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Wednesday, 20 April 2011

What is Riba? The Prohibition of Interest and Usury in Islam

Islam provides guidelines for all aspects of life, including trade and economics. Of great importance to Muslims is the prohibition against interest and usury.

Muslims refer to the interest or usury applied to loans, credit purchases or other kinds of deferred payments as ribaRiba is regarded as unethical and unfair to the borrower, and is clearly forbidden in Islam.

Definition of Riba

The Arabic word riba linguistically means “an addition to, or an increase of, a thing over and above its original size or amount.” In the Qur’an, the term riba signifies an unlawful and forced addition to the payback value of money or goods lent from one person to another.
Riba falls under two main categories: Riba An-Nasia, which is interest on lent money; and Riba Al-Fadl, which is the exchange of the same commodity but of unequal quality and quantity. (For example, trading dates of superior quality for a larger quantity of dates of inferior quality)

Other Forms of Riba

Some scholars also consider all transactions which involve deception, penalize the buyer, or compromise a fair and free market as riba. In this broader sense, riba would include:
  • Monopolies that control pricing
  • False bidding on auction items to increase their price
  • Hoarding goods to create false scarcity and demand
  • Speculative transactions – such as the buying and selling of stocks, bonds and shares – particularly when there is privileged insider information
  • Increasing the prices of goods in consideration of a deferred payment
  • Concealing defects when selling an item
  • Charging a fee for deferred payment

Prohibition of Riba in the Qur’an and Sunnah

While capitalism promotes interest as fair profit in a needs-driven market, Islam views usury and other forms of riba as practices which unfairly consume others’ wealth. The Qur'an explicitly states that riba is a major sin:
"Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Satan leading him to insanity. That is because they say: 'Trading is only like Riba,' whereas Allah has permitted trading and forbidden Riba. So whosoever receives an admonition from his Lord and stops eating Riba shall not be punished for the past; his case is for Allah (to judge); but whoever returns (to Riba ), such are the dwellers of the Fire - they will abide therein. "(Qur’an 2:275)
The Prophet Muhammad (peace be upon him)* also warned of the gravity of riba when he said: "A dirham which a man knowingly receives in usury is more serious than thirty-six acts of fornication." (Al-Tirmidhi 2825)

But the warning extends beyond the lender. Abdullah ibn Mas'ud narrated: “The Apostle of Allah (peace be upon him) cursed the one who accepted usury, the one who paid it, the witness to it, and the one who recorded it.” (Sunan of Abu-Dawood 3327)

Prohibition of Interest in the Old and NewTestaments

Islam's prohibition of interest and usury was not unprecedented. The early Jewish and Christian traditions also forbade riba.
“Do not charge your brother interest, whether on money or food or anything else that may earn interest.” (Deuteronomy 23:19)
"He does not lend at usury or take excessive interest. He follows my decrees and faithfully keeps my laws. That man is righteous; he will surely live, declares the Sovereign LORD." (Ezekiel 18:8-9)
“Then Jesus went into the temple of God and drove out all those who bought and sold in the temple, and overturned the tables of the money changers and the seats of those who sold doves. And He said to them, 'It is written, 'My house shall be called a house of prayer,' but you have made it a 'den of thieves.'"(Matthew 21:12-13)

Islamic Economics and Trade

In Islamic economics, a free needs-driven market should be founded on Islamic principles and practices which don't harm consumers and borrowers. Shariah condemns riba, and Muslims should avoid riba in all financial transactions and trade, as well as in their personal banking.

* Muslims invoke Allah's blessings on the Prophet Muhammad whenever this name is mentioned.

Source: The Prohibition of Riba in the Qur'an and Sunnah by Imran N. Hosein, 1997, Masjid Darul Qur'an, Bayshore, NY
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