Monday, April 17, 2006

Continued discussion on Mutuality and Riba with Dr. M. Nejatullah Siddiqi

See previous two posts for background. This is continuation:

MNS: Salam alaikum. I mean to press on the point relating to gharar. The essence of gharar is uncertainty. But there is no uncertainty about riba.

ME-G: wa `alaykumu s-Salamu wa raHmatu Allahi wa barakatuh. Yes there is [uncertainty in riba]: You do not know if the debtor will be solvent and able to pay (credit risk, which is very difficult to quantify), and for solvent debtors, there is uncertainty as to whether the interest collected is lower or higher than short term rates at collection time (interest rate risk).

MNS: I think you are alone in regarding riba an extreme kind of gharar.

ME-G: I recognize that this is a new statement, but I think that it has plenty of economic backing, and has great potential to solve a number of outstanding problems in Islamic economics.

MNS: The view has no support, neither in classical literature nor in modern writings.

ME-G: I agree, and it may be presumptuous on my part to propose this. However, it is a standard way conventional economics and finance looks at debt (credit and interest rate risk), and in that regard, all that I am doing is bringing our best economic and financial knowledge to bear on the religious issue.

MNS: I do not remember what you are referring to as Rachid Rada stuff. Please remind.

ME-G: It wasn't part of this debate. I had made earlier entries in my blog on Rachid Reda's response to the Hayderabad fatwa -- which argued that interest on loans that is stipulated at the inception of the loan is not the forbidden riba (even saying that Abu Hanifa only made it reprehensible). The translations and comments on that publication are posted in three parts:

MNS: Ibn Araby text you qoute in the Blog has nothing to do with gharar.It refers to one of several kinds of riba.

ME-G: Yes, I had raised it as proof that the riba al-jahiliyya mentioned in Qur'an was regarding debts from credit sales, not interest at the inception of loans [please see the context of requesting the Ibn Arabi quote in previous messages]. The "Riba as an extreme form of Gharar" (just as "maysir is an extreme form of gharar") argument is separate.


Blogger Islamic Law, Etc. said...

"MNS: I think you are alone in regarding riba an extreme kind of gharar."

It may not be particularly "Gharar" but Riba and Gharar are both counterproductive to the principle of risk equality in trade. Additionally if either are found they are a cause for "Zulm".

I for one dont think that you are alone in your assessment. No one may have previously stated that Riba is a form of extreme Gharar, but they are definitely related in principle.

I think what you are mentioning is akin to what Ibn Taymiyah states in Al Qawaid AL Nuraniyyah:
After discussing the hadith of Rafi ibn Khadij "...this is becuase the basis of these trades and barters is that there be equality on both sides. If one [of the two parties contracts] contains Riba or Gharar, Zulm then enters the contract ... thus if one party was to take possesion of the price while the other is left in risk, this would not be permissible. For this reason the Messenger of Allah forbade selling fruit before its fruition..."

So what I understand from your post is that Gharar and Riba lead to the same thing, which is inequality in Risk, even though they are different types of risk. Perhaps calling Riba a type of Gharar will not be comprehended by everyone, but listing them as subsets of the same major category, zulm, might.

6:26 PM  
Blogger Mahmoud El-Gamal said...

Of course, it is all about zulm in the end. However, there is obvious zulm and not so obvious. A game of chance that pays $2 if a coin falls on heads and $0 if it falls on tails would be unfair if the price is $1.5, but it is forbidden regardless. An interest rate of 100% overnight is usurious and thus zulm, but an interest rate of 0% (in commutative contracts, from which loans are exempted) is forbidden still.

I want to rephrase riba and gharar in standard financial language of risk and return, showing that the examples forbidden in Sunna under the name of gharar constitute one type of trading in risk, while the categories of riba forbidden in Qur'an and Sunna constintute trading in a different type of risk. Then, we have a single general category to consider: financial risks, when their trading is forbidden, and why.

To recap, you are right in saying that the end result is to avoid zulm, but I want an intermediate economic category (mispriced risk) to conduct an economic analysis.

7:17 PM  
Blogger saif said...

Salam Alaekum.

I thoroughly enjoyed your discussion, and learned a lot from it.

I think the Gharar-Riba disagreement between you two is more of an issue in semantics than anything else. Perhaps your clarification about you wanting to use an intermediate economic category called "mispriced risk" to cover Dhulm in economic practices would have made things less complicated.

Also, you mention Fasl al-Maqal in your comments. I hope you are aware that the two (Ibn Rushds) are not the same person. He was the grandson of the author of Bidayat al-Mujtahid.

5:41 AM  

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