Friday Notes From The Quran 13 Jan 2023 Riba

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 Non Muslims may find this unfamiliar but may I request that you read this. It is actually quite simple. 
I have not posted any Friday Notes from the Quran for a couple of months now. I will be continuing the column. A reader recently sent me the following (terima kasih):

Assalammualaikum Tuan Syed,

Semoga tuan sentiasa berada dalam keadaan sihat dan di dalam rahmat Allah.

Tujuan saya emel adalah untuk mendapatkan pandangan Tuan mengenai Riba di dalam Islam. Lagi2 berkenaan pinjaman kereta atau rumah melalui bank. Adakah ia termasuk di dalam  kategori Riba? Hatta walau pun pinjaman itu daripada bank yang berkonsepkan Islam.

Harap Tuan dapat menjelaskan serba sedikit pandangan Tuan mengenai hal ini di dalam blog Tuan berdasarkan apa yang tertulis di dalam Al Quran. Lebih2 lagi berkenaan ayat Al Quran dari surah Al Baqarah ayat 275-281.

Saya rasa macam sudah agak lama Tuan tidak blog mengenai Al Quran tiap Jumaat seperti yang pernah dilakukan sebelum ini.

Terima kasih 
My Comments : Terima kasih sdra. Saya akan cuba menunjukkan beberapa ayat Quran berkenaan perkara ini.
First of all here are some comparisons between 'Islamic banking' rates and conventional banking rates in Malaysia.
First of all lets look at some fixed deposit rates (time deposits) between conventional banking and 'islamic' banking. These time deposits are both from Maybank.
First here is Maybank's islamic fixed deposit rates:





https://www.maybank2u.com.my/maybank2u/malaysia/en/personal/accounts/fixed_deposits/islamic_fixed_deposit.page

1 month       2.45 %
2 months     2.65
3 months     2.70
4 months     2.70
5 months     2.70
6 months     2.80
7 months     2.80
8 months     2.80
9 months     2.80
10 months     2.80
11 months     2.80
12 months     2.85
13 - 35 months     2.85
36 - 47 months     2.90
48 - 59 months     3.00


Then here are Maybank's conventional fixed deposits rates:
https://www.maybank2u.com.my/maybank2u/malaysia/en/personal/accounts/fixed_deposits/efixed_deposit.page?gclid=CjwKCAiAqt-dBhBcEiwATw-ggILE2z8cgHSrycTLdhO8g9nnjnA9OUi4vPGjbG8hlWAzTaCHkgDCLhoC3M4QAvD_BwE

Tenure        Interest Rate (% p.a.)


1 month        2.45
2 months      2.65
3 months      2.70
4 months      2.70
5 months      2.70
6 months      2.80
7 months      2.80
8 months      2.80
9 months      2.80
10 months    2.80
11 months    2.80
12 months    2.85
13 - 35 months  2.85
36 - 47 months  2.90
48 - 59 months  3.00

You can see for yourself that for both the islamic fixed deposits and the conventional fixed deposits the rates payable for the same periods  are exactly the same. There is no difference in rates between the conventional and islamic.


Now, the following are interest rates (conventional banking) for home loans offered by a few banks. I got all these Online.


As you can see above the interest rates offered by conventional banks for home loans run from 2.8% to 3.5% pa.
Now here is Maybank Islamic's Murabahah Home Financing:

 

Since it is 'islamic' with an arabic name (murabahah) the "rate" is called the "profit rate". Their profit rate is at 3.25%. There is also a 'new base rate' of 1.75%. (Have to speak to Maybank Islamic).  But the 'interest rates' from the conventional banks are about the same as the profit rate from the islamic bank.

The conventional bank calls it interest rate. The islamic fellows call it "profit rate". N'theless it is still a percentage. And it is not much different. A spade is still a spade.

The biggest mystery in 'Islamic banking' is of course the cost of funds. Conventional banks may call it the 'base lending rate'. This is the cost of funds to the bank. How many percent per annum does it cost the bank to source its own funds, which they lend (or invest) to their clients? For the 'islamic bank' how do they determine their 'cost of funds'?

Again here are some comparisons between 'Islamic' and conventional cost of funds. I got this from CIMB here :
https://www.cimb.com.my/en/personal/help-support/rates-charges/cimb-base-rate-base-lending-rates.html

Description                                                       Effective 8 November 2022

Standardised Base Rate (SBR) for Conventional & Islamic    2.75% p.a.
Base Rate (BR) (Conventional & Islamic)                                  3.75% p.a.
Again the Standardised Base Rate for both conventional and islamic banking at CIMB is the same at 2.75% (Nov 2022).
The Base Rate for both conventional and islamic is also the same at 3.75%.

So there is no difference in the cost of funds rates (ie SBR and BR) for either conventional or islamic banking.
But this is the big mystery that the Islamic bankers are not able to explain - how do you determine your islamic cost of funds that is completely different from the conventional bankers cost of funds (SBR, BR, OPR, SRRs, Repos etc) ?
This is very important because if both the methods of "deriving" the cost of funds delivers the same percentage figures then which method is halal / haram?

Now let us look at the word RIBA in the Quran and the verses where RIBA and its derivatives are mentioned. 
The word RIBA and its derivatives appear 19 times in the Quran. Hre is a tabulation:





The derivatives of riba include arbaa, rabwatin, raabiya etc. Literally the word riba means numerous, to increase, twofold, double and so forth. 
Surah 16:92 And be not like a woman who breaks into untwisted strands the yarn which she has spun, after it has become strong. Nor take your oaths to practise deception between yourselves, lest one party should be more numerous (arba) than another: for Allah will test you by this; and on the Day of Judgment He will certainly make clear to you (the truth of) that wherein ye disagree

Surah 2:265 And the likeness of those who spend their substance, seeking to please Allah and to strengthen their souls, is as a garden, high and fertile: heavy rain falls on it but makes it yield a double increase (rabwatin) of harvest, and if it receives not Heavy rain, light moisture sufficeth it. Allah seeth well whatever ye do

Here are some more verses where riba and its derivatives appear:

[2:275] Those who charge RIBA are in the same position as those controlled by the devil's influence. This is because they claim that RIBA is the same as commerce. However, ALLAH permits commerce, and prohibits RIBA. Thus, whoever heeds this commandment from his Lord, and refrains from RIBA, he may keep his past earnings, and his judgment rests with ALLAH. As for those who persist in RIBA, they incur FIRE, wherein they abide forever.

[2:276] ALLAH condemns RIBA, and blesses charities. ALLAH dislikes every disbeliever, guilty.

[2:278] O you who believe, you shall observe ALLAH and refrain from all kinds of RIBA, if you are believers.

[3:130] O you who believe, you shall not take RIBA, compounded over and over. Observe ALLAH, that you may succeed.

[4:161] And for practicing RIBA, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution.

[30:39] The RIBA that is practiced to increase some people's wealth, does not gain anything at ALLAH. But if you give to charity, seeking ALLAH'S pleasure, these are the ones who receive their reward manifold.

May I draw your attention to Surah 3:130 above. This verse defines the bad aspect of riba.
 



The words circled in red say  "adh'aafan mudhaa afatan" which means 'doubled and redoubled'.
Here are a few English translations of Sura 3:130. I have highlighted those same two words in yellow.

Sahih International - O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.

Yusuf Ali -  O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper.

Abul Ala Maududi -  Believers! Do not swallow interest, doubled and redoubled, and be mindful of Allah so that you may attain true success.

Muhsin Khan -  O you who believe! Eat not Riba doubled and multiplied, but fear Allah that you may be successful.

Pickthall -  O ye who believe! Devour not usury, doubling and quadrupling. Observe your duty to Allah, that ye may be successful.
Khalifah - O you who believe, you shall not take RIBA, compounded over and over. Observe ALLAH, that you may succeed.

Quite obviously this doubling and redoubling or doubling and quadrupling is bad (actually quite evil) because it happens instantly or within one transaction. The dictionary says :
In commerce there already is a term for this - profiteering. Making excessive profits. You invest say RM100,000 and within one transaction you get back RM200,000 or RM400,000 or more.

noun: profiteering,  the practice of making or seeking to make an excessive or unfair profit, especially illegally or in a black market.
So riba is bad because it also doubles and multiplies, doubles and redoubles, doubles and quadruples, compounded over and over.

Now let us go back to those bank housing loan rates that I have listed above.
Lets take one of those housing loan examples at 3.5% interest per annum.
So at an interest rate of 3.5% per annum how many years will it take for a RM100,000 housing loan to double  up to become RM200,000?
Using a simple Future Value Calculator I found Online I got the following:



At an interest rate of 3.5% per annum, it will take between 20 to 21 years for a principal loan amount of RM100,000 to double up to become RM200,000.  To double up again (quadruple) it will take another 20 years.
"adh'aafan mudhaa afatan"  means 'doubled and redoubled'.
At 3.5% per annum it will take the bank 20 to 40 years to double and redouble its money.
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.By Syed Akbar Ali 

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