Riba, or interest, is a critical concept in Islamic finance, strictly prohibited due to its exploitative nature and impact on social justice. This fact sheet addresses common questions about Riba, its prohibition, and how Muslims can navigate financial systems in line with Islamic principles.

1. What is Riba in Islam?

Definition:

Riba is any guaranteed increase or interest on loans or exchange contracts. It is prohibited in Islam because it fosters exploitation, unfairness, and disrupts economic justice. There are two Types of Riba:

•Riba al-Nasiyah: Interest on delayed payments or loans.

•Riba al-Fadl: Unequal exchange of goods where one party gains more.

2. Why is Riba Prohibited in Islam?

Islam prohibits Riba because it is exploitative, creating wealth disparity by making the rich richer and the poor poorer. Instead, Islam encourages trade, profit-sharing, and risk-sharing, and condemns any guaranteed, unjust gain.

3. How to Avoid Riba in Islam?

Muslims can avoid Riba by:

•Engaging in trade and profit-sharing models, such as Murabaha (cost-plus financing), Mudarabah (profit-sharing), and Musharakah (joint venture).

•Refraining from loans with fixed interest.

•Using Islamic banking services that provide Shariah-compliant financial products.

4. Who Defines Riba in Islam?

The prohibition of Riba is outlined in both the Quran and Hadith, and Islamic scholars have elaborated on its rulings. Jurists from various Islamic schools of thought provide detailed interpretations on its forms and regulations.

5. When Was Riba Prohibited in Islam?

Riba was explicitly prohibited later in the Quran’s revelation, particularly in Surah Al-Baqarah (2:275-279). This gradual prohibition allowed society to transition from an interest-based economy to a just, ethical system.

6. Where is Riba Mentioned in the Quran?

The Quran mentions Riba in multiple verses, emphasizing its prohibition and consequences:

•Surah Al-Baqarah (2:275-279): Warns of severe consequences for engaging in Riba.

•Surah Al-Imran (3:130): Advises Muslims to avoid Riba and engage in righteous deeds.

•Surah An-Nisa (4:161): Criticizes those who practice Riba despite its prohibition.

7. What Types of Riba Are Most Common Today?

Today, Riba al-Nasiyah is the most common form, especially in conventional banking, which relies on loans with fixed interest. Riba al-Fadl also exists in transactions where unequal exchanges occur, such as in certain currency or goods exchanges.

Key Takeaways on Riba

•Riba’s Prohibition: Islam forbids Riba because it contradicts the values of fairness, social justice, and economic equity.

•Ethical Financial Alternatives: Islamic finance offers ethical models, allowing for profit without exploitation and encouraging shared risk and reward.

•Ongoing Scholarly Guidance: Islamic scholars continue to interpret Riba in light of contemporary financial practices, helping Muslims understand how to follow these principles today.

This guide offers a comprehensive overview of Riba, its types, and its impacts. By understanding Riba and avoiding it, Muslims can make financial decisions that align with Islamic principles, promoting fairness and justice in all transactions.