The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.
Question:: "Owing to this prohibition, then, one may not sell high quality wheat for a larger quantity of low quality wheat". What if the money value of the high qualitywheat and the larger quantity of lower quality wheat is similar or the same? Re: ribaof deferment. "Owing to this prohibition, then, one may not sell low quality wheat nowfor high quality wheat later". Am I to understand that the person who is bartering thehigh quality wheat is engaging in riba of deferment? What modern business transactionswill come under the actions of riba of excess and deferment?
Answer: In regard to your first question, what if the money value ofthe high quality wheat and the larger quantity of lower quality is similar? The answerhere is that the money value can be the same, or less, or greater; the transaction isstill riba and, as such, is strictly prohibited. Why? The answer to that is becausewheat is one of the six commodities expressly mentioned in the hadith we studied inLesson Two: "Exchange gold for gold, silver for silver, wheat for wheat, barley forbarley, dates for dates, and salt for salt, (as long as you do so by exchanging) likefor like, equal for equal, and hand to hand." Thus, the only way wheat may lawfullybe exchanged for wheat is like for like, i.e., the quality must be similar; and equalfor equal, i.e., in similar quantities. Please return to the third section (Riba inthe Sunnah) of that lesson for an analysis of the hadith.
Let?s look at your second question: "Am I to understand thatthe person who is bartering (for) the high quality wheat is engaging in riba ofdeferment?" Yes, when someone attempts to sell low quality wheat now for highquality wheat later, that person is dealing in riba. The example here is given toshow how (and why) such a deferment might take place.
Let me explain in a little more detail. A farmer has low quality wheat, and isdesirous of making a profit from it. The lawful way for the farmer to profit is bymeans of a sale. But the farmer knows that he can increase his profits if the wheathe sells is of better quality. So he goes to another farmer, one who he knows ispresently in need, but who has nothing at the moment to sell. What the needy farmerdoes have, however, is a field of high quality wheat that is still not ready forharvesting. So, the first farmer, knowing the other farmer?s need, offers him hislow quality wheat right then and there. And, in return, the deal he makes with theneedy farmer is that when the high quality wheat is ready for harvest, "later",he will take it. In this manner, the first farmer obtains better quality wheat that canbe sold at a higher price. And the needy farmer receives something with which to see tohis immediate needs (i.e., he can make money now from the sale of the low quality wheat).But, while this may seem reasonable, it is actually an unacceptable situation; firstlybecause the exchange described is expressly prohibited in the Sunnah, and secondlybecause the deal is a morally dubious one. You will notice that I added, in parentheses,the word "for" to your question. This is to clarify that the first farmer, theone who is dealing "for" the high quality wheat, is engaging in riba. I hope itis clear to you that the deal offered by the first farmer to the needy farmer is in facta form of financial exploitation. In the first part of this lesson, Sections One and Two,it was made clear that riba is viewed by the Qur'an as an injustice, an economic evil, animpediment to spiritual growth, and a threat to the welfare of society. The same is trueof the Sunnah. For, in the deal I have described, the first farmer has clearly takenadvantage of the needy farmer, giving him something of less value now in exchange forsomething of greater value later.
Now, to the last part of your question: what is the relevance of the riba of defermentand the riba of excess to modern transactions? In Section Three of Lesson Two I wrote thatall of the major schools of jurisprudence were agreed on the point that the prohibition ofriba applied to loans, to barter, to sales, and to every transaction involving an exchangeof countervalues. In Section Four of that lesson, Riba by Definition and its Significancefor Us, this matter is explained in greater detail.