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Wednesday, May 22, 2024

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Ribawi Commodities

If gold, silver, wheat, barley, dates and salt are Ribawi commodities, does it mean other commodities are non-Ribawi?

If gold, silver, wheat, barley, dates and salt can only be exchanged on spot and only in equal quantities, does it mean other commodities can be exchanged with deferment and in unequal quantities?
Calling these six commodities as Ribawi commodities is insane. There are two Hadith’s quoted in this context:
Ubida b. al-Simit (Allah be pleased with him) reported Allah’s Messenger (may peace be upon him) as saying: Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.
Abu Sa’id al-Khudri (Allah be pleased with him) reported Allah’s Messenger (may peace be upon him) as saying: Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, salt by salt, like by like, payment being made hand to hand. He who made an addition to it, or asked for an addition, in fact dealt in usury. The receiver and the giver are equally guilty. The two Hadith’s refer to a special situation, i.e., exchange of an item with itself (i.e., selling something for a price denominated in itself). This means selling wheat for wheat, gold for gold, silver for sliver, etc.
The prohibition of Riba implies that they should be exchanged in equal quantities even if the exchange is spot. The Hadith’s also imply that these items cannot be exchanged for themselves through a sale contract if there is deferment of price or delivery. It doesn’t mean that other contracts of exchange cannot be used to exchange such items (and others), with deferment. Of course wheat can be borrowed and so could be either of the other six commodities and in fact any other permissible asset.
The permissibility of sale of such commodities (and by way of analogy of others) on spot basis is to allow the transacting parties to benefit from quality differential. Thus, it will make sense to exchange one kilo of wheat with one kilo of wheat on spot only if the two exchangeable differ in quality. No party would exchange equal quantities of something if

there is no quality differential. Two rational parties will agree to exchange an asset X on spot in equal quantities only if they differ in quality, i.e., exchange of an asset take place on spot only if
X(qual1) > X(qual2) or
X(qual1) < X(qual2)
If X(qual1) is held by a Party A and X(qual2) is held by Party B, the former will benefit from a spot exchange of equal quantities if
X(qual1) < X(qual2)
and the latter will benefit from a spot exchange of equal quantities if X(qual1) > X(qual2)

If there is no quality differential, i.e.,
X(qual1) = X(qual2)
no exchange of equal quantities will take place, as there is no benefit accruing to either of the parties.
Corollary: Any benefit accruing to either of the transacting parties solely due to quantity differential is Riba; and any benefit accruing to either of the transacting parties due to quality differential is not only permissible but desirable in the presence of the prohibition of Riba. This applies to any transaction whether on spot or with deferment.
X(qual1) – X(qual2) > 0 is permissible as long as X(quant1) = X(quant2)
X(qual2) – X(qual1) > 0 is permissible as long as X(quant1) = X(quant2)
X(qual1)|T0 – X(qual2)|T0 > 0 is a permissible trade benefit (where X(qual1)|T0 is the amount of X with qual1 delivered at T0 and X(qual2)|T0 is the amount of X with qual2 delivered at T0, i.e., at the same time).
X(qual1)|T0 – X(qual2)|T1 > 0 isn’t a permissible benefit, if such a trade is executed through a sale contract (where X(qual1)|T0 is the amount of X with qual1 delivered at T0 and X(qual2)|T1 is the amount of X with qual2 delivered at T1, i.e., on a future date).
X(qual1)|T0 – X(qual2)|T1 > 0 could be a permissible benefit if it is accrued through another contract of exchange, e.g., borrowing.

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