Home > Fiqh, Money > Riba: The Forbidden Fruit

Riba: The Forbidden Fruit

Allah Almighty has decreed in the Quran that
“…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]

There are numerous ayat and ahadith in the Quran that prohibit Riba or Interest. In this short essay, we will attempt to look at the difference between the trade which Allah has allowed and Riba which The Almighty All Wise has forbidden.
Trade generally refers to the buying and selling of goods, services, houses, other necessities and luxuries that are needed for people. Trade is the fuel of the economy and means of livelihood that Allah Azzawajal has provided.
Riba on the other hand refers (linguistically) to illegal gains or increase in particular things. This can be consumed through conditional excess for delay of payments (ribah nisiah) or through selling of an item for another of the same type, on the spot, but in excess (ribah –fadl).

One may wonder that banks have become common place in today’s economy, virtually across the globe and they essentially survive based on riba. Is it really that bad? Some of the reasons riba is banned are that it leads to many social evils such as consuming people’s wealth unjustly, making money without producing anything, causing harm to the needy by placing extra burden, preventing good loans ( w/out interest), stopping gains, trades, profession and other business ventures where money could have been diverted towards instead of talking the “easy route” and making money out of nothing “risk free”.

On the other hand legal trade facilitates fulfilling the material need of the buyer and increasing the buying power of the seller. It helps both parties. In Riba transaction, the risk is borne by only one party (the lendee) and the one giving the loan pockets all the gains. In trade, the risk of profit/loss is shared by both parties, making it more just. Riba transactions promote “production-less” economies, where nothing physical is produced out of the transaction. Trade based transactions on the other hand promote the creation of goods, services and jobs, thereby becoming a source of livelihood and a vehicle for the rotation of capital across many players in the society. On the contrary, riba promotes the unfair accumulation of wealth in the hands of the elite few

Furthermore, Allah has stated that:

“Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.” [Quran: 2:276]

This ayah indicates that Allah azzawajal strips the barakah out of riba transactions and condemns those who continue this evil practice as “sinning disbelievers.” There are many more ayaths and hadith indicating the severe punishment in the Akhira for those who practice this evil societal act.
Now let us look at some of the actual transactions to help us identify what exactly are Riba based transactions and what constitutes legal trade. There are essentially two types of Riba. The first is Riba Nisai which constitutes increasing the debt on an insolvent person. This includes charging a fixed interest rate or charging late fees for delay in repayments. The second type is Riba Fadl which constitutes selling an item for another of the same type but in excess. Prophet Muhammad (PBUH) stated that

“Gold is to paid for gold, silver for silver, wheat for wheat, barley for barley, dates for dates and salt for salt, like for like and equal for equal, and payment is to be made hand to hand.” (Ahmad and Muslim)

In other words, if you are exchanging an item for another of the same type or class or quality, then the exchange has to take place for equal amounts and payment should be made on the spot. This should be taken into consideration during purchase of gold, exchange of like currencies etc.

Another form of forbidden transactions is Inah, in which a person buys an item and sells it back to original seller at a deferred higher price. This is considered indirect riba and is forbidden. For instance, Ahmed buys a car from Abu Umar for $20,000. Abu Umar immediately sells it back to Ahmed for $25,000, in installments over 5 years. This transaction is clearly a interest based loan, trying to use the car as a loophole. Prophet Muhammad has stated that:

“Indeed actions are based on intentions…” (Bukhari & Muslim)

All transactions that don’t involve Riba or Gharar (gambling) or cheating are normally allowed.
Allah The All Wise The All Mighty has legislated the sharia for our wellbeing and our Creator knows what is best for us. He has stated that the characteristic of the believer is that “…we hear and we obey”. Additionally, only a snapshot has been provided in this essay on the evil springing from this filthy practice of riba and the blessings of the halal alternative to create prosperity and livelihood while fulfilling our needs: trade. In closing, I end with this command from Allah Azzawajal:

“O you who have believed, fear Allah and give up what remains of interest, if you should be believers. And if you do not, then be informed of a war from Allah and His Messenger. But if you repent, you may have your princplal – you do no wrong, nor are you wronged.” [Quran 2:278-279]

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