Why is riba forbidden in islam

And since these terms apply to actions, it comes down to a matter of human choice and judgment. After all, haram foods will exist regardless of whether someone chooses to eat them. Thus, the broader concept can apply in various situations, one of which is riba.

The act of riba is entirely a human decision and has always been. As with other halal vs haram distinctions, though, determining which side of the line a given situation or concept falls in can be tricky when it comes to riba. Riba is an Islamic concept generally referring to growth, excess or increase. In other words, the term refers to interest paid on loans or gained on bank deposits. Riba can also mean the pursuit of illegal, exploitative business or trade gains by assessing exorbitant rates of interest — usury, in other words.

While riba is mentioned indirectly throughout the sacred text, specific passages capture an enduring message. That message synthesises passages like the following, along with several others that reinforce the overall meaning:. It can be quite a challenge to interpret sacred texts from ancient times in ways that apply to life today.

All forms of Islamic finance prohibit riba. There are two types of riba. The first type, the most common, is a loan contract Riba al-Nasiyah , whereby any amount over the original loan amount charged by the lender.

This type applies only to commodities like rice, wheat, oil, sugar, etc. If two people exchange the same product in unequal amounts, the extra would be riba. Quite a few Muslims today have only vague if any notions about the concept of riba. Even so, others consider it essential. Riba is considered socially destructive by economists, sociologists, religious scholars, and other learned people of various faiths due to the social inequities it promotes and enables.

To put it simply, riba keeps poor people poor and rich people rich. The poor are saddled with constantly replenishing debt. Meanwhile, the rich build wealth using primarily the funds they have already accumulated — which only grows due to interest accrual. Muslims have hardly been the first to see that riba or the equivalent in other faiths and cultures is unethical and perpetuates gaps in wealth and privilege. This means things can only become worse, not better. 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.

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. We have previously written a two-part series on the more academic, esoteric reasons why riba is haram here and here. 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. 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.

Check out our resources on Islamic Mortgages and Halal Investments and, if you have any questions, we have a dedicated Forum monitored by Islamic Finance Muftis. This definition is part of the Islamic Finance Definition Series. Any data collected is anonymised. By continuing to use this site, you agree to our use of cookies. Accept cookies Cookie Settings. Session log out. You haven't used your session for a while.

For your security, we will log you out soon. Log out now Continue navigating. What is Riba in Islam? Invest your money now Start Investing. Fund your business now Business Funding. Warnings against riba usury date back as far as 2, BC. Learn why so many religions despise and prohibit riba, and learn the basis for why usury is prohibited in Islamic finance.

The most famous and unique principle of the Islamic financial system is the prohibition of riba. The word riba is most commonly understood as charging or promising a fixed rate of return. For example: credit cards and conventional bank loans include riba in the a form of periodic compounding interest charged on the outstanding debt amount.

Riba is widespread and common in the modern conventional financial system. The entire conventional global financial system is based on it. Some of the oldest warnings against riba are found in the Vedic texts of India dating back to between 1, and 2, BC.

In fact classical Judaism, Christianity, and Islam alike have all unanimously agreed on the prohibition of charging interest. The Old Testament of the Bible mentions three types of verses that deal with usury. One forbids usury in general, without reference to Jews or non-Jews. Do not take advantage of a widow or an orphan If you lend money to one of my people among you who is needy, do not be like a money lender, charge him no interest.

You must not lend him money at interest or sell him food at a profit. Third set of verses forbids the Jews to take usury from other Jews, but allow them to take usury from others such as Deuteronomy The New Testament of the Bible shows that Prophet Jesus peace be upon him not only prohibited interest, but asked his followers not to take back even the principal of the loan, and to lend not only to friends but even to enemies.

Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back. Then your reward will be great, and you will be children of the Most High, because he is kind to the ungrateful and wicked.