In Islam, riba (usury or interest) is considered a major sin and is forbidden in all forms of financial transactions. Riba is categorized into two types: riba al-fadl and riba al-nasiah.
Riba al-fadl: This type of riba refers to the exchange of one commodity for the same commodity in unequal amounts. For example, if someone exchanges 100 grams of gold for 110 grams of gold, this is considered riba al-fadl. This type of riba was prohibited in Islam even before the revelation of the Quranic verses that specifically prohibited riba.
Riba al-nasiah: This type of riba refers to an increase in the amount of a debt that is payable after a specified period of time, such as charging interest on a loan. This type of riba is specifically prohibited in the Quran in several verses, including Surah Al-Baqarah (2:275-281).
Islamic scholars have emphasized the seriousness of engaging in riba, as it is considered a form of injustice and exploitation of the poor and vulnerable. Therefore, Islamic finance operates on the principles of profit and loss sharing and risk-sharing, rather than charging interest on loans or engaging in other forms of usury.
Riba is essentially the charging or paying of interest or usury on a loan or other financial transaction. This practice is considered unethical and exploitative in Islam, as it can lead to a cycle of debt and can disproportionately affect the poor and vulnerable.
In Islamic finance, riba is considered a major sin and is strictly forbidden. Instead, financial transactions are governed by the principles of profit and loss sharing, and risk-sharing. This means that investors and lenders share in the profits and losses of the enterprise or project in which they are investing, rather than charging or paying interest.
The prohibition on riba is mentioned in several verses of the Quran, including:
"Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, 'Trade is [just] like interest.' But Allah has permitted trade and has forbidden interest." (Quran 2:275)
The prohibition on riba is also supported by numerous Hadith, or sayings of the Prophet Muhammad (peace be upon him). For example, in a Hadith narrated by Abu Hurairah, the Prophet said, "Avoid the seven deadly sins that doom mankind." When he was asked what they were, he replied, "Associating anything with Allah (Shirk), magic, killing a soul whom Allah has declared inviolate without just cause, consuming the property of an orphan, consuming riba, turning away from the father or mother in inheritance, and falsely accusing chaste women of adultery." (Bukhari and Muslim)
Riba is further divided into two categories: riba al-fadl and riba al-nasiah. Riba al-fadl refers to the exchange of one commodity for the same commodity in unequal amounts. This is prohibited in Islam even before the revelation of the Quranic verses that specifically prohibited riba. An example of this would be exchanging 100 grams of gold for 110 grams of gold.
Riba al-nasiah, on the other hand, refers to an increase in the amount of a debt that is payable after a specified period of time. This includes charging interest on loans, and is the type of riba that is specifically prohibited in the Quran. For example, if someone borrows $100 and agrees to pay back $110 after a specified period of time, this is considered riba al-nasiah.
Here are some examples of riba:
1. Interest on loans: Charging interest on loans is considered riba in Islamic finance. This includes both personal loans and business loans.
2. Late payment fees: Charging late payment fees or penalties on loans is also considered riba.
3. Fixed-rate mortgages: Fixed-rate mortgages, where the interest rate is fixed for the term of the loan, are considered riba in Islamic finance. Instead, Islamic finance uses a system of variable-rate financing, where the profit margin of the lender is fixed, but the rate of return to the borrower varies based on market conditions.
4. Futures contracts: Futures contracts, which are agreements to buy or sell an asset at a future date for a predetermined price, are considered riba if the price is fixed in advance.
5. Credit cards: Using credit cards that charge interest on outstanding balances is considered riba in Islamic finance.
6. Payday loans: Payday loans, which are short-term loans with high interest rates, are considered riba in Islamic finance.
7. Bond investments: Investing in bonds that pay interest is considered riba in Islamic finance, as it involves earning income from interest.
8. Forward contracts: Forward contracts, which are similar to futures contracts but are not traded on an exchange, are considered riba if they involve the exchange of cash at a fixed price in the future.
9. Margin trading: Margin trading, where an investor borrows money from a broker to buy securities, is considered riba in Islamic finance if the investor is required to pay interest on the borrowed funds.
10. Prepayment penalties: In some cases, financial institutions may charge prepayment penalties if a borrower pays off a loan early. These penalties are considered riba because they increase the total cost of the loan beyond what was initially agreed upon.
11. Usury: Usury refers to the charging of exorbitant interest rates on loans, which is considered riba in Islamic finance. This can include predatory lending practices that target vulnerable borrowers.
12. Savings accounts: Some savings accounts may pay interest on the balance held in the account, which is considered riba in Islamic finance. Instead, Islamic finance uses profit-sharing accounts, where the account holder shares in the profits generated by the financial institution.
13. Exchange of unequal quantities: In Islamic finance, exchanging unequal quantities of the same commodity is considered riba. For example, exchanging two kilograms of rice for one kilogram of rice would be considered riba.
14. Interest-bearing loans to the poor: Charging interest on loans to people who are in a vulnerable financial position or who are struggling financially is considered riba in Islamic finance. Instead, Islamic finance emphasizes the importance of providing financial assistance to those in need without expecting any financial gain.
15. Cash advances: Cash advances, where a borrower takes out a short-term loan with a high interest rate, are considered riba in Islamic finance.
16. Sale of debt: The sale of debt at a price higher than its face value is considered riba in Islamic finance. This includes the sale of bonds, loans, or other forms of debt at a premium price. This practice is seen as a way of charging interest indirectly and is therefore prohibited.
17. Insurance premiums: Charging insurance premiums that are deemed excessive and unjustified can be considered riba in Islamic finance. This is because insurance premiums are typically calculated based on the principle of risk pooling, where a large number of policyholders contribute premiums to cover the costs of any claims made. However, if the premiums charged are deemed to be excessive and not commensurate with the risks involved, this can be considered riba.
Islamic finance offers an alternative to conventional finance that seeks to promote financial inclusion and social justice while avoiding interest-based transactions. It emphasizes the principles of fairness, transparency, and risk-sharing in financial transactions and aims to ensure that financial services are accessible to all members of society.
According to Quran
the prohibition on riba is mentioned in the Quran in multiple verses. Here are some examples:
"O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged." (Quran 2:278-279)
"Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever." (Quran 2:276)
"Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest." (Quran 2:275)
These verses make it clear that riba (interest) is strictly prohibited in Islam and is considered a major sin. Instead, Muslims are encouraged to engage in ethical and fair financial transactions that promote social justice and equality.
"And for their taking interest even though it was forbidden for them, and their wrongful appropriation of other people's property. We have prepared for those among them who reject faith a grievous punishment." (Quran 4:161)
"O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful." (Quran 3:130)
"O you who have believed, do not devour usury, doubling and multiplying, but fear Allah that you may be successful." (Quran 8:39)
These verses emphasize the severity of the sin of riba and warn against consuming or engaging in any form of interest-based transactions. They also encourage believers to fear Allah and seek success through obedience to His commands.
"And what you give in usury, so that it may increase upon the people's wealth, it does not increase with Allah; and what you give in charity, seeking the pleasure of Allah – it is these who will increase their wealth manifold." (Quran 30:39)
This verse draws a clear distinction between the effects of usury and charity on wealth. While usury may seem to increase wealth in the short term, it ultimately has no benefit in the sight of Allah. On the other hand, giving in charity for the sake of pleasing Allah leads to an increase in blessings and rewards. This reinforces the importance of avoiding riba and instead seeking lawful means of increasing wealth through honest work and charitable giving.
This verse emphasizes the seriousness of engaging in riba and the importance of repenting and giving up any interest that is still owed. It also warns of severe consequences for those who continue to engage in riba despite being reminded of its prohibition. The use of the word "war" highlights the gravity of the offense in the eyes of Allah and the need for believers to take this prohibition seriously.
"And because of their charging riba when they were forbidden from it, and because of their consuming the people's wealth unlawfully. We have prepared for the disbelievers among them a painful punishment." (Quran 4:161)
This verse highlights the seriousness of engaging in riba and consuming wealth unlawfully. It emphasizes that such actions are not only forbidden but also lead to severe punishment for those who persist in them. This verse also stresses that engaging in riba is a form of disbelief, further underscoring the importance of avoiding it for believers.
According to Hadith
Here's a hadith that relates to riba:
"Abu Sa'id al-Khudri reported: The Messenger of Allah, peace and blessings be upon him, said, 'Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like, payment for payment, hand to hand. Whoever pays more or demands more has engaged in riba. The receiver and the giver are equally guilty." (Sahih Muslim 1584)
This hadith emphasizes the importance of fair and equal exchange in transactions, stating that goods of the same type should be exchanged for equal value. The hadith also forbids any excess in such transactions, whether it is demanded by the seller or paid by the buyer. This excess, according to the hadith, is considered riba and is prohibited in Islam. The hadith further clarifies that both the receiver and the giver of the excess are equally guilty of engaging in riba.
This hadith is recorded in Sahih Muslim, which is one of the six major hadith collections in Sunni Islam and is considered an authoritative source of hadith.
Narrated Jabir ibn Abdullah: "The Prophet, peace be upon him, cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: 'They are all alike [in guilt].'"
(Sunan Abu Dawud, Book of Transactions, Hadith 3327)
This hadith underscores the severity of engaging in riba and the strict prohibition against it in Islam. It states that all parties involved in a transaction that involves interest (riba) are equally guilty and deserving of the curse of the Prophet.
This hadith is recorded in Sunan Abu Dawud, which is also one of the six major hadith collections in Sunni Islam and is considered an authoritative source of hadith.
Narrated Abu Huraira: "The Prophet, peace be upon him, said: 'Avoid the seven great destructive sins.' They (the people) asked: 'O Messenger of Allah! What are they?' He (the Prophet) said: 'To join partners in worship with Allah; to practice sorcery; to kill the life which Allah has forbidden except for a just cause (according to Islamic law); to eat up riba (usury), to eat up an orphan's wealth; to give back to the enemy and fleeing from the battlefield at the time of fighting, and to accuse chaste women who never even think of anything touching chastity and are good believers.'"
(Sahih al-Bukhari, Book of Sales and Trade, Hadith 2199)
This hadith emphasizes that riba is one of the seven major sins that Muslims should avoid. It is recorded in Sahih al-Bukhari, which is one of the most authentic and authoritative collections of hadith in Sunni Islam.
Narrated by Abdullah ibn Mas'ud: "The Prophet, peace be upon him, cursed the one who consumes riba, the one who gives it to others, the one who writes down the transaction, and the two witnesses to the transaction."
(Sunan Ibn Majah, Book of Trading, Hadith 2278)
This hadith indicates that riba is a serious sin in Islam and that it is not just the person who consumes it, but also those who facilitate the transaction, such as the lender, borrower, and witnesses, who are also held responsible. It is recorded in Sunan Ibn Majah, which is one of the six major collections of hadith in Sunni Islam.
Narrated by Jabir ibn Abdullah: "The Prophet, peace be upon him, cursed the one who consumes riba, the one who gives it, the one who writes it down, and the two witnesses, and he said: They are all alike (in guilt)."
(Sahih Muslim, Book of Transactions, Hadith 1598)
This hadith is also emphasizing the severity of riba and how it is not just the person who consumes it but everyone involved in the transaction who is held accountable. Sahih Muslim is another of the six major collections of hadith in Sunni Islam and is considered one of the most authentic sources of Islamic teachings after the Quran.
Narrated by Abu Hurairah: "The Prophet, peace be upon him, said: Avoid the seven heinous sins: (1) Worshipping others along with Allah, (2) magic, (3) killing the soul which Allah has forbidden except for a just cause (according to Islamic law), (4) consuming riba, (5) consuming the property of orphans, (6) fleeing on the day of the march (to the battlefield), and (7) slandering chaste women who are believers but indiscreet."
(Sahih Al-Bukhari, Book of Good Manners, Hadith 5727)
This hadith emphasizes that riba is one of the seven heinous sins that Muslims should avoid. Sahih Al-Bukhari is one of the six major collections of hadith in Sunni Islam and is considered one of the most authentic sources of Islamic teachings after the Quran.
Narrated by Jabir ibn Abdullah: "The Prophet, peace be upon him, cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: They are all alike [in guilt]."
(Sahih Muslim, Book 10, Hadith 3881)
This hadith clearly condemns both the payer and receiver of riba, as well as those who facilitate the transaction by recording or witnessing it. Sahih Muslim is another major collection of hadith in Sunni Islam and is also considered one of the most authentic sources of Islamic teachings after the Quran.
Narrated by Abu Huraira: "The Prophet, peace be upon him, said: On the night journey I met Moses who asked me: "What are you doing?" I replied: "I am enjoining my followers to do good and forbid them to do evil." "You are Muhammad," said Moses. "Tell me what will be the food of your followers in the hereafter?" "They will be fed on a green herb," I replied. "That is, bribery and unlawful appropriation of property, except such sins as Muslims may have committed against each other."
(Sunan Abu Dawud, Book 42, Hadith 3829)
This hadith highlights the severity of engaging in riba and equates it to bribery and unlawful appropriation of property. Sunan Abu Dawud is another one of the six major hadith collections in Sunni Islam and is considered a reliable source of Islamic teachings.
In summary, riba is considered a major sin in Islam and is strictly forbidden in all forms of financial transactions. Instead, Islamic finance operates on the principles of profit and loss sharing and risk-sharing, with the aim of promoting social justice and economic equality.
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