Is There a Concept of Time Value of Money in Islam?

Author Credit:This blog is adapted from an article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust. The original article was published on June 30, 2015.

Introduction

The concept of Time Value of Money, commonly known as TVM, is one of the foundations of modern finance. It suggests that money available today is worth more than the same amount of money received in the future.

In conventional finance, this idea is closely connected with interest rates, discounting, borrowing, lending, and investment returns.

However, from an Islamic finance perspective, an important question arises: can the concept of Time Value of Money be accepted in Islam, or does it conflict with the prohibition of Riba?

According to Muhammad Rizwan-ul Haque, the answer requires us to first understand the role of money in Islam.

Money Is Not a Commodity

In the capitalist financial system, money is often treated like a commodity. It can be bought, sold, rented, lent, and priced through interest.

Islam takes a different view.

In Islam, money is not meant to be traded as a commodity by itself.

Rather, money serves as a medium of exchange. It helps people buy and sell goods, conduct trade, and support real economic activity.

In simple terms, money is a facilitator. It is like a lubricant in the economic system. It helps trade move smoothly, but it should not become the object of trade itself.

The Difference Between Money and a Commodity

A commodity has utility. It can be consumed, used, produced, stored, or traded for genuine need. Money, on the other hand, is mainly a measure of value and a medium of exchange.

This distinction is important because if money is treated exactly like a commodity, then charging a price for the use of money becomes acceptable in the conventional system.

That price is called interest.

But in Islam, Riba remains prohibited, even if it is given modern names or presented through complicated financial structures.

Credit Sale and Deferred Payment

One common question is whether a seller may charge a higher price when selling a commodity on deferred payment.

For example, if a product is sold today but payment will be made later, can the seller take the timing of payment into consideration while fixing the price?

The article explains that while this may be allowed in certain cases, it should not be used to create artificial or fake transactions merely to justify an increase in future payment.

Most importantly, the deferred price should not be linked to interest rates in any shape or form.

If a deferred price is necessary, it should be connected to the expected future price of the actual commodity involved in the transaction, not to the price of money.

Time Value of Money and Riba

The concern with TVM is that it is deeply rooted in the interest-based financial model.

In conventional finance, time itself becomes a reason to increase the amount payable on money. The longer the time, the greater the expected financial increase.

This is the foundation of interest-based lending.

From the Islamic perspective presented by Muhammad Rizwan-ul Haque, this concept cannot simply be copied into Islamic finance. If money is not a commodity, then time alone cannot justify earning a guaranteed return on money.

“Money Never Sleeps” in the Interest-Based Model

In an interest-based system, money can continue earning even when the owner does not engage in any productive activity or take any business risk.

This is sometimes described through the phrase “money never sleeps.”

In such a system, the wealthy can continue earning from capital simply by lending it at interest. They may receive a guaranteed return regardless of whether real economic activity takes place.

This creates an imbalance in society. The rich can earn without risk, while borrowers may carry the burden of repayment even during difficulty.

Islam Encourages Productive Economic Activity

By prohibiting Riba, Islam closes the door to guaranteed interest-based earnings. This encourages people with capital to participate in real economic activity instead.

Rather than earning from money itself, wealth should be invested in trade, production, services, partnerships, employment, and business ventures.

This creates goods, jobs, opportunities, and social benefit.

In this way, the prohibition of Riba is not only a legal restriction. It is also a way to direct capital toward productive and beneficial use.

The Qur’anic Direction

The article highlights an important reflection: in the Qur’an, when time is mentioned in relation to debt, it is connected with giving extra time to borrowers who are facing difficulty.

This is very different from the conventional idea of charging more because more time has passed.

Islam encourages kindness, patience, charity, Zakat, and support for those in need. The system is designed to protect society from exploitation and promote fairness.

Islamic Banking and the Challenge Ahead

After decades of Islamic banking and finance, the industry must ask whether it is truly moving away from interest-based thinking.

If Islamic financial products are merely conventional products renamed or restructured, then the deeper purpose of Islamic finance may be lost.

Islamic finance should not be limited to changing terminology. It must reflect the real message of Shariah: fairness, justice, real trade, risk-sharing, and productive economic activity.

Conclusion

The concept of Time Value of Money, as understood in conventional finance, is closely connected to interest and the pricing of money over time.

Islam does not treat money as a commodity. Money is meant to facilitate trade and economic activity, not to generate guaranteed profit by itself.

Therefore, Islamic finance must be careful not to replicate the interest-based model under different names.

A truly Islamic financial system should encourage wealth holders to invest in real business, create jobs, support production, and contribute to a balanced society.

Credit: This blog is adapted from the article by Muhammad Rizwan-ul Haque, Founding Chairman of Dawood Family Takaful, CEO of an Investment Bank, and Director of a Trust.