Riba

[Abdullah-Basit]

Assalam-u-alaykum,

Lately I've given the topic a lot of thought (i.e. riba or 'Usury'). I'm a little confused regarding one matter. I know that asking for more money back than given in the first place is haraam; however, I am confused about trade between two people:

Suppose person A sells a product to person B;however, person A sells his or her product at a higher price than the cost. In this situation, wouldn't the net effect still be the same as Riba since person A is recovering not only the original cost of his or her product, but is also gaining a profit from it?

I know almost intuitively that a person who wants to seek a profit from trade is permissible, but after giving this matter a lot of thought, I am now confused.

If anybody can help clarify this for me, that would be greatly appreciated.

Thank you,

Wa-Sallamu-alaykum.

 

[Abdullah-Basit]

Riba and trade question

Asalamualaykum,

From what I know, Riba is essentially a money rental wherby Person A loans Person B some amount of money and expects back the original amount plus a rental fee (i.e. interest).

I'm confused about trade. If person A sells an item to person B at a price which exceeds the cost of the product, wouldn't the net effect still be Riba? I mean, by selling the product, Person A recollects the cost of buying the item and gains an excess after. So in the end, Person A is truly better off than person B.

Perhaps there is something faulty in my reasoning, but I would just like for somebody to clarify this for me.

Thank you,

Wasalamualaykum.

 

[aamirsaab]

Re: Riba and trade question


Part 1:
Ok first of all, riba is to do with interest. Profit made on sales of good is not riba - it is profit, without which you'd end up running out of business!

Now, if you are loaning someone £100, then that person should pay you back £100. Why should they be charged any extra? Loans aren't there to make a profit - that's what the riba issue is in Islam. It prevents you from making profit on a loan - which is actually very ethical if you think about it.

*********************************
Part 2:
If you want to take a more advanced approach and include inflation into the equation:
Let's say the value of money increases/decreases. So 20 p is now worth 40 p(inflation rates went crazy). That person who I lent 20 pence to should:

A) try and pay me before the value of money changes (at the time when 20p was still valued as 20p and not 40p)
B) If not, then pay me back whatever the value they were contracted to. So if the contractual obligation was they have to pay me exactly 20 p back, then 20 p is all they have to pay (even if 20 p is now worth 40). Now initially this looks like profit, but that's why I said it depends on what the contract stated; if it says explicitly what amount is needed to be repaid, then you are honour-bound to repay that exact amount since that is what both parties agreed on.

However, if the contract stated ''to the value of 20 p'', then they'd have to pay me 10 p (as that is now the value of 20 p after inflation rate has changed) or whatever the value of 20 p is when they pay (the value of money fluctuates a lot; 20 p can be worth 19 p one day and 22 the next...sometimes even in the same day).

Again, any increase in the value of the money will not equate to riba since both parties are contracted ''to the value of'' (the contract becomes honourbound and thus overules riba in this case as both parties have accepted and agreed to the contract). Though, it would technically be counted as a profit/loss and as such you really should encourage your debtor to pay the money back before the value of money changes (see point A above)

This is just extra information in case you/anyone else wanted a follow up explanation that included additional variables such as what if value of money increases/decreases. Your actual question was answered in Part 1 (above the line of asteriks)

Hope that helps.

 

[muddasir]

Waalikumasalam

well brother i have a very little knowlege but what i can say is that the deal you mention is allowed because persons is not excahging the same thing/commodity in excess

for example
you cannot exchange 100 rupees for 90 rupees
you cannot exchange 1kg of rice with 0.8 kg of rice

but if the commodity is different while exchangin this you are earning profit its not riba.

May Al-Mighty Allah forgive me if i wrote somthing wrong

Assalam-u-alaykum,

Lately I've given the topic a lot of thought (i.e. riba or 'Usury'). I'm a little confused regarding one matter. I know that asking for more money back than given in the first place is haraam; however, I am confused about trade between two people:

Suppose person A sells a product to person B;however, person A sells his or her product at a higher price than the cost. In this situation, wouldn't the net effect still be the same as Riba since person A is recovering not only the original cost of his or her product, but is also gaining a profit from it?

I know almost intuitively that a person who wants to seek a profit from trade is permissible, but after giving this matter a lot of thought, I am now confused.

If anybody can help clarify this for me, that would be greatly appreciated.

Thank you,

Wa-Sallamu-alaykum.

 

[yass]

you cannot exchange 1kg of rice with 0.8 kg of rice

Would that still be the case if the rice were of different quality?

i.e. not exactly the same ?

 

[rpwelton]

Assalam-u-alaykum,

Lately I've given the topic a lot of thought (i.e. riba or 'Usury'). I'm a little confused regarding one matter. I know that asking for more money back than given in the first place is haraam; however, I am confused about trade between two people:

Suppose person A sells a product to person B;however, person A sells his or her product at a higher price than the cost. In this situation, wouldn't the net effect still be the same as Riba since person A is recovering not only the original cost of his or her product, but is also gaining a profit from it?

I know almost intuitively that a person who wants to seek a profit from trade is permissible, but after giving this matter a lot of thought, I am now confused.

If anybody can help clarify this for me, that would be greatly appreciated.

Thank you,

Wa-Sallamu-alaykum.

The concept of usury can be illustrated in the following example:

Suppose you have 2 people selling bags of rice. The two bags are exactly the same in every way, and Merchant A sells his for $80 and Merchant B for $80. Merchant B requires full payment upfront for the rice, but Merchant A allows you the option of paying over time, whereby his bag of rice would cost $100.

It's clear here that the premium in price on Merchant A's bag of rice is due to nothing else EXCEPT for the privilege to pay over time. In this case, the extra $20 you pay is not value derived from the product itself, but being able to pay in installments (ie, he is lending you money).

This is the very essence of usury; you are using money to make money.

Trade, on the other hand, is different, for Allah SWT says in the Qur'an:

"Those who swallow down usury cannot arise except as one whom Shaitan has prostrated by (his) touch does rise. That is because they say, trading is only like usury; and Allah has allowed trading and forbidden usury. To whomsoever then the admonition has come from his Lord, then he desists, he shall have what has already passed, and his affair is in the hands of Allah; and whoever returns (to it)-- these arc the inmates of the fire; they shall abide in it." - The Holy Qur'an 2:275

"O you who believe! do not devour your property among yourselves falsely, except that it be trading by your mutual consent; and do not kill your people; surely Allah is Merciful to you.” - Holy Qur'an 4:29

We can see in this verse that Allah SWT cleary points out how we should increase our wealth. He has allowed trade, and forbidden usury. So to buy a bag of rice for $50 and sell it for $80 is permissible (so long as you are not taking advantage of someone or price gouging, etc). But to add another premium and allow people to pay over time, this is not allowed. You can allow someone to pay in installments, so long as you do not increase the price of the good because they are paying over time.

So, in conclusion, as long as your business is halal, then it is permissible to make a profit, so long as that profit is due to trading and not because you are lending someone money.

If I have misspoken, may Allah SWT forgive me and I hope others will correct me.

 

[...]

you cannot exchange 1kg of rice with 0.8 kg of rice

Would that still be the case if the rice were of different quality?

i.e. not exactly the same ?

A sahaba did this in the time of the Prophet (saw)- he sold some dates for less lower quality dates and the Prophet (saw) who told him that this is the essence of riba.