The idea of time worth of money, which derives from the notion of interest (riba), significantly influences governments, corporations, and consumers worldwide. The temporal worth of cash is seen considerably differently in Islam than in the modern financial system. The traditional view holds that interest on capital is charged because of the time value of money. However, in Islam, profit is based on selling things or providing services.
The temporal value of money is fundamentally different from the ordinary system from the Islamic perspective since Islam defines money differently from the conventional method. The traditional concept of capital interest is based on the time value of money. However, the Islamic worldview recognizes the image of the time worth of cash and the idea of favorable time preference.
There are two basic scenarios where favorable time preferences may be described. The opportunity cost of delaying present consumption is one of them. Spending now yields greater joy than consumption afterward. So, the utility lost today should be made up for. The potential cost of not being able to invest money in profitable ventures comes in second. The owner of the cash forfeits their ability to generate a profit from them.
Legal professionals often endorse positive time preferences. In installment sales, for instance, the credit price may be greater than the cash price. Another example is the Salam contract, where the price paid in advance for future deliveries of items is lower than the price in spot sales. They both agreed that pricing for cash and credit sales might differ. Although the optimal temporal value of money calculation is not explicitly addressed in Shari’ah principles, it is nonetheless considered.
Islam accepts the time worth of money for the valuation of assets and their usufruct, but not for any increase in the principal of loans or debts since the Shari’ah views borrowing as a good deed from which no gain may be received. Therefore, when a loan or debt is made, or the purchaser’s responsibility is established, its principal cannot be increased in time.
When a financial contribution is made in the form of a loan or a debt, it must be repaid precisely in the same sort and amount, regardless of any changes in the price of the commodity being lent or borrowed, according to Islamic Shariah. Loans, debts, credit, barter, postponed currency exchange, indemnification, change in the unit of currency, and delayed payment of compensation following devaluation or revaluation are all subject to this principle. However, if the debt’s money becomes obsolete and is no longer available, its counter value will be paid, and the due date’s interest rate will be in effect.
In Islam, the main functions of money are to facilitate trade and act as a medium of exchange. Because it incorporates the element of interest (riba), prohibited in Islam, the time value of money notion is thus forbidden. A person may also quickly obtain money without having any talents or knowledge by using the principle of interest (time worth of money) to generate more cash through lending operations. As a result, society has a lot of greed, speculation, and immorality.
