is peer to peer lending riba?

Wakas

peace all,

Just wondering people's thoughts.

Peer-to-peer (p2p) is the practice of lending money to unrelated individuals/businesses ("peers&quot without going through a traditional financial intermediary such as a bank.
This is usually done in order to generate a return for the lender (i.e. initial loan amount + % return).

Basically, it's a bit like lending someone money, e.g. to develop a plot of land for building or to a business looking to expand, and getting a return on your loan/investment.

Some points to consider

cuts out the banks from the process of lending which is a big plus
there is a genuine risk of loss for the lender, e.g. through loan default by borrower. Although companies who administer peer-to-peer lending tend to minimise this risk by distributing the money lent to multiple recipients.
at heart, it is still lending money at interest, albeit the small risk of loss. Does this risk of loss make it more akin to an investment? Would this make investments riba, e.g. investing in a start-up company, hoping for a return or to share in its profits if successful?
would it make a difference if it is only businesses that are lent to?
would it make a difference if the p2p administrator only offered fixed loans, i.e. they cannot increase/grow?
is p2p a case of the lesser of two evils, i.e. better to do it rather than leave money in a bank account for banks to exploit?
would it make a difference if the interest/return was given to charity?

Of course, whether it is "riba" or not will come down to how you define "riba". The word essentially means growth/increase. Some say "riba" means

any growth/increase in the money lent
excessive/severe increase/growth in the money lent
an exploitative growth/increase in money lent, e.g. only applies to individuals under hardship, not a business.
other

Jafar

I prefer to discuss the issue on "the overall effect" perspective.
Whether it will bring positive or negative effect to the overall society..

Lending capital for a business / investment is not bad at all whether direct (peer-to-peer) or through intermediaries..
That statement alone is adequate to answer the question posted on this thread..
But let's continue...

Capital can be in a form of money or non-money (services, intellectual property / know how, land/house/places, cattle etc..)
Intermediaries might be suitable in certain context and cases where the amount of capital required is "big"/"many" thus requires a 'coordinating party' to collect and manage the required capital from many individuals. Again capital can be monetary or non-monetary.

The issues of "Good" and "Bad" came when the "business" or "investment" is not doing well.. due to whatever reasons.
And the "lendee" / "obligor" cannot return the expected return of investment (in whatever form, percentage or no percentage doesn't matter).

The recommended action is to drop the expected return of investment and work out a solution to get the business / investment out from the problem. Including the 'write off' of such liabilities / obligation to return the investment in the first place.
Without such solution the problem might spread and have a very severe impact to the entire society as a whole.

In the Torah, there's something called "Year Of Jubilee"
http//en.wikipedia.org/wiki/Jubilee_%28biblical%29
"Jubilee deals largely with land, property, and property rights. According to Leviticus, slaves and prisoners would be freed, debts would be forgiven"
Scheduled every 50 years..

In the modern world, we have witnessed the cyclic event of "economical crisis".. (oddly also happened around twice every century).
The cause of every economical crisis is similar... the lendee/obligor cannot return the expected return of investment..
And what's the solution of the crisis?
WRITE OFF/FORGIVE THE DEBT OR UNFULFILLED OBLIGATION

Usually the government or financial institution who issued the money in the fist place shall pay all of the debts.. (through myriad of mechanism), and it's the only way to get the entire society out from the crisis.

And if someone is in hardship, then postponement until ease. But if you give charity, then it is better for you, if you only knew.
(2280)

Now... certainly... we all knew.... and has practiced that many times..

Salam / Peace

No longer a Sunna-rejecter

I agree with Edip's view.

Armanaziz

Salamun Alaikum.

I have discussed my understanding of riba in detail in other threads. Just to give a summary of how I define riba? per my understanding riba is any form of excess return from any kind of transaction made through exploitation of the vulnerabilities of the counterparty. In other words riba is any excess return above the ?fair? price. Note that this definition DOES NOT restrict riba to lending-borrowing transactions only. However, lending-borrowing transactions quite often give rise to circumstances where a riba can arise. Applying my general definition on a lending-borrowing transaction, riba arises in any kind of interest charged over the principle amount in excess of a fair market rate exploiting the vulnerabilities of the counterparty.

Now coming to the topic of this thread, per above definition, peer-to-peer lending by definition is not necessarily riba, but it has a much higher potential for leading to riba simply because it happens outside the supervision of regulatory body. A peer-to-peer transaction will lead to riba when the borrower is in a financially difficulty that (s)he cannot borrow from the official chain and hence the lender is misusing this opportunity to charge him a rate of interest above fair interest rate. The ultimate goal of such lending is usually to grab some property of the borrower (independent of this transaction) which may have been tagged as collateral to lending.

2278 O! Those who have put faith - be conscious of Allah, and leave what remained of riba if you happen to be the faithful!

2279 Then if you don?t - so be called for a war from Allah and His messenger; but if you repent then the capital is for you. Do not wrong and you will not be wronged.

2280 And if it happens to be one in difficulty then postponement until ease. But that you (perform) charity, it is better for you ? if you happen to know.

(My personal translation, cross checking is recommended.)

So, on the other hand, if the purpose of a p2p lending is to help a person in financial difficulty who cannot borrow from the official chain and hence the lender is simply providing him access to credit at fair interest rate OR subsidized interest rate and is willing to wait for repayment as long as it takes the borrower?s financial condition to improve ? then, rather than giving rise to riba, this transaction will be an act of sadaquah (charity) from the lender. If there is a situation to suspect the borrower to be an intentional defaulter, the lender can claim back the principal amount only, which now may be in the form of some productive resource or asset purchased with the original fund lent.

My earlier discussions on riba

http//free-minds.org/forum/index.php?topic=9606569.msg350924#msg350924

http//free-minds.org/forum/index.php?topic=9606569.msg351778#msg351778

http//free-minds.org/forum/index.php?topic=9605358.msg352195#msg352195

May Allah guide us all to the straight route.

Regards,
Arman