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Response To 23 Questions – Part 23 Interest/usury
Clarifications required regarding session: “Response to 23 questions – part 23 Interest/usury” Dated Oct 01, 2020
With reference to above session, following clarifications are required :
1. In principle secured financing, is it not unjust that profit will be shared by both the parties but loss will be on investee only, not the investor? It will make capitalist/financer more and more rich because of zero risk while investee or business entity will suffer. It will eventually lead to income inequality in the society.
2. In principle secured financing, is it not unfair that expected rate of return is fixed in advance as ghamidi sb proposed? If the actual rate of return is low, it will again favor the capitalist/financer and will be unjust to the investee or business entity.
3. In case of credit card loan, it was said that if the bill is paid within a proposed time, no additional amount is charged. After the deadline, additional amount charged is “Penalty”, not “Riba”.
Why can’t that be said for all the loans? Interest charged after a specific time can be called “penalty” instead of “riba” in every case!
Regards
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15 Replies
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Response To 23 Questions – Part 23 Interest/usury
updated 4 years, 1 month ago
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15
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Assalamualikum!
Before getting to the individual points posted by you, one thing should remain clear that all these points are actually matter of application for which one principle was clearly mentioned by Ghamidi Sahab, that they should all observe justice in them. However, the application of justice in these arrangements is a matter of detailed study and analysis, which was not the focal point of this recent discussion that you referred to. The thing that was concluded in the program was that these are the kind of arrangements which take riba out of them and only thing one needs to worry now is application of justice in these arrangements (whether it be Principal-Secured Financing or Estimated Average of Profit and Loss).
Now coming to the points raised by you:
1) Financings done by banks are not blind financings. They involve a robust feasibility along with projections of profit and loss supported by financial statements of previous years (sometimes audited and sometimes otherwise). It is only after these studies, does a financing is approved (the detailed requirements differ for individuals and for companies, but the underlying objectives of those activities remain the same) . Therefore, technically when a bank reduces its financing risk, it usually indicates that project/business is feasible and is going to earn the required return. Hence, principal-secured financings will only make an investor rich if a business actually earns and makes a profit otherwise there is no inventive from an investor’s point of view (only having his principal back is not a very incentivizing situation for the investor). It will actually have an opposite effect, it will give incentive for both investor and the proprietor to make the right decisions, to work hard and make more profit.
2) Regarding fixing of an average rate of return by both parties. It is an estimated average, which both can agree will be reviewed on a half-yearly or a yearly basis and the rate will be adjusted upon review depending upon the actual financial results of the business (and even they both can agree to perform a retrospective adjustment based on actual results). Therefore, fairness can be assured in this regard as well and a proprietor would not be in at losing-end here.
3) Regarding the credit card loan, it is not technically a loan, it is in effect a payment made on consumer’s behalf. The bank is actually offering you a service of making payment on your behalf (not handing you over money as a loan). Therefore, just the way all other service providers charge for their services (like electricity and others), the bank is also charging for its service. And once you fail to pay for that service in due time, you’re required to pay surcharge for late payment. The term late surcharge for a proper loan arrangement actually contradicts that whole arrangement in which the amount charged over and above the principal is actually amount charged for providing service of lending money to the consumer. And it is this exact service of lending money, for which amount charged over and above is called riba. Therefore, credit card services and lending services are two separate services and former has more similarities with other ordinary day services like electricity and others (not exactly the same, but more inclined towards them).
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Thankyou for your reply. You have cleared my second point by saying that after review, profit will be shared based on actual rate of return rather than pre determined expected rate of return. My other two points are however not cleared.
1. Regarding principled secured financing, you said that financing is approved only after robust feasibility studies and profit loss projections. It has nothing to do with my query. From a moral prospective, if an investor is involved in profit sharing of a business, it should also bear the loss as well. Ghamidi Sb gave two reasons for his claim that why loss will not be shared by investor: 1. Investors are not directly involved in business decision making. 2) It is not possible for investors to accurately determine profit and loss. Since investor is already involved in profit sharing, these two reasons are not valid.
Furthermore, investor will always either get his investment back (in case of loss) or will get the profit. He will never bear loss. This model will favor the capitalist instead of working class and will lead of huge income disparity.
2. Regarding credit card loan, if i buy consumable stuff like food from credit card and im unable to pay back within the deadline, then the penalty imposed is “Riba” in my humble opinion.
If i give loan to any person and fix a deadline, he will also purchase stuff from that money becasue money itself serves no purpose so there is no difference in giving 500 bucks to Mr. X and in purchasing a consumable item worth 500 bucks for Mr. X. Both scenarios are considered loan.
Surcharge in the case of Electricity bill is different. They have a right to disconnect our electricity if the bill is not paid within the deadline, still they continue to provide us service, hence penalty is taken. In the case of credit card, no service is provided after the deadline in case of non payment.
Regards
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If the credit card loan is not loan and only a purchase service, why no amount is charged against the provided service if the payment is made within the deadline.
If a service is provided in a business, it is always charged. No service is provided for free.
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So you want to stop others from offering free services? On that principle, masjids should start asking for money to pray, charity organizations should ask you to pay before they can extend you any help, oh and by the way, how much money you paid to post your question on Ask Ghamidi?
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I said services provided in a business setup are never free. Ghamidi Sb himself said it atleast twice in the program that purpose of services provided by bank is to earn money. Masajid, NGOs and AskGhamidi are not profit oriented business entities.
My point was that if credit Card was only a “payment making service” and not “Money lending service”, it would have charged it’s client for the service regardless of whether the bill is paid within the deadline or not. Fact of the matter is that it’s a money lending service and it charges interest after a specified time.
There is a strong reason for universal consensus that credit card provides “loan” and charges “interest”.
P.S I wasn’t expecting such a harsh personal attack from any member of this group, let alone moderator.
Kind Regards
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I don’t see any harshness or personal attacks there. Please read my message again – it’s only discussing the point, not your personality.
There’s no weight in the argument that if credit card was a payment making service, it would have charged for that service. Things are not that cut and dry in businesses. A lot of businesses have innovative models, and a lot of commercial organizations offer free services as part of those models. We don’t pay Youtube to watch videos, Facebook to connect with our friends, or G-mail to send out emails. They’re all commercial businesses, but these free services are ingrained in their businesses models.
The “strong reason” you mentioned has to be brought to light. So far I don’t see any.
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Inorder to stick to the topic, let’s not deviate and try to get down to the core of it.
I’ll give you two scenarios. Please explain the difference between the two.
1. Money lending service: I give you 1000 USD as a loan along with a deadline. I charge you nothing if you return the amount within the deadline. After the deadline, i charge 10% of the amount in addition to the principle. This is “riba”.
2. Credit Card Service: I buy you some consumable stuff worth 1000 USD (Payment made on Customer’s behalf). I charge you nothing if you return the amount within the deadline. After the deadline, i charge 10% of the amount in addition to the initial payment. How is this not Riba?
Regards
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Please provide a basis for your point #1 in the light of reason and rationality, or a proof from the Quran or sunnah.
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Quran has forbidden eating Riba. “Lending of money for profit” is Riba. This is an agreed upon definition.
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I didn’t ask for what’s agreed upon by some humans. I think that my question was very clear.
Even what you stated is not an agreed upon definition of riba. You can do your own research. I can tell you from personal experience that after spending dozens of hours myself, I couldn’t even come up with a single definition of riba that was accepted by even a majority of our classical and contemporary big name scholars.
Murabaha, for example, in fiqh allows for cost plus financing payable in installments. Why is the plus part not riba?
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Ghamidi Sb made it clear multiple times in these episodes that there has never been any ambiguity or conflict in the meaning of riba. There is a consesus that riba means sood and sood means “Qaraz per manfi’at ka mutaliba”.
I asked my questions in the light of that consensus mentioned by Ghamidi Sb.
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And he also stated that credit card is not “qarz”.
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Yes. That’s why i asked you to educate me how is it not qarz by showing me the difference between the two scenarios i posted above.
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My friend, in your first scenario you have made an assumption, which really has no basis.
I think if you do a bit of independent research on the topic of riba, you will be able to understand and appreciate what Ghamidi sahab is proposing at a much deeper level.
In our rich history of jurisprudence and scholarship, things on this topic are much more complex than what meets the eye. It’s true that everyone agrees that demanding an additional amount on loan is riba, but the devil is in the details. When it comes to application, there are more conflicts and contradictions then I can possibly list here. I gave you an example of murabaha above.
What Ghamidi sahab is suggesting is that for the most part, things have evolved. The nature of business now is very close to what the Muslim scholarship and the banking industry already agree upon. With a few modifications on either end, we can make this work.
At any rate, I sent over your original questions to be asked directly to Ghamidi sahab. He entertained those questions in the Q&A part of his Meezan lecture today. The link to that will be posted on this discussion shortly, I hope that it helps.
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In recent Q&A Session with Ghamidi Sahab on Questions selected from ASK GHAMIDI Platform:
(i) Credit card late surcharge, why can’t the same late surcharge be imposed in case of ordinary lending activities?:
For answer, please refer to the video below from 1:05:40 to 1:08:25
(ii) Principal-secured financing seems an unfair arrangement and will only favour the capitalist?:
For answer, please refer to the video below from 1:08:26 to 1:10:00
(the thread will be closed; feel free to start a new topic if you have any follow-up questions)
Sponsor Ask Ghamidi
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