Riba

What is Riba in Islam?

In Islam, the most common form of Riba is interest that is charged on borrowed money. This may be in the form of loans or deposits. The literal meaning of Riba in Arabic is ‘to exceed’, referring to the additional money which is added to that which has been borrowed.

Islam forbids interest (Riba), both receiving and paying it. Many of us can end up accumulating interest through our bank accounts even if we don’t want it, so what should we do with Interest money?

Since it is not permissible to utilise interest for one’s own benefit one should donate it to charity. Although there may be no religious reward for doing so, it disposes of the haram funds in a shariah-compliant way.

What is considered Riba in Islam?

In Islam, Riba is interest gained or paid on transactions or savings. This includes:

Any interest earned from savings accounts, ISAs and other savings investments.
Interest earned by lending money, property or goods.
Payments of interest for credit card fees, loans or mortgages.
In the case of donating Riba to charity, you would be required to donate the amount of interest earned e.g. the money accumulated as savings interest.

What is difference between Riba and interest?

Essentially there is no difference. “Riba” is the Arabic word which is used in an Islamic context. As with all Islamic affairs, we would recommend consulting an Islamic expert on finance for any concerns, queries or questions you may have.

Why Riba is prohibited in Islam?

Allah (SWT) tells us in the Holy Qur’an to not engage in interest-based transactions/investments:

O you who believe! Fear Allah and give up what remains [due to you] of interest, if you are true believers.
Qur'an | 2:278

High levels of interest can lead to debts and financial insecurity, exploiting people on low incomes and without a financial safety net.
Islam instead encourages non-interest based giving, charity and long-term investments for the benefit of others such as Sadaqah Jariyah and Waqf projects. Zakat also ensures a social-security net for people in need.

Is Riba a major sin?

Riba (interest) is generally considered one of the major sins in Islam and explicitly discouraged in the Qur’an.

What should we do with interest money?

Ideally, we should not invest/engage in interest-based activities. However, this may not always be possible.

In this case, you can keep note of any interest earned and donate the money to charity in a Shariah-compliant way (for halal purposes).

Here at Islamic Relief, your donations help us save lives and are implemented in Shariah-compliant projects.

Riba vs. Murabaha

Murabaha is a financing structure which involves a contract between a lender and borrower in which a set fee is added to the money borrowed, in the place of interest.

Riba and Murabaha are similar in that they both involve adding a markup to money that has been borrowed. However, Murabaha is a specific type of financial contract and includes a number of other conditions such as a third party involvement as well as adding a fixed amount of money to a loan, which is agreed in advance.

What are the types of Riba?

There are two main types of Riba according to the Holy Qur’an and teachings of the Prophet Muhammad (peace be upon him). These are:

1. Riba al-Nasi’ah

This translates to ‘the interest of delay’, and is the most common form of interest. It is time-specific interest- referring to the addition of money on loans in which there is a delay in returning the money.

2. Riba al-Fadl

This translates to ‘the interest of excess’ and is a less common form of interest. It refers to the buying and selling of goods, in which transactions are unfair and exploitative. It is where two items are exchanged in a particular deal of the same type but the quantity of one of them is more than the other.

Sell gold for equal [amounts of] gold, sell silver for equal silver, sell dates for equal dates, sell wheat for equal wheat, sell salt for equal salt, sell barley for equal barley. Should one transact in excess, it is riba (interest). Yet sell gold for silver as you like hand-to-hand, sell barley for dates as you like hand-to-hand.
Hadith | Tirmidhi

How can Muslims avoid Riba?

In a society where usury is common, it can be difficult to avoid Riba completely. The majority of banks, mortgages and financing systems involve some level of interest.

There are differences in opinion among scholars on whether Riba is permissible in certain situations, in which there is no alternative. It’s important to consult your local Imam if you have any questions related to Riba.

Here are some tips on how to avoid Riba:

Avoid taking credit cards if possible, and use interest-free debit accounts only. Credit cards are based on interest and a buy-now, pay-later structure. The later you pay back the credit, the higher the interest charged. If you cannot avoid using credit cards completely, ensure you pay off your credit card debts as soon as possible, before interest charges are added.
If you can afford to, aim to rent a home, or save enough money and borrow from friends and family to buy a property without the need for a mortgage.
Explore Islamic finance options. There are currently around 50 Islamic banks offering banking services in 23 countries, including a few Western non-Islamic banks which have Islamic windows. Islamic banks can also offer Islamic mortgages.

How can you get forgiven for Riba?

If you have committed Riba in the past, it’s essential that you ask Allah for forgiveness.

Allah extends his Divine Mercy to all those who turn to Him with sincerity and supplicate for forgiveness.

The following is a Dua for forgiveness from the Qur’an:

رَبَّنَآ إِنَّنَآ ءَامَنَّافَٱغْفِرْ لَنَا ذُنُوبَنَا وَقِنَا عَذَابَ ٱلنَّارِ

Transliteration: “Rabbanaaa innanaaa aamannaa faghfir lanaazunoobanaa wa qinaa ‘azaaban Naar’

Translation: ”Our Lord! surely we believe, therefore forgive us our faults and save us from the chastisement of the fire”(Al-Imran, Chapter 3, Verse 16)

What kind of Riba is haram?

Both Riba al-Nasi’ah- ‘the interest of delay’ and as Riba al-Fadl- ‘the interest of excess’ are haram.

However, scholars disagree on whether Riba is permissible in certain situations, such as getting a mortgage to buy a house.

Some scholars also believe that Riba may only refer to excessive interest. However, to the majority of scholars, the whole concept of interest is forbidden in Islam.

ref : Islamic Relief Worldwide website

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