Islamic Finance: Major Prohibitions

Islamic Finance is a financial management system under the rules and regulations of Sharia. There 4 major prohibitions in Sharia while doing any kind of financial activities. They are

1.Riba

2.Gharar

3.Maysir

4. Qimar

1.Riba

قوله تعالى (وَأَحَلَّ اللَّهُ البَيْعَ وَحَرَّمَ الرِّبَا) (275) البقرة

(whereas Allah has permitted trading and forbidden Riba (usury)

The word Arabic word 'Riba' means an "increment' or addition". According Islamic jurisprudence, Riba is an unfair increment in borrowing or lending money, paid in kind or in money more than the amount of loan, as a mandate enforced by the lender or willingly by the borrower.

Riba is considered in two ways in Islam:

(1)‘riba al-duyun’ (debt usury): which is any increment in money borrowing or lending. 

(2) "riba-al-buyu" (trade usury): which is an unjustified increment gained by the seller or the buyer if they exchanged goods of the same kind in different quantities such as wheat for wheat of same quality or rice for rice of same quality.

2. Gharar (uncertainity):

It is lack of transparency and clarity regarding the quality or quantity, price and delivery of the subject matter in a contract or exchange. Such as ignorance about the product, its features and time of transaction.

In order to avoid Gharar Islam suggest 3 conditions for contract

•The subject matter should be a product or a service which is allowed to exchange by sharia legal system.

•The product or service should be in the capacity of seller or expected to be in the capacity at the time of contract.

•The exchange of product or service should be on the basis of certainty of delivery and payment.

3. Maisir 

The Arabic term Maisir means the easily obtainable wealth by chance, whether it deprives the other’s right or not. Eg: insurance.

4. Qimar:

The Arabic term Qimar is the game of chance in which one gains at the cost of others. Example: lottery, gambling etc.