Riba Contextualised

In the Islamic worldview, justice denotes placing things in their rightful place.  It also means giving others equal treatment.  In Islam, justice is also a moral virtue and an attribute of human personality, as it is in the Western tradition.

The Quran, the sacred scripture of Islam, considers justice to be a supreme virtue.  It is a basic objective of Islam to the degree that it stands next in order of priority to belief in God’s exclusive right to worship (Tawheed) and the truth of Muhammad’s prophethood.  God declares in the Quran:

“God commands justice and fair dealing…” (Quran 16:90)

Among the most important teachings of Islam for establishing justice and eliminating exploitation in business transactions is the prohibition of all sources of ‘unjustified’ enrichment. The Quran and Sunnah have given principles whereby a Muslim society can know what constitutes a ‘wrongful or unjustified source’ of earning or acquisition of property from others.

One of the important sources of unjustified earning is receiving any monetary advantage in a business transaction without giving a just counter-value. In the Islamic value system, riba represents a prominent source of unjustified advantage.

Riba literally means increase, addition, expansion or growth. It is however, not every increase or growth which has been prohibited by Islam

The prohibition of riba appears in the Quran in four different revelations.

  1. The first of these emphasizes that while interest deprived wealth of God’s blessings, charity raised it manifold.

  2. The second ayah severely condemned interest, in line with its prohibition in the previous scriptures. It placed those who took riba in juxtaposition with those who wrongfully appropriated other people’s property and threatened both with severe punishment from God.

  3. The third revelation enjoined Muslims to keep away from riba if they desired their own welfare.

  4. The fourth revelation established a clear distinction between trade and riba and required Muslims to annul all outstanding riba, instructing them to take only the principal amount, and forego even this in case of the borrower’s hardship.

What is
Riba/Interest?

8.3%

SA MUSLIMS WITH NO KNOWLEDGE OF RIBA

68.7%

LOW LEVEL KNOWLEDGE OF ISLAMIC BANKING TERMS

73%

SA MUSLIMS WITH A MED TO HIGH KNOWLEDGE OF RIBA

20.8%

MUSLIMS WHO CONSULT AN ISLAMIC SCHOLAR ON ISLAMIC FINANCE SOLUTIONS

To charge interest from someone who is forced to borrow to meet his essential consumption requirement is considered an exploitive practice in Islam. Since riba cannot be used in financial transactions, profit and loss-sharing (PLS) arrangements and risk-sharing investments are used in Islamic banking as alternative methods for financial transactions.

In the Shari’ah, riba technically refers to the ‘premium’ that must be paid by the borrower to the lender along with the principal amount as a condition for the loan, or for an extension in its maturity.

Two major forms of riba are defied in Islam.

  1. Riba al-qarad which is to usury involving loans, and

  2. Riba al buyu which relates to usury involving trade.

The practice of both kinds of riba was will established by the pagan Arabs before the lime of the Prophet (SAW), though he reminded his companions that riba (could be practiced in many different ways.

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Alternatives to
Riba-Tainted Earnings

Islamic Banking

The purpose of Islamic banking is primarily to expand the ring of unity among Muslims and to ensure a fair distribution and utilisation of funds in compliance with Islamic principles and teachings.

Despite its name, Islamic banking and finance is fast gaining ground with non-Muslims throughout the world owing to its strict lending principles, reflecting industry efforts to transcend religious beliefs to gain greater market share.

Moreover, since the onset of the global credit crisis that has cast doubt on many Western risk management practices, non-Muslim investors have also been looking for less risky alternatives.

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Tips to avoid RIBA

The Prophet, upon him be peace, taught,

“A time will come over people when not a one of them will remain other than consumers of interest; and even those who do not consume it will be effected by its dust.”

  • Having tawakkul that Allah will provide for you and your family

  • Not taking out loans which incur interest

  • Choosing halal investments (for example gold rather than the stock market)

  • Renting and saving the cash for a home instead of a mortgage

  • Being wary of contracts you sign and having a student of knowledge/imam/shaykh check them

  • Opening up bank accounts without interest (in other words, chequing accounts)

  • Making bill payments on time so as not to incur a late penalty (set your account to automatic payment so the bank will automatically withdraw and you will be sure to not pay late)

  • Borrowing money from family or friends where possible

  • Not buying what you simply don’t have the money for – live within your means

  • Dealing with Islamically compliant banks

  • Accepting/Organizing a “Goodly Loan” (al Qard al Hasanah), which is a loan by means of which one intends to show kindness to another, which does not involve taking Riba

You may also consider attending seminars and events on Halal Investments and learning from others how they have done it to get out of the current RIBA systems.

“…but whoever returns (to dealing in Riba), such are the dwellers of the Fire- they will abide therein”.

(Surah Baqarah, verse 275).