2.12 Ribawi Transactions, Part 1 - Student loans

Islamic Finance Podcast with Almir Colan

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In this episode:

We take a deeper look at ribawi transactions. In particular, we analyse the "Student loan" to see if it is ribawi or not.

In recent times we have seen several opinions about student loans so this is an opportunity to learn how to break down any contract to its most simple form.

By reducing this transaction to its most simple form we are able to establish the most fundamental truth about the substance of what seems like a complex or innovative new way of contracting. In the most simple forms, all contracts will have something in common. It is at this level that we look if rules or riba apply or not. Looking at the transaction from any higher place brings a level of abstraction that clouds the reality.

What is Ribawi transaction?

Ribawi transaction is an exchange of specific items that are subject to the rules of riba. Violating these rules leads to an unlawful gain which is called riba. The common denominator in these transactions is, for instance, an unequal exchange of money-for-money on the spot or as a deferred payment basis.

Exchanging $100 on the spot for $120 in the future is an example of such an impermissible transaction due to the unlawful gain.

The basis of these prohibitions is that the Messenger of Allah (ﷺ) said:

'Gold for gold, weight for weight, like for like; and silver for silver, weight for weight, like for like. Whoever gives more or takes more has engaged in Riba." (Sunan an-Nasa'i 4569)

“Do not sell gold for gold, except like for like, and don't increase something of it upon something;” (Sahih Muslim 1584a)

"The bartering of gold for gold is Riba (usury), except if it is from hand to hand and equal in amount, …” (Al-Bukhari 2134)

Podcast Hosted by Almir Colan.

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