What is Riba (interest) in Islam? | Islamic Finance Definitions Series
Riba is an Arabic word meaning ‘to increase’ or ‘to exceed’.
Riba is commonly translated to ‘interest’ or ‘usury’ in English and is a charge for the use of another’s money. It also includes unequal exchanges.
An example of this would be taking a loan from someone who expects it to be repaid in addition to 5% per month on anything that has not been paid at the end of each month.
So for example you lend £100 for one month. At the end of that you would repay £105.
What does Islam say about riba?
The last verse of the Quran to be revealed was the verse on riba [Bukhari]. The Quran and the Prophet (peace be upon him) were very clearly against riba:
- “… Allah has allowed trade and has forbidden riba…” [2:275]
- “You who believe, beware of God: give up any outstanding dues from riba, if you are true believers. If you do not, then be warned of war from God and His Messenger.” [2:278-279]
- “You who believe, do not consume riba, doubled and redoubled. Be mindful of God so that you may prosper.” [3:130]
- “Whatever you lend out in usury to gain value through other people’s wealth will not increase in God’s eyes, but whatever you give in charity, in your desire for God’s approval, will earn multiple rewards.” [30:39]
- The Prophet (peace be upon him) cursed the one who took or gave riba [Bukhari].
Why is riba forbidden?
In short, riba is an exploitative arrangement that keeps the poor in precarious financial circumstances as the poor are stuck with ever-growing debts whilst the rich increase their wealth without creating any extra value.
The rich make money from their money and the poor pay to use money they don’t have – thereby cementing the gap between the rich and the poor.
It’s not just Islam that sees riba as a negative thing. Greek philosopher Aristotle’s classicist view against interest was expressed when he said: “The most hated sort (of wealth getting) and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural object of it. For money was intended to be used in exchange but not to increase at interest… Therefore of all modes of getting wealth, this is the most unnatural.”
Riba and the modern day
Interest is central to the modern banking system. This is a significant reason for the reluctance of Muslims to engage fully with the financial sector.
The Prophet said: “There will come a time when there will be no one left who does not consume riba, and whoever does not consume it will nevertheless be affected by residue.” [An-Nasa’i]
Now, IslamicFinanceGuru is looking to bring Muslims back to a level playing-field by enabling Muslims to make effective and halal financial decisions without having to fall into riba.
This definition is part of the Islamic Finance Definition Series.