Essential of Islamic Finance Assignment -1

Maliha Ahmed (3123)

MBA (M)

Submitted to: Mr. Farhan Mehboob

Date: 25. 09. 10

Topic: “Recent history of interest based banking”

Ans (a): Quranic Verses

The verses from Quran I would like to mention and explain about the dishonesty on interest based banking
system are from Surah e Baqra; ayaat # 275, 276 and 278.
According to my understanding it is stated that the money you have, should be rolling state that is it
should be in motion like if we give our money to somebody for business and he is getting profit from his
business and the profit he is getting from his business he is sharing some with us. This is what our banks
do. They invest our money somewhere and then pay us interest monthly on the bases of profit and loss.
I have also understood form the ayaats that those who stop and save their money from being invested and
give them to somebody with certain conditions of time and date to return it to them and if they are unable
to do so they will then become the owner of the poor man’s property.
It is stated that those who do such deeds are the followers of satin. They are evil who make profit when
someone is in his bad days of life.

Ans (b): Authentic Hadith.

(Sahih al-Bukhari, Volume 5, Book 58, Number 159.)
From Abu Burdah ibn Abi Musa: I came to Madinah and met 'Abdallah ibn Salam who said, "You live in a
country where riba is rampant; hence if anyone owes you something and presents you with a load of hay,
do not accept it for it is riba.

Explanation: A lender should not accept any excess (even in the form of gift) as part of or with the
repayment of the principal. It does not say anything about the borrower not to pay anything extra. Yet, this
hadith disallows the lenders from accepting anything extra in case of loans.

Ans (c): Da’ef Hadith.

(Sahih al-Bukhari, Volume 3, Book 41, Number 579)
Narrated Jabir bin Abdullah:
I went to the Prophet while he was in the Mosque. After the Prophet told me to pray two Rakat, he repaid
me the debt he owed me and gave me an extra amount.

Explanation: Every loan that attracts a benefit/advantage is riba. Without getting into the issue of
authenticity of any such narration, advocates of Islamic finance and banking commonly use such hadith. If
that is so, then there is no room for differentiating between loans with “stipulated” excess or voluntarily
paid extra. Citing the hadith “All loans with a benefit to the lender is riba” to justify that any loans with an
extra is prohibited, but then limiting it only to the loans with “stipulated” excess prohibited, to reconcile
the hadith that allow voluntary extra payments.