Prohibition of Riba (Usury and Interest)
by Bilal Dannoun
As the Founder and CEO of Barakah Capital, my commitment to guiding our community towards ethical financial practices is paramount. A critical aspect of this guidance is addressing Riba, or interest-based transactions. Despite its clear prohibition in Islam, the casual approach some adopt towards riba is deeply concerning.
The Qur’an unequivocally condemns riba, with Allah declaring war on those who engage in it (Qur’an, 2:278-279). The Prophet Muhammad (peace be upon him) extended this prohibition, cursing those involved in riba transactions in any capacity (Sahih Muslim). This comprehensive ban underscores the severity of riba’s impact on both our spiritual and financial well-being.
Understanding the Types of Riba
Riba manifests in two primary forms: Riba Nasia (interest on loans) and Riba Al-Fadl (surplus interest in trade). Both types undermine economic justice and are strictly prohibited in Islam.
1. Riba Nasia: Interest on Debt
Riba Nasia occurs when money is loaned with interest charged on the repayment. This type is prevalent in modern banking and finance.
Practical Example: A “no interest” credit card offer, which charges interest retroactively if the balance is not paid within a specific period, is a clear example of Riba Nasia.
2. Riba Al-Fadl: Surplus Interest in Trade
Riba Al-Fadl refers to the unequal exchange of goods of the same type.
Practical Example: Trading lower quality dates for higher quality ones in unequal amounts is considered Riba Al-Fadl. The Prophet advised selling the inferior dates for money and then buying the superior dates to avoid riba (Sahih Muslim).
Why Is Riba Haram? The Wisdom Behind Its Prohibition
The prohibition of riba is not arbitrary; it is grounded in profound wisdom aimed at ensuring fairness, equity, and social welfare:
- Prevention of Inequality: Riba contributes to wealth accumulation by the rich, widening the gap between them and the poor. Its prohibition ensures that wealth circulates within the community, reducing inequality.
- Encouragement of Entrepreneurship and Productive Investment: By discouraging hoarding and idle money, Islam encourages investment in productive ventures that contribute to the community’s economic growth and development.
- Promotion of Risk-Sharing: In Islam, profit should come from risk-taking. Riba removes the risk from the lender and places it entirely on the borrower, disrupting the balance of risk and reward.
- Protection from Exploitation: Riba exploits those in need by binding them in a cycle of debt and dependency. Its prohibition protects the vulnerable from financial exploitation.
- Fostering Social Cohesion: By prohibiting riba, Islam promotes a culture of cooperation, mutual support, and empathy, strengthening the social fabric of the community.
Navigating Modern Financial Practices
At Barakah Capital, we are dedicated to offering Sharia-compliant financial solutions that respect these principles. Our commitment to ethical finance is about upholding a system of equity, fairness, and moral integrity.
Concluding Words
The prohibition of riba is a divine directive aimed at preserving the social fabric of our community, ensuring fairness, and preventing exploitation. By understanding and adhering to these principles, we contribute to a more just and equitable society.
Let us commit to seeking financial solutions that are not only profitable but also ethically sound and in harmony with our values. Together, we can achieve a balance between financial success and spiritual fulfillment.
