LEGITIMATE PROFIT FROM SALE AND TRADING ACTIVITIES:
SHARIAH LAW PERSPECTIVE
Prof. Dr. Zainal Azam Abdul Rahman
THIS PAPER IS A PARTIAL FULFILLMENT OF THE SUBJECT SH 1002 OF PART 1 OF CHARTERED ISLAMIC FINANCE PROFESSIONAL (CIFP)
In Al-Quran, Allah SWT clearly said in Surah Al-Baqarah v.275: "Those who devour usury will not stand except as stands one whom the evil one b-v his touch has driven to madness. That is because they say: 'Trade is like usury, but Allah has permitted trade and forbidden usury”. The verse above established a clear distinction between trade and riba. It required Muslims to annul all outstanding riba, instructing them to take only the principal amount, and forego even this in case of the borrowers' hardship. The text of the verse also defines the prohibited riba, i.e. as any increment added to the principal. This means that any extraneous addition, however small the amount, is considered to be riba, and the lender should receive only the principal. The verse text prohibits completely and without any doubts all rates and causes of riba. Thus, any accrued amount added to the principal is unlawful whatever the reasons were for the incurrence of the debt. In mean time, Allah SWT permits trade. Why Allah SWT permits trade? It is because trade and usury are absolutely different. Generally, in trade, one earns profit as a result of initiative, enterprise, efficiency and hard work. But the riba is not earned through hard work or any value creating process. It is not the reward of entrepreneurship but is in fact unearned income. Moreover, profit in trade is fluctuating whereby there is risk of loss also, but in case of riba the lender gets his fixed amount irrespective of the fact whether the debtor earns any profit or sustains loss. God has forbidden riba but has permitted trade. There is a similarity between the economic scheme of Islam and capitalism...
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