A Broader Definition of Riba

The paper analyzes different interpretations of riba and discovers that the main source of confusion about the concept has been misunderstanding of riba in hadith in general and riba in barter exchange with a time lag, hereafter called riba in barter loans, in particular. A majority of jurists has, so far, either overlooked riba in barter loans or has included it in the category of trivial riba. That is why riba is confined to a contractual increase on the principal in a loaning deal. On the contrary, the main finding of this research is that riba in barter loans, which is clearly evident from many ahadith, also falls in the category of real riba. It emerges when any of the six commodities; gold, silver, wheat, barley, dates and salt, are barter exchanged with a time lag in equal or unequal measures. The reason for this prohibition is that the possibility of change in the price of underlying commodity creates undue uncertainty for both parties of the exchange. It is therefore recommended that barter exchange with a time lag of all those commodities whose relative prices normally change in short periods should be subject to riba in barter loans. In context of modern financial system, it is opined on the reasoning of analogy that trading of stocks, which serve as the subject-matter of joint stock businesses, should also be treated as riba in barter loans. However, if some method of exchanging stocks on their par value is worked out, then their exchange should be exempted form riba in barter loans. The paper is divided into five sections. First section is for introduction of the paper. It points out lack of consensus about the definition of riba and, thus, emphasizes the need for further probing into the subject of riba. Second section puts together selected commandments from Quran and hadith on the topic. Third section critically evaluates current interpretations of riba. In section four a broader definition of riba is proposed. Last section presents a summary of the whole paper.