Get to know the Law of Riba

What is Riba: Definition, Types, Examples and Laws in Islam

Riba is a term that may be familiar to the ear. In Islamic Sharia, the law of usury is illegal.

Riba is a term derived from Arabic which means excess or addition. However, in the context of Islamic Sharia, the meaning of usury is to focus on excess principal debt.

The benefits of principal debt are what distinguishes usury from buying and selling transactions known as ribhun or profit. Where the excess comes from the difference in buying and selling.

Riba is the interest

Simply put, usury is an addition required and received by a lender in exchange for a borrower.

While referring to the Big Indonesian Dictionary (KBBI), other terms for usury are monetary interest, loan sharks or rent. 

In today's commercial transactions, usury is synonymous with interest. The amount of interest refers to a certain percentage charged to the borrower.

Islam strictly prohibits its people from making purchase and sale transactions and debts if it contains usury. This prohibition is also written in several verses of the Quran and hadiths.

Riba Law

Riba's law is illegal. Quoted from the Fatwa of the Indonesian Ulema Council Number 1 of 2004 regarding interest, usury is a surcharge (ziyadah) without compensation that occurs due to a delay in previously agreed payments. This type of wear is then called riba nasi'ah.

Meanwhile, interest is an additional fee charged in a money lending (qard) transaction that is calculated from the principal without considering the use or return of the principal, based on the due date and percentage in advance.

The interest law, according to the MUI, is supposed to meet the criteria of usury, namely nasi'ah usury. The practice of interest which is included in the category of usury is illegal whether practiced by banks, capital markets, pawnbrokers, cooperatives and other financial institutions.

Some of the arguments used by the MUI for the prohibition of interest as usury are verse 130 of Quran Al Imran surah, a hadith narrated by Muslim and a hadith narrated by Ibn Majah.

Furthermore, the argument used by the MUI to prohibit bank interest as usury is the opinion of scholars, including Imam Nawawi (al-Majmu), Ibn al-Araby (Ahkam Quran), al- Aini (Umdah al-Qari) and Muhammad Abu Zahrah (Buhuts fi al-Riba).

According to the MUI, interest on loans (qardh) which applies above is worse than usury, which is prohibited by Allah SWT in the Quran, as an additional riba is imposed only when the borrower ( indebted) is unable to repay the loan when due. Meanwhile, in the additional interest system, it was directly charged from the transaction.

Types of wear

1. Riba fadl

In riba fadl, usury is the activity of buying and selling transactions or the exchange of goods that generate usury, but with different amounts or doses.

An example of fadl usury is exchanging a sheet of Rp. 100,000 denominations for 11 coins of Rp. 10,000 denominations, aka the value is Rp. 110,000, so there is an excess of Rp. 10,000.

2. Yad Riba

In this type, wear and tear is the result of buying and selling transactions as well as the exchange of goods that produce wear or non-wear. However, the time of receipt of the handover of the two goods has been delayed.

An example of yad usury is when someone buys a car in cash for IDR 100 million, but when someone decides to buy it on credit, the price is IDR 120 million.

3. Riba nasi'ah

In nasi'ah, usury is the benefit gained from buying and selling transactions within a certain period of time. The transaction uses the same two types of goods, but there is a delay in payment.

An example of nasi'ah usury is a person lending gold bars to a friend, but he asks for them to be returned to him in cash the following year. But because the price of gold increases in the future, the friend will have to pay a higher value.

4. Riba qardh 

In qardh type, usury is the additional value generated as a result of repayment of principal debt with several demands from the lender.

An example of qard riba is when a bank gives a loan of IDR 100 million and then the customer or debtor has to repay it with 12% interest within 24 years of the installments.

5. Riba jahiliyah

In ignorance, usury is an additional or excess amount of debt repayment that has exceeded the principal of the loan. Usually this happens because the borrower is unable to pay it on time according to the agreement.

With the arguments mentioned above as well as the opinion of scholars, the law of usury is illegal. Riba is a prohibited transaction in Islam. Do you understand what wear is?