if we want to explain the difference with Riba and Murabaha to non-musilms, how can we do that?
i know this is a very delicate issue…and i have been asked by a hindu to explain the difference between the two…so can anyone help me…
In Murabaha, you buy an item at one price and sell it to someone at a higher price, allowing them to pay you for it over time.
In Riba, you lend someone some money and require them to pay back a greater value of money than what they borrowed.
Murabaha prevents you from being caught in a spiral of debt, as the amount that you pay fixed before hand. You can't get a situation such a the crisis in British society today, where a very significant number of people at all levels of society have large debts which they cannot pay off and which rise every year due to interest.
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Sounds like extortion to me.
I have 5000 dollars, consider a unit of good. I will sell you that for $10000. But you have to pay me $200o every year until paid up. Is that murahaba or Riba?
You’re exaggerating the markup. Competitive market forces act to reduce the markup involved. Anyone trying to sell, allowing payments over time, at 100% the price will find a comptetitor willing to do the same, but at 60%. In turn that person will be undercut by someone willing to do a 20% markup, etc.
You argument is just as weak as saying that interest sounds like extortion - I will lend you $5000 but you must pay me 100% interest each year until you pay it off 
You are telling me that short term lending of commodoties would not have such rates of "interest:. Let;s call it what it is.
So according to your logic and market assigning value to a commodity, including the "interest" on cash transactions, it is all good. So interest is not haram and there is no need for Riba vs Murabaha silliness. Market and competition also determines the interest rate.
I would not borrow money from someone at 100% interest if I cna get it in the market for 50%. the same way, I would not buy a car for 5K if I can get it for 3K.
The onus is on the seller to be competitive and the buyer to be discretionary, which would take care of the extortion bit. Not whether interest, which is an instrument of trade is haraam or not.
so basically what is called profit, is baed ona certain desired expected returns from the seller.
so when i buy my house, and the builder shows me that at current interest rate I will be paying $X amount over next 30 years. what is the issue?
I discussed this with some of the islamic financing folks and they could not answer it except for the semantics of interest and profit.
what is the real difference between these 2
I buy a place for $X, at the going rate, I will be paying $X(prinicipal) +$Y(interest) the amount of both are known to me..payable over 30 years
vs.
I buy a house for $X(prinicipal)+$Z(profit of teh financing company) which is payable over 30 years
what is the difference bwteen $Y and $Z
ahhh..there is none
As an Islamic scholar, I would suggest to you people that RIba be interpreted as usury not interest. It would make you all sleep better at night.
Murahaba or "Trade" and "Riba" are two different things. there is a principal difference. Generally Trade means exchange of any goods for money (surely at profit - may be on loss in any particular case). You can buy or sell goods for mony at any price. Price may be more or less than the market price. Normally the price is the market price. However for every case i.e price being higher or lower or equal to market price, it is "Trade". Principally it is an exchange of two different commodities in unequal quantities but the money value of both commodities are the same. For example in a barter transaction of one commodity with other commodity how many units of one commodity shall be exchanged with that of second commodity shall be evaluated in terms of money values of both commodities. It means that if money value of one unit of first commodity is equal to money value of two units of second commodity, the barter exchange of these two commodities shall be made in the ratio of 1:2. This exchange of two commodities in different quantities while keeping money values constant is not illogical. It according to Logic.
Riba on the other hand is NOT the exchange of two different commodities in unequal quantities having money value the same. Principally "riba is the exchange of one commodity with the same commodity in unequal amounts." For example exchange of money for money at profit i.e. in unequal amounts is riba. Just consider this definition of riba and find that how illogical it is to exchange one commodity with the same commodity in different quantities. Dose exchange of 1 kg of rice with 1.5 kg of rice (of same specifications etc.) make any sense..??? Similarly exchange of $10 with $12.5 also makes no sense. It is totally illogical.
^ what that definition doesn't take into account since it was adopted in the 7th century is that "money" itself is a unit of trade. Just as the value of property goes up or down, the value of money goes up or down as well. the interest one pays for the buying of that good , "money" is the opportunity costs (time) associated with not having that good for the seller. That is your profit or interest or whatever term you want to use there.
The definition also fails in the first instance because of the scenario presented by Fraudiya.
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*Originally posted by Matsui: *
As an Islamic scholar, I would suggest to you people that RIba be interpreted as usury not interest. It would make you all sleep better at night.
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I normally do not agree to Islamic Scholars but you are right. But I want to ask what exactly you mean "usury". If you mean leagal meaning of usury i.e. interest rate in excess of what was fixed by statute. You may not be right, in my view, ofcourse. If you mean usury as riba which is defined in ancient islamic book "sahi bukhari" i.e. riba or usury to be the exchange of one commodity with the same commodity in unequal quantities" then you are right.
I agree to you that it is different from "Interest" which is return to CAPITAL. Capital is a factor of production so return to capital is is a factor income. Therefore Interest being a factor income is a legitimate form of income.
No I mean Usury=extortion. Loan sharking etc...that is haraam as it should be common sense. But the interpretation os the scripture to deem "interest or profit " haraam and equate it to Riba, whether for similar or different commodities is incorrect.
[QUOTE]
*Originally posted by Matsui: *
As an Islamic scholar, I would suggest to you people that RIba be interpreted as usury not interest. It would make you all sleep better at night.
[/QUOTE]
There is no difference between ususry and interest. Riba = interest = usury.
As defined in the dictionary, usury = "The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate. or
An excessive or illegally high rate of interest charged on borrowed money. " www.dictionary.com
interest = "A charge for a loan, usually a percentage of the amount loaned.
An excess or bonus beyond what is expected or due. "
Who determines what is the right rate of interest? What is a just rate of interest?
Interest = Ususry
Prohibited in Islam!
^ You don't see the difference between the two? Is it in 7th century arabic, by anychance? maybe that is why. :(
Read again chanda!!
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*Originally posted by mAd_ScIeNtIsT: *
In Murabaha, you buy an item at one price and sell it to someone at a higher price, allowing them to pay you for it over time.
In Riba, you lend someone some money and require them to pay back a greater value of money than what they borrowed.
Murabaha prevents you from being caught in a spiral of debt, as the amount that you pay fixed before hand. You can't get a situation such a the crisis in British society today, where a very significant number of people at all levels of society have large debts which they cannot pay off and which rise every year due to interest.
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so Mutaba is nothing else but installment credit. If the interest rate is within reason it is credit; if it is unreasonable, it is extortion.
Sounds like another attempt to dance around the shariat ban of interest.
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*Originally posted by Islamabad: *
Who determines what is the right rate of interest? What is a just rate of interest
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Lemme take a wild guess at it..
could it be...the market..
gasp! such a novel concept..
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*Originally posted by Fraudz: *
...
so when i buy my house, and the builder shows me that at current interest rate I will be paying $X amount over next 30 years. what is the issue?
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Because in case you miss payment you won't be paying $X at the end of 30 years, and if you OVERPAY you won't be paying $X.... so the price is not actually fixed.
[quote]
I buy a place for $X, at the going rate, I will be paying $X(prinicipal) +$Y(interest) the amount of both are known to me..payable over 30 years
vs.
I buy a house for $X(prinicipal)+$Z(profit of teh financing company) which is payable over 30 years
what is the difference bwteen $Y and $Z...
[/QUOTE]
same as above.
Confusion begins when an Islamic institution like LARIBA (in California) says that they are charging “rent” on the equity on the house but they wouldn’t pay “property tax” on their equity… perhaps it can also fall under “agreement” (which is same for all customers) 
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*Originally posted by Changez_like: *
Because in case you miss payment you won't be paying $X at the end of 30 years, and if you OVERPAY you won't be paying $X.... so the price is not actually fixed..
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The price is fixed if you do not break your agreement and schedule of payments..the agreement is for a certain profit (interest) for the lender paid over a certain period. when you dont pay you have altered the agreement, and the fines/surcharges for late payments are just that.
why on earth would someone overpay? if there are ppl like that out there who insist on making payments after they have paid off their mortgage ask them to pay some of mine too. and that logic applies to islamic banking too, what if u have paid the loan off and are still making payments.
and as far as missing payments go, u can not miss payments, simple as that. or u pay fines..
now whether the price is fixed or the "profit" as a percentage is fixed, its the same dealio. I can also make more payments and pay off my loan earlier..
even in the so called islamic lending..try not paying your payment for a few months and see what kind of "fines" they charge for breaking the agreement..
pretty much the same thing.
Hmm... this is a topic which can generate a lot of discussion but the end result will be the same. Two years ago, I had spent a lot of time studying the arguments for and against riba=interest question.
I know there are highly qualified scholars who have spend considerable resources to devise the Islamic financial products. There are certain things which are clearly forbidden. Late Payment Fee and To charge interest over delayed/delinquent payments are two. These are easy. However, when you cut the layers of fancy names, at the end of Murabiha, Musharikah and ijara (three of the most famous Islamic transactions) you will realize they all use some kind of interest rate to get to the time-value of money. They may mask it by an Arabic name, but that is what it is. Just changing the name.
And the reason for this is simple. The reason is that in the time of Prophet Muhammad (PBUH), the currency was gold and other precious metals. Gold does not change its value over time unless new reserves are discovered. Its a very stable currency. Hence the time value of money was not critical and riba was truly the excess of that time.
Fast forward to the time, when paper currency is floated. It is not backed by gold. Its value fluctuates on multiple complex factors and there is a certain time-value assigned to the money. Its a raw material now. There is no way you can come up with a financial product without using any kind of time-value. Perhaps the most equitable will be to use the estimated rate of inflation. But if you wish to design a financial product without any kind of appreciation of money, it will not work.
And yes, if you wish to live in a completely interest-free society, then discontinue all international loan transactions (applies to muslim governments), have a fully gold-backed currency or use precious metal coins directly, encourage barter; and strive for zero inflation. That way you will go back and create the ideal financial system, where there is no time value of money.