “By Allah, no, O Messenger of Allah! We barter one measures (sa`) of this type of dates for two measures (sa`) of our own (normal & inferior quality) dates, and two measures (sa`)’s for three of ours. The Messenger of Allah said: “Do not do so (as this will be considered usury). Rather, sell the dates of inferior quality, and then buy the good quality dates with that money.” (Recorded by Imam al-Bukhari and Imam Muslim)

Both the fuqaha and Hadith commentators have explained that the above narration is clear evidence on the fact that when dealing in usurious goods, the similarity which is required is in quantity and not value.

The Messenger of Allah (Allah bless him & give him peace) did not differentiate between the two types of dates and did not permit for them to be exchanged unless if they were equal in weight, despite the fact that one was of a better quality than the other.

2) The Messenger of Allah (Allah bless him & give him peace) said: “Do not sell gold for gold unless equal in weight and do not sell silver for silver unless equal in weight. Whosoever gives or demands more, then this is interest.” (Recorded by al-Bukhari, Muslim and others)

This and many other similar narrations imply that, when exchanging, there should be total equality in quantity and measurement. If it is a loan, then this becomes more necessary.

3) If a person was to give one kilo of wheat as a loan, the value of which was, for example: two pounds. Now at the time of repaying this loan, the price of one kilo wheat fell to one pound. In this case all the fuqaha (jurists) are unanimous that he will still give one kilo back and not half kilo due to the fall and decreasing in the value of wheat. (Ibn Hazm, al-Muhalla, 6.347; Ibn Qudama, al-Mughni, 4.207; Dardir, al-Sharh al-Saghir; 3.290-291; Haskafi, al-Durr al-Mukhtar, 5.161)

The above and other evidences prove that when a loan is paid back, then the rate of inflation is not considered according to Shariah. One can only claim back exactly the amount which was given as loan. Anything other than that will be considered Riba, thus unlawful (Haram) and sinful.
It is akin to the situation where one places his money in a safe or money box and thereafter takes the money out after few years. It is obvious that the money which he will take out will be exactly the same as he put in. It will not increase or decrease due to inflation or deflation!

So what about inflation?

As far as the using of the term ‘inflation’ is concerned, it should be noted that there is a principle in Islamic Jurisprudence which says:

“Consideration is given to the substance of the transaction and not the terms used.” (See: al-Kasani, Bada’i` al-Sana’i` 5.3; Marghinani, al-Hidaya, [with Ibn al-Humam’s Fath al-Qadir], 7.132; Zayla`i, Tabyin al-Haqa’iq, 4.112; Majallat al-Ahkam al-`Adliyya, item #3 [explained in detail by Ali Haydar in Durrar al-Hukkam Sharh Majallat al-Ahkam, 1.21]

Whether we call it inflation or something else, the reality is that it is exchanging money for money with more from one side which is Riba and unlawful.

...

And Allah Knows Best

Muhammad ibn Adam al-Kawthari
Darul Iftaa, Leicester, UK
www.daruliftaa.org

keeping in midn that not all interest is riba....

Evidence?

:w:

A.

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[Malaikah]

:sl:

um, i dont know if this helps, but the way i saw it was, for example, i borrow two kilos of bananas from you, and one month later im going to pay you back with two kilos of banana, but by the time one month comes, the hurricane in queensland made the price of banana go through the roof so now two kilos of banana are worth like 10 times what they used to be.. but i still owe u two kilos of banana, if i pay u back with less than two kilos of banana so that the amount i give u is worth the same as the amount i borrowed, then u actually end up with less than what u stated off with, even though they are worth the same now. becuase if i never borrowed from u in the first place u would have still have had two kilos of banana that were worth a lot more than the 200 grams or so of banana that i gave u...

i wonder if that makes sense, im not saying thats some official answer but it something that must be considered isnt it? :?

[lolwatever]

but how about this example... (maybe ppl who dont come from cheese country wont understand)

if i lent you 50 cents 30 years ago, you can buy alott with it (hence why they had 1 cent adn 2cents coins even)

but if u pay me back 50 cents today, i'd tell u 2 keep it coz it probably requiers more than 50 cents of energy to collect it from you.. lol...

u get where im coming from? i.e. the value of 50cents decreased, so by charging you inflation, i'm not charging real interest, i'm just preserving the value of what i gave you... (that's what they mean when they say they're not charging you real interst with regards to hecs btw..)

salams

ps: jazak so much bro akhirah, im gonna read it now inshalah.

pps: cheese icnase my 30 year odl xample dont make sense, just remember the good old days in grade prep and 1 when kids use 2make big deal over 50cents pocket money :D... too bad that's not the case now anymore - coz of money devaluation/price inflation- :offended:

[lolwatever]

So what about inflation?

As far as the using of the term ‘inflation’ is concerned, it should be noted that there is a principle in Islamic Jurisprudence which says:

“Consideration is given to the substance of the transaction and not the terms used.” (See: al-Kasani, Bada’i` al-Sana’i` 5.3; Marghinani, al-Hidaya, [with Ibn al-Humam’s Fath al-Qadir], 7.132; Zayla`i, Tabyin al-Haqa’iq, 4.112; Majallat al-Ahkam al-`Adliyya, item #3 [explained in detail by Ali Haydar in Durrar al-Hukkam Sharh Majallat al-Ahkam, 1.21]

Whether we call it inflation or something else, the reality is that it is exchanging money for money with more from one side which is Riba and unlawful.

but that means, say u give me a 100 pound note, i can cut out a piece of paper that's the size of 100 pound note and give that to you and hence pay-off my debt:? because it's the same 'substance for substance'?

i guess it's just a limitation of the paper-economy we're living in.. if there's ne other convincing response that would be cool.. but i must say.. mashalah this hadith SERIOUSLY blew me away.. i was like 'woa'... perfect economic efficiency MASHALAH!!:

Sayyiduna Abu Sa’id al-Khudri and Abu Huraira (Allah be pleased with them) narrate that the Messenger of Allah (Allah bless him & give him peace) appointed a person as a governor of Khaybar. This governor brought to the Prophet (Allah bless him & give him peace) high quality dates of Khaybar. The Messenger of Allah (Allah be pleased with them) asked: “Are all the dates of Khaybar like this?” He replied: “By Allah, no, O Messenger of Allah! We barter one measures (sa`) of this type of dates for two measures (sa`) of our own (normal & inferior quality) dates, and two measures (sa`)’s for three of ours. The Messenger of Allah said: “Do not do so (as this will be considered usury). Rather, sell the dates of inferior quality, and then buy the good quality dates with that money.” (Recorded by Imam al-Bukhari and Imam Muslim)

that's like full onnn mashalah.. but i also think that kinda supports my idea, because that way you're exchanging true value of dates for another quality..

[aakhirah]

but i also think that kinda supports my idea, because that way you're exchanging true value of dates for another quality..

I'm sorry, but you don't seem to have understood the article written by the learned scholar. Please read it in its entirety. When you are exchanging money with money, which is what a loan is, it HAS to be the same in amount/quantity! If you were to put £100 in your local bank today and expect to get more in return when withdrawing 2 years down the line due to inflation, wouldn't that be classed as interest?

:w:

A.

[lolwatever]

I'm sorry, but you don't seem to have understood the article written by the learned scholar. Please read it in its entirety. When you are exchanging money with money, which is what a loan is, it HAS to be the same in amount/quantity! If you were to put £100 in your local bank today and expect to get more in return when withdrawing 2 years down the line due to inflation, wouldn't that be classed as interest?

:w:

A.

salams bro, i did read it all jazak allah khayr..

yes that's because banks are paying you real interst.. ok how about we'll explain using simple equation:

n = r + i

n = nominal interest
r = real interest (the interest that results in you making an actual profit)
i = inflation

CASE 1:

ok... say the inflation was zero percent... i.e. the money isnt losing value.. therefore if we tell teh personw ho lent money to pay us back more, that's defiantely HARAM interest, we call that REAL interest (r) (in economics), because we're making a 'profit on money'.

so mathematically and islamically, this has to always be the case.

r = 0

i.e. since inflation = 0 (i=0), we dont want to make any gain on the loan because that's definately haram, therefore real interst=0 (r = 0), therefore, the nominal interest we charge will be:

n = i + r = 0 + 0 = 0%

In other words, because there's no inflation (no loss in value of our money) we don't charge anything extra on top of what we lend. i.e. nominal interest rate is ZERO.

^^ all Halal right?

but unfortunately zero percent inflation is rarely seen... so...

----

now..

CASE 2:

Suppose inflation is 2% (in simpel terms, at teh end fo the year, my money will be worth 2% less).

becasue when we lend money to someone.. we want to recieve teh same money we gave them... therefore:

i = 2 (becasue inflation is 2%)
r = 0 (becasue it's haram to make actual profit on the loan)

therefore:

n = i + r = 2 + 0 = 2%

therefore i am giong to charge 2% to offset the effect of value loss... but i'm not making any net gain, i'm just ofsetting the effect of value loss... hence i'm nto charging "real interest".

------

PAUSE: now.. the question is, is that ok? because.. if u look at my last post where i gave the example to cheese.. its obvious it does become a problem especially if i lend someone money for long period of time...

that's the point im making..

ill giv u a case with -ve inflation if u want.. and you'll be quite shocked 2 c the results. but ill put that in seperate post.

salams

[lolwatever]

CASE 3:

This case will explain why i want an answer.. becaue if the asnwer is no.. that means this is not interest:


Let's assume there's DEFLATION (negative inflation).... I.E. in simple terms, the value of money is RISING in an economy... so lets plug some numbers

lets assume inflation is -2%, (i=-2%) and real interst is zero (coz that's haram), therefore... nominal interst :

n = i + r = -2%

now.. based on that, in order for me to not be making any 'real interest', i should pay back the borrower 2% of what he returns coz the value of money has increased...

but lets say i don't... i.e. we'll set n=0

n = i + r = -2 + r = 0

r = 2

therefore if i dont pay him back, i'm making a profit of 2% :muddlehea

doesn't that ring any bells?:confused:

[manaal]

As a techer of Economics I used to toy with the idea lolwhatever put forward in this thread. Real value is a new concept that did not exist in Prophet (S.A.W) time.

Is charging the real interest considered as riba or not? How do we answer this? I wonder if any present-day scholars looked into this matter.

Consider this example:
I have 100 pounds with me which I am hoping to buy a piece of furntiture with. But My sister borrowed 100 pounds. 2 months later, the price of the item has increased by 5%. So the value of the money has fallen by 5%. If I charge 105pounds from my sister would it be riba?

According to the hadeeth it is,

Sayyiduna Abu Sa’id al-Khudri and Abu Huraira (Allah be pleased with them) narrate that the Messenger of Allah (Allah bless him & give him peace) appointed a person as a governor of Khaybar. This governor brought to the Prophet (Allah bless him & give him peace) high quality dates of Khaybar. The Messenger of Allah (Allah be pleased with them) asked: “Are all the dates of Khaybar like this?” He replied: “By Allah, no, O Messenger of Allah! We barter one measures (sa`) of this type of dates for two measures (sa`) of our own (normal & inferior quality) dates, and two measures (sa`)’s for three of ours. The Messenger of Allah said: “Do not do so (as this will be considered usury). Rather, sell the dates of inferior quality, and then buy the good quality dates with that money.” (Recorded by Imam al-Bukhari and Imam Muslim)

Though the "quality" of the money has now fallen (we can say the quality has fallen as low quality is equal to low value), 100 pounds is still 100 pounds.

But stil... I wish there was a better explanation.

[manaal]

Aren't you confusing the defintion of real and nominal interest rates?

Real interest rate is the Nominal rate minus infaltion right? Its nominal that's haraam. Banks charge n not r.

[aamirsaab]

:sl:
I shall say it once more: Wage power also increases in order to counter the inflation.

In the event that it does not increase, you could have two options: increase the amount owning (to get back the exact money owed), this option is least ethical (morally correct).

Or you take no action, in which you would make a loss, due to the decrease in the value of that currency. This would be the honest approach.

keep in mind that currency value will fall in relation to others and will rise if more people are using said currency.

[lolwatever]

Aren't you confusing the defintion of real and nominal interest rates?

Real interest rate is the Nominal rate minus infaltion right? Its nominal that's haraam. Banks charge n not r.

salams sis, not at all.. infact i'm applying the fisher equation, which is r = i + pi (i=nominal, r = real, pi = inflation) :) i just assigned different letters to teh same variables to make it easier for ppl to understand..

yes banks charge n, because they are charging the value of inflation, and ON TOP OF THAT, they charge the real interest so they make profit.. hence why its haram to borrow from banks...

oh and incase i confusing anyone.. BORROWING FROM BANKS IS HARAM DEFINATELY I AGEREEEEEEE because they're charging REAL INTERST to make profit..

i'm talkin about lending and borrowing between people....

salams

[lolwatever]

:sl:
I shall say it once more: Wage power also increases in order to counter the inflation.

salams bro,
but what does wages have to do with lending and borrowing..:rollseyes

infact i disagree.. if wages go up that can make inflation worse, becaue it means people will keep teh same level of demand for goods/services, and then prices have to go up further... (this idea was a starting point for Milton Freeman's Philip curve btw, which shows that wage inflation is related to unemployment).

In the event that it does not increase, you could have two options: increase the amount owning (to get back the exact money owed), this option is least ethical (morally correct).

yeh my question is... what's the proof?

Or you take no action, in which you would make a loss, due to the decrease in the value of that currency. This would be the honest approach.

my point is, if u look at 'Case 3'... i showed that making a loss may also be a case of interest, because you're literally paying the borrower more than what he gave you... which defiantely is interest.

keep in mind that currency value will fall in relation to others and will rise if more people are using said currency.[

hehe i don't think ur getting the concepts right...

ill make ti clear.. this is teh situation

me and you, we're both unemployed, but you have 100 pounds, you lend that to me, but you know at the end of one year, inflation is 2% (i.e. the money will lose 2% of its value)....

the question is, in that situation, are you allowed to offset your loss by asking me to repay you 102 pounds.

i'm very sure and aware that if u make me pay 103 poudns thats haram, because it's "real interst" (you're making a profit, and (btw sis manal) that's what the banks do, they not onlyo ffset their loss, but they also charge more to make profit).

salams

[aamirsaab]

ill make ti clear.. this is teh situation

me and you, we're both unemployed, but you have 100 pounds, you lend that to me, but you know at the end of one year, inflation is 2% (i.e. the money will lose 2% of its value)....

the question is, in that situation, are you allowed to offset your loss but asking me to repay you 102 pounds.

Then this would depend on the actual agreement. e.g. if the money owed was implied that it had the same value (e.g. I am to give you back the value of £100) then yes, i'd be allowed to increase the amount owed to counter the inflation. If however the agreement stated specifically that the amount owed was £100 only, then i'd only be owed £100 (the interest wouldn't be taken into account).

In simple terms, it depends on the agreement. If it stated to the value of £100, then the amount would be inclusive of interest. If it stated £100 owed, then only £100 would be owed.

Sorry if anyone is confuzzled.

i'm very sure and aware that if u make me pay 103 poudns thats haram, because it's "real interst" (you're making a profit, and (btw sis manal) that's what the banks do, they not onlyo ffset their loss, but they also charge more to make profit).

salams

Yes, if I charged real interest, it'd be haraam because the value owed was 100 (103 would be more than the amount owed plus inflation, therefore, haram interest.)

[lolwatever]

Then this would depend on the actual agreement. e.g. if the money owed was implied that it had the same value (e.g. I am to give you back the value of £100) then yes, i'd be allowed to increase the amount owed to counter the inflation. If however the agreement stated specifically that the amount owed was £100 only, then i'd only be owed £100 (the interest wouldn't be taken into account).

In simple terms, it depends on the agreement. If it stated to the value of £100, then the amount would be inclusive of interest. If it stated £100 owed, then only £100 would be owed.

Sorry if anyone is confuzzled.


Yes, if I charged real interest, it'd be haraam because the value owed was 100 (103 would be more than the amount owed plus inflation, therefore, haram interest.)

salams bro, ok hehe now we understand wats going on..

is there any evidence for that?

How about i propose a solution and maybe the bros/sis's can tell me if this is halal....

Seeeing that if i tell someone that they ought to pay me back 102 instead of 100 at the end of the year... it's possible i may be overcharging or undercharging right? Because 'how do i really know that inflation is exactly 2%?'

so. what do we do? Is it ok if i do this?

I lend you 100 pounds, and in the contract we right...

---
"Today the 100 pounds is worth 5grams of gold, you ought to pay me back 5 grams of gold in 1 year in form of cash".
---

is that halal?

i.e. if the money devalues in one year time... that means you'll be paying me back more than 100 pounds of money at the end of the year, and if the value of the money decreases, you will pay me less than 100, but either way, we know for fact i'm not going to be making any profit ebcause we're pegging the value of the money to an exact good (gold)

what you guys think of that?

Personally i know the solution, it comes down to the way the way this currency system operates, perhaps that can be the topic of another therad or ill put forwadr my idea here.. after i hear from you guys :)
salams

[syilla]

all this talking about riba...made me sad (remember the quran mentioned about riba in surah albaqarah)

*do LI accept gold? hehe just joking

[lolwatever]

all this talking about riba...made me sad (remember the quran mentioned about riba in surah albaqarah)

*do LI accept gold? hehe just joking

salams sis, yeh riba makes me sad and annoyed too.. i'm definately not saying that borrowing banks is halal, its definately haram because they're making you pay back more than what you borrowed..

but i'm asking if ofsetting a profit/loss is halal or not, because if you don't, it means that you're getting paid a higher value than what you lent, or getting paid back less value than what you lent out..

i'll give my solution to this problem inshalah if it can't be solved using this currency system

take care salams :)

[Snowflake]

[QUOTE=lolwatever;430066
i'm talkin about lending and borrowing between people....
salams[/QUOTE]

Errr.. I dunno if this makes sense, but if 5 years ago I borrowed £500 from you to buy a dvd player. And 5 years later the same DVD player costs half the price. You'd still want your £500 and not the value of the DVD player as it would be today, wouldn't you? You'd lose out if I insisted to pay you by the value of the item today.

Now look at in reverse. If you borrowed me a bag of sugar which cost 49p at the time. You lost 49p. Then when I come to pay you back when sugar now costs 69p, why should I pay you the 20p extra when all you lost was 49p in the first place? You'd be making profit from me na?

[lolwatever]

Errr.. I dunno if this makes sense, but if 5 years ago I borrowed £500 from you to buy a dvd player. And 5 years later the same DVD player costs half the price. You'd still want your £500 and not the value of the DVD player as it would be today, wouldn't you? You'd lose out if I insisted to pay you by the value of the item today.

Now look at in reverse. If you borrowed me a bag of sugar which cost 49p at the time. You lost 49p. Then when I come to pay you back when sugar now costs 69p, why should I pay you the 20p extra when all you lost was 49p in the first place? You'd be making profit from me na?

salams sis, jazaks for that, but the dvd example is different.. umm.. the price of dvd player decreased because teh technology is now more widely available and its not only one company that produces it anymore... everyone makes dvd so price goes down..

that's different to prices "overall" in an economy increasing or decreasing..

umm ill giv u xample... say you make your own 'muslimahsis car'.. to produce first car will cost you an arm and a leg... but after you produce a couple thousand.. it doestn cost much to produce more cars because the relative price of production is cheaper...

so that cant be used to illustrate the borrowing idea :)

---

ok so you ask, what's inflation then?

basically this is inflation.. people get higher wages.. so people start demanding to buy more stuff.. but companies cant cope to keep up with consumer demand, so they push up prices, ---> THAT's inflation :D

tc
salamz

[Snowflake]

^lol@Muslimah Sis car..what a wicked reg plate that would make eh? ;D

nah, I dont get ur drift lol. All I knw is why should u be paid back according to inflation rates. If I owe u a packet of humbugs. Im gonna buy u packet of humbugs ten yrs later, no matter how much they cost me. But if u want the money instead, Im gonna pay u not what they cost today, but what I paid for them. Cuz u can only take back what u gave and I pay back what I owe. :P

[lolwatever]

salamz sis, yep exactly..

[Malaikah]

:sl:

sooo... can someone summarise this thread? I didnt really understand anything lol. I just discovered the other day that my student loans thingy uses this non-real interest inflation thingy...:confused:

Is it halal?! :X I dont want to be working with riba!!:offended:

[lolwatever]

salams btw sis manal.. did u checkout the pdf i sent u? which had the fisher equation in dere..
salams

[IbnAbdulHakim]

keeping in midn that not all interest is riba....

jazakumallah khayr.. evidence please!
salams

interesting, can someone explain this?

[learningislam]

:salamext:

:sl:

sooo... can someone summarise this thread? I didnt really understand anything lol.

i second that......it would be a great help.

:wasalamex

[manaal]

salams btw sis manal.. did u checkout the pdf i sent u? which had the fisher equation in dere..
salams

Err no..... I decided it was a lost cause.... :confused:

[lolwatever]

Err no..... I decided it was a lost cause.... :confused:

:sl:
lol u mean the link didnt work or....:?
:w:

[learningislam]

:salamext:

CASE 2:

Suppose inflation is 2% (in simpel terms, at teh end fo the year, my money will be worth 2% less).

becasue when we lend money to someone.. we want to recieve teh same money we gave them... therefore:

i = 2 (becasue inflation is 2%)
r = 0 (becasue it's haram to make actual profit on the loan)

therefore:

n = i + r = 2 + 0 = 2%

therefore i am giong to charge 2% to offset the effect of value loss... but i'm not making any net gain, i'm just ofsetting the effect of value loss... hence i'm nto charging "real interest".

well....what i get is this ...... that if a person borrows $100 from me and she has to pay me back after 1 year.... and suppose at the end of the year the money value decreases by 20%.....that means $100 are now equivalent to $80......
in my case
inflation is 20%
i = 20 (becasue inflation is 20%)
r = 0 (becasue it's haram to make actual profit on the loan)
therefore:

n = i + r = 20 + 0 = 20%
therefore u say that if i charge 20% to offset the effect of value loss... i'm not making any net gain, i'm just ofsetting the effect of value loss... hence i'm not charging "real interest".

bro...i would disagree with you charging 20% nominal interest.What i think is, giving somebody loan is similar to keeping that money with you and not spending it. So at the end of the year, my money would be $100 which are worth $80.If i charge 20%, that would mean i am taking $120....contrary to what she had to give me...becoz...she had to give me $100.

One can only claim back exactly the amount which was given as loan. Anything other than that will be considered Riba, thus unlawful (Haram) and sinful.
It is akin to the situation where one places his money in a safe or money box and thereafter takes the money out after few years. It is obvious that the money which he will take out will be exactly the same as he put in. It will not increase or decrease due to inflation or deflation!

Now, suppose

CASE 3:

Let's assume there's DEFLATION (negative inflation).... I.E. in simple terms, the value of money is RISING in an economy... so lets plug some numbers

lets assume inflation is -2%, (i=-2%) and real interst is zero (coz that's haram), therefore... nominal interst :

n = i + r = -2%

now.. based on that, in order for me to not be making any 'real interest', i should pay back the borrower 2% of what he returns coz the value of money has increased...

but lets say i don't... i.e. we'll set n=0

n = i + r = -2 + r = 0

r = 2

therefore if i dont pay him back, i'm making a profit of 2%

doesn't that ring any bells?

here again....bro i disagree with you.......because the money you will get is not profit. If you hadnot given that money to the other person, the money was all yours....be it inflation or deflation.

Suppose......deflation is 20%......
that means....if the person gives me back $100.....as she had borrowed from me. But the $100 are now worth $120...so she should pay me back $80 as they would be worth $100. I dont agree with that again.......i should get back my $100....as i had given her $100. If i hadnot given her that money, and kept with me, would i end up with $80 at the end of the year...No.....so why would i get $80 instead of $100...

i completely agree with manaal's example.

BTW, this is just my opinion...i think its better to ask a scholar on this.
:wasalamex

p.s. MashaAllah bro i really appreciate your step by step explanation. You can be a good teacher...... JazakAllah khair

[lolwatever]

:sl:

salams sis LearningIslam

jazaks 4 ur analysis :), but i think the question is.

"Are you lending her the $100 paper, or the $100 value in money?" :)

If what you're lending her for the period of one year is the paper, then obviously yes she has to return the same 100 dollar paper (technically speaking i could make counterfeit money and return that to you and i'd be fine lol).

If what you're lending her is the value of money, then for her to return back to you the same value of money, it needs to be adjusted for inflation/deflation effects based on the example of mine you quoted.



Keep in mind in sahabah's time, they didn't have to worry about this, coz the beauty of gold standard, is that if i lend you 5grams of gold, i don't need to worry about inflation effects, because if there is inflation:

- It means that the price of goods have increased, and the value of money decreased. (that's why inflation happens).

- Therefore, if i sell gold as jewellery, it's more valuable then using gold as money.

- So i can melt my gold and make a ring out of it and sell it as jewellery.

- Hence i'll recover the same value of money i initially lent to the bro/sis in the beginning of the year ;)

Unfortuantely with paper money, if you return the same 100 dolalr note i initially lent you, i can't melt/burn it n sell the ash to get my value back :cry:






However, i'm not making any halal or haram judgemetns here, insahlah i'm trying to get through to the islamtoday guys... but they're always full :(

jazaks 4 the input! :D

:w:

ps: could u link me bak 2 sis manal's xample u referred 2?

[learningislam]

:wasalamex

"Are you lending her the $100 paper, or the $100 value in money?"

$100 in paper form..

If what you're lending her for the period of one year is the paper, then obviously yes she has to return the same 100 dollar paper (technically speaking i could make counterfeit money and return that to you and i'd be fine lol).

i gave her $100.....so i want the same thing back. Not the paper cut into the size of that..

ps: could u link me bak 2 sis manal's xample u referred 2?

here it is.....(its post #11)

Consider this example:
I have 100 pounds with me which I am hoping to buy a piece of furntiture with. But My sister borrowed 100 pounds. 2 months later, the price of the item has increased by 5%. So the value of the money has fallen by 5%. If I charge 105pounds from my sister would it be riba?

According to the hadeeth it is,

Unfortuantely with paper money, if you return the same 100 dolalr note i initially lent you, i can't melt/burn it n sell the ash to get my value back

well...i think i have a solution....whenever someone asks you to lend him some money.Suppose he wants $200 and will return you back in one year. So you just ask him to stand there....and rush to the gold shop.....and buy some gold coins or jewellery worth $200. and give that to the man with the receipt.
At the end of the year , he will give you back the money in gold form (now i am kinda confused in this part...will he give gold worth $200 or the original weight of the gold that was given to him)...now you can melt it and make up ur value back.

Caution: Do the above experiment at your own risk....coz i invented it rite now.....and i dont know if it makes sense or not.

:salamext: