If the nature of the transaction is such that the asset
given for a period of time is to be ‘used’ by the receiver, but, by the nature
of the transaction, cannot be ‘used up’ by him, the predetermined gain would be
categorised as rent not Ribā.
Mr A leases out his house to Mr B for one year at a rent
of Rs. 5000 per mensem. In the third month, Mr B is unable to pay the rent, and,
in accordance with the terms of his contract, he has to vacate the premises. To
do this, he does not have to ‘re-create’ the building as the nature of the whole
arrangement was such that he could not ‘use up’ the property.
On the other hand, Mr A gives a sack of wheat to Mr C for
a certain time period, during which Mr C has to pay Rs. 50 every week to Mr A
over and above the value of wheat. Now, in the second week Mr C is unable to pay
Rs. 50. In this case, he might have to ‘re-create’ the sack of wheat to return
the loan as he might have consumed it, or ‘used it up’.
To use accounting terminology, one might say that Ribā is
charged on circulating capital whereas Rent on fixed capital.
It is also important to note that it is the nature of the
transaction, not the nature of the commodity, which determines whether the
capital is circulating or fixed, that is whether it can or cannot be ‘used up’.
For example, a machine hired to produce goods may be categorised as fixed
capital as, by the nature of the transaction, it cannot be ‘used up’, whereas
the same equipment borrowed as stock-in-trade for sale by a fellow trader may be
categorised as circulating capital as, by the nature of the transaction, it may
be ‘used up’ to generate revenue.
Consequently, one can say that in case of a Ribā bearing
i) there is a gain at a predetermined rate on the loan,
ii) the nature of the transaction is such that the
commodity borrowed can be ‘used up’ to generate revenue.
It is needles to say that money is a commodity which, by
its nature, involves transactions in which the loaned capital sum may be ‘used
up’ by the borrower. Therefore, whenever money is lent, any gain at a
predetermined rate on the principal is Ribā.