Turaths & Todays: Ba’i and Riba
(Class #3, Summary of the class)
Introduction
This lesson focuses on the topics of Bai’ (trade) and Riba in sale transactions. It continues the discussion on Bai’ from the previous lesson, and elaborates on the conditions required during a contract of sale. Additionally, the concept of Riba is explored in depth with references to classical Islamic texts.
Ba’i (البيع)
Conditions for Tradability of the Article (5):
The following are five essential conditions related to the Mal (item) that is to be exchanged in a sale contract:
- The item must be considered pure (tahir). If it is impure in its current state, it must be capable of being purified by washing.
- The item must have a recognised benefit according to divine jurisprudence.
- The item must be deliverable. Notes: In another print or kitab by Syaikh Ahmad ibn Umar Ash-Shatiri, the phrase is written: “عَلَى تَسَلُّمِهِ”, while in this kitab the phrase is written “عَلَى تَسْلِيمِهِ”. But they both have the same meaning.
- The parties involved must possess the legal authority to own and control the item to sell or purchase it.
- Both parties must know the item being exchanged, specifically regarding its identity (‘aynan), quantity (qadran), and characteristics (sifatan).
Conditions for the trade procedure (صيغة)
- The offer and acceptance must not be interrupted by a third party during the transaction. Any potential interruptions should be avoided.
- There should be no prolonged silence between the offer and acceptance.
- Both parties must agree on the meaning of the terms and conditions at the time the contract is signed.
- Conditional stipulations must be absent from the agreement.
- Once ownership of the asset is transferred, no further conditions may be imposed. For instance, if the seller states that the buyer may only use the item for ten years and must then return it, such a condition renders the sale invalid.
- If either party changes the terms or withdraws after the initial offer and acceptance, the contract becomes void, as consistency in the terms is required.
- The person uttering has to utter insofar as another person in his proximity can hear him.
- The person uttering his offer has to remain “fit” for trade until the end of the utterance of the acceptance by the other. “Fitness” here refers to the earlier condition of autonomous management (itlaqut tasarruf), which is a consequence of being baligh and aqil, plus no interdiction (‘adamul hajr alayhi), regardless of whether it is interdiction due to the self, interdiction by court or interdiction by Wali. Alternatively, we can say that each party must be legally capable of entering into transactions.
- The person initiating the transaction must express the intention to sell, for example by saying, “I sell this book to you for one hundred dollars.”
- The recipient must respond directly to the seller; a third party cannot respond on their behalf.
- The seller must mention the price of the asset. According to the Shafi’i Madzhab, stating the price is obligatory.
- The utterance must be directed clearly and entirely to the buyer, with a direct and complete expression such as, “I sell this asset to you for one hundred dollars.”
- The utterance must be intentional and meaningful; one cannot utter words of sale without genuinely intending them.
Example of Trade Procedure
Questions
1. Can the Conditions of Sale be Fulfilled by Signing a Signature?
The conditions previously discussed are based on the Shafi’i school of thought. In modern transactions, payments are often made through electronic systems or confirmed by signatures. For example, in online shopping, a clear ijab (offer) and qabul (acceptance) are typically present. As long as these two elements (Shighah) are evident and mutually agreed upon by both parties, the transaction is considered permissible. However, the delivery of the exchanged assets must not be delayed. A transaction in which both payment and delivery are deferred is not valid according to the principles of a valid sale contract. In Arabic, it is called Bai‘ al-Kali’ bil-Kali’, which refers to a type of sale contract in which both the item being sold and the payment are deferred. In other words:
- The goods were not delivered at the time specified in the contract.
- The payment is also not made at the time of the contract.
- Both delivery and payment are postponed to a future date.
- The wheat is not delivered at the time of the contract.
- The money is not paid at the time of the contract.
- Everything is deferred.
نَهَى رَسُولُ اللّهِ عَنْ بَيْعِ الكَالِي بِالكَالي
“The Prophet ﷺ prohibited the sale of debt for debt.”
(Narrated by al-Daraqutni and al-Bayhaqi).
- There is no guarantee the goods will be available later.
- There is no guarantee the payment will be made.
- It opens the door to dispute or deception.
2. Is the Sale of Manure Permissible Since It Is Not Clean?
If the item has a recognised beneficial use and is considered valuable to certain parties, its sale is permissible. Although the item may not be physically clean, the utility and benefits derived from it justify its permissibility in trade.
Riba (الربا)
Allah has permitted trade but prohibited riba (usury).
This principle is clearly stated in the Qur’an and is emphasised through several stages of revelation.
The Prohibition of Riba in the Qur’an Occurred in Four Stages:
- Surah Ar-Rum (30:39) – This verse introduces the concept that wealth gained through riba does not increase in the sight of Allah, highlighting its spiritual futility.
- Surah An-Nisaa’ (4:161) – Condemns the Jews for their consumption of riba despite its prohibition, marking an early legal censure of the practice.
- Surah Aal Imran (3:130–131) – Muslims are explicitly warned not to consume riba, especially in multiplied amounts, and are urged to be mindful of Allah.
- Surah Al-Baqarah (2:275–281) – Provides the most detailed and final prohibition, clearly distinguishing between trade and riba, warning of war from Allah and His Messenger against those who persist, and urging believers to give up any outstanding riba.
Types of Riba
1. Riba An-Nasi’ah (also known as Riba Ad-Duyun): This type of riba refers to any increase or benefit on a loan that is conditional upon repayment.
Hadith:
“كُلُّ قَرْضٍ جَرَى مَنْفَعَةٌ فَهُوَ وَجْهٌ مِنْ وُجُوهِ الرِّبَا“
“Every loan that draws a benefit is a form of riba.”
(Narrated by Al-Bayhaqi).
This hadith suggests that if a loan yields any form of benefit for the lender, such as additional money, services, or other advantages, it is considered riba and is therefore prohibited.
2. Riba Al-Fadhl (also known as Riba Al-Buyu’): This type occurs in exchanges of the same kind of commodity, where inequality in amount or delay in delivery exists.
Hadith of the Prophet Muhammad ﷺ:
عن أبي سعيد الخدري رضي الله عنه قال:
قال رسول الله ﷺ:
“الذَّهَبُ بِالذَّهَبِ، وَالْفِضَّةُ بِالْفِضَّةِ، وَالْبُرُّ بِالْبُرِّ، وَالشَّعِيرُ بِالشَّعِيرِ، وَالتَّمْرُ بِالتَّمْرِ، وَالْمِلْحُ بِالْمِلْحِ، مِثْلًا بِمِثْلٍ، سَوَاءً بِسَوَاءٍ، يَدًا بِيَدٍ، فَإِذَا اخْتَلَفَتْ هَذِهِ الْأَصْنَافُ فَبِيعُوا كَيْفَ شِئْتُمْ، إِذَا كَانَ يَدًا بِيَدٍ“
(رواه مسلم)
“Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt—like for like, equal for equal, and hand to hand. But if they differ in type, then sell as you wish, provided it is hand to hand.”
(Narrated by Muslim).
This hadith forms the basis for the prohibition of riba in barter-like transactions involving ribawi goods, where the conditions of equality and immediacy must be met to avoid falling into the prohibited transaction.
Definition of Riba
Riba linguistically carries the meaning of “increase, compound, multiply”.
However, the terminology in divine jurisprudence is a contract of exchange wherein:
- Unknown equivalence is present by the standard stipulated by divine jurisprudence during the consummation of the contract.
- Deferment in one of the two exchanged articles or both.
Ruling on Riba: Forbidden
- Gold and silver (or their monetary equivalents), and
- Certain food commodities (like wheat, barley, dates, and salt) require specific conditions to be fulfilled for equality and immediate exchange.
Failure to meet these conditions, such as a delay in delivery or inequality in quantity, renders the transaction invalid due to the presence of riba.
The topic of riba is introduced immediately after the discussion on bai‘ (sale), because when conducting a sale involving amwal ribawiyyah (ribawi assets), the rules and conditions of riba must be observed, like the conditions below:
Three Conditions for a Valid Exchange of Gold for Gold or Silver for Silver
For an exchange involving gold for gold or silver for silver to be valid in Islamic law, the following three conditions must be met:
The transaction must occur on the spot, with both parties taking and giving possession during the same session. A delay in either payment or delivery renders the transaction null and void.
Each party must have possession of the asset at the time the contract is made. This ensures that no speculative or uncertain element (gharar) exists in the transaction.
The exchange must be made in equal quantity, regardless of quality or market value. For example, if one exchanges Safawi dates for Ajwa dates, both must be 1kg for 1kg—even if the Ajwa is considered superior.
An incident illustrates this principle during the time of the Prophet Muhammad ﷺ, in which two parties exchanged 2 kg of dates for 1 kg of higher-quality dates. The Prophet ﷺ ruled this as riba, due to the inequality in quantity.
This third condition applies mainly to food items and other ribawi goods, where exchanges are based on weight or measurement. However, for gold and silver, while equality must still be maintained, the unit of comparison may differ due to their monetary function.
Two Conditions for a Valid Gold-for-Silver Exchange
According to the Shafi‘i school of thought, there are two distinct conditions for the validity of an exchange between gold and silver. Other schools of jurisprudence consider the second condition to imply the first, and thus only emphasise one.
However, in the Shafi‘i madzhab, the following two conditions must be fulfilled:
There must be no delay in payment or delivery; both parties must exchange the items immediately.
The deal must be concluded within the same sitting, without any interruption or postponement.
Types of Possession in Transactions
This refers to the physical taking of possession by the buyer at the time of the transaction. For example, the buyer immediately receives and takes control of the asset.
Constructive possession occurs when the buyer gains ownership and control over the asset without physically taking it at that moment.
For instance:
- A seller promises to deliver 10 kg of gold but only has 1kg at hand. If he can prove that the remaining 9 kg is in his possession elsewhere and officially transfers ownership to the buyer during the transaction, it is considered a validtransaction.
- In the case of purchasing property, although the transaction might occur in a different location, the buyer is granted ownership and control over the asset, thus fulfilling the condition of constructive possession.
Different Forms of Riba
Illustration 1: Gold for Gold (Riba al-Fadl)
A gold ring is exchanged for twice its weight in gold (e.g., a 100g ring traded for 200g of raw gold). Despite the added craftsmanship, this transaction is considered riba, as exchanges involving gold must be strictly based on weight and not artistic value.
Illustration 2: Deferred Sales (Riba al-Qarḍ)
Selling wheat with deferred payment, where delay exists in both delivery and payment, constitutes a form of riba due to the presence of uncertainty and unjust gain.
Illustration 3: Incomplete Exchange (Riba al-Nasi’ah)
Two parties agree to exchange an equal amount of a ribawi item, but they part ways before completing the handover (No taqabudh). This delay in exchange renders the transaction invalid and falls under riba al-nasi’ah.
Riba Al–Jahiliyyah
A form of riba not elaborated in the primary texts is riba Al–Jahiliyyah, as discussed by Imam al-Zarkasyi. This occurs when a loan is extended with a condition that the borrower must repay more than the original amount, either immediately or after a delay. It was a common practice during the pre-Islamic era and is strictly prohibited in Islamic law.
OIC Resolution on Riba
The Organisation of Islamic Cooperation (OIC) issued an important ruling on the issue of riba, specifically in Resolution No. 21 (9/3) about Shariah Rulings on Paper Money and the Changing Value of Currency (11-16 October 1986).
This resolution affirms the prohibition of all forms of interest (riba) in financial transactions, whether in loans or trade-based contracts. It reasserts that riba is incompatible with the principles of Islamic commercial jurisprudence.
Resolves
First: Shariah Rulings on Paper Currencies
Paper currencies are recognised as legal forms of money, possessing all the necessary characteristics of value. Therefore, they are subject to the same Shariah rulings applied to gold and silver, particularly concerning riba(usury), zakat, salam contracts, and other financial transactions.
Second: Changing Value of Currency
The issuance of a formal ruling regarding the fluctuating value of currency has been postponed, pending comprehensive studies. The topic is to be reconsidered in the fourth session of the Academy.
The Issue of Insurance in Conventional Finance
In conventional insurance, a customer pays a premium to an insurance provider in exchange for coverage. A fundamental issue arises: What is actually being purchased, given that the coverage is deferred and uncertain? Is it something permissible in Islam or not?
After the premium is paid, the funds are transferred to the insurance company, which then invests them. A further concern is whether these investments comply with Shariah principles.
Contemporary Islamic Views on Insurance
- Sheikh Ali Goma’a
- Dr Mustafa al-Zarqa
- Sheikh Ali al-Khafif
- Dar al-Ifta’ (Egypt)
On the other hand, cooperative (takaful) insurance is widely regarded as Shariah-compliant. It involves a mutual arrangement where members of a group insure one another.
This model has been deemed permissible by:
- The OIC Fiqh Academy (2016)
- The Conference of Islamic Scholars at al-Azhar (1965)
- AAOIFI (Accounting and Auditing Organisation for Islamic Financial Institutions, Bahrain)
- OIC Fiqh Academy
- SAC of Bank Negara Malaysia & Securities Commission (Malaysia)
- Sheikh Gad al-Ḥaqq Ali Gad al-Ḥaqq
- Dr Ḥusayn Hamid Ḥassan
MUIS (Singapore) Fatwa and Irsyad on Insurance
The Majlis Ugama Islam Singapura (MUIS) issued a fatwa without conducting an extensive review of all insurance models. Therefore, the decision was left to individual discretion rather than issuing a definitive ruling.
About the CareShield Life scheme, MUIS issued an irsyad or advisory opinion due to differing scholarly views. During the COVID-19 pandemic, MUIS also issued an irsyad permitting the purchase of conventional insurance for Hajj pilgrims, considering it a necessity.
مَا لاَ يَتِمُّ الوَاجِبُ إِلَّا بِهِ فَهُوَ وَاجِبٌ
“Whatever is necessary to complete a religious obligation becomes obligatory itself.”
Explanation:
This legal maxim states that if the performance of an obligatory act cannot be completed without another supporting action, then that supporting action is also considered obligatory.
Insurance in Malaysia
Malaysia’s Shariah authorities (such as Bank Negara Malaysia’s Shariah Advisory Council or SAC) allow the use of certain conventional insurance contracts when:
- There is no Shariah-compliant (takaful) alternative available.
- There is a genuine, immediate necessity (e.g., medical emergencies, legal obligations, etc.).
- The intent is not to seek profit but to protect life, health, or property.
- The principle of avoiding greater harm (mafsadah) justifies the contract.
Application Example
- Employer-mandated insurance.
- Government travel policies (e.g., for Hajj or Umrah).
- Urgent health protection when no Shariah-compliant option is available.
Parameters of Darurah (Necessity) in Islamic Jurisprudence
الضَّرُورَةُ تُقَدَّرُ بِقَدَرِهَا
“Necessity is measured according to its extent.”
Explanation:
This principle means that when something normally prohibited becomes permissible due to necessity, the permissibility is restricted strictly to the level required to remove the harm. One may not exceed what is needed.
Some transactions that involve uncertainty or are not typically permitted may be considered valid under the concept of darurah or necessity. For instance, in Malaysia, the sale of guarantees is allowed under this principle due to the understanding that it fulfils an urgent need.
The conditions for a situation to be considered darurah are as follows:
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- The necessity must be real and immediate, not something anticipated in the future.
- There must be no other halal or lawful alternatives available.
- There must be a valid and justifiable reason, such as the need to protect life, health, or family.
- The action must not contradict fundamental principles of Shariah, such as the prohibitions against murder or fornication.
- The action taken must be limited strictly to what is necessary to remove the harm or address the situation.
https://islamicfinance.sg/muamalat-essentials-summary-2/
