1 Ramadan: Trade VS Riba
Let us explore briefly the wisdom why riba is forbidden by Allah SWT.
Definition of riba:
The word “Riba”, in Arabic language, literally means an “increment” or “addition”. In Islamic Fiqh one of the meanings of riba refers to an unjustified increment in borrowing or lending money, paid in kind or in money above the amount of loan, as a condition imposed by the lender.
Why is riba unlawful?
This concerns exploitation of the lender’s hardship. For example, a customer goes to the bank to make a RM100,000 personal loan, and the bank charges him 8% interest (amounting to RM8000 in this sample case) because the bank facilitates the monetary funds needed.
This 8% interest is riba. A customer without readily available funding to pay for his or her financial needs would go to the bank for a loan, and this need is in turn exploited by the bank, in the form of interest. So, the RM8000 made by the bank is a result of exploitation of the difficulties faced by customer. This situation puts the customer in oppression. Furthermore, when in the case of default, bank charges with compounding penalty.
Riba is explained further in the full Quranic verse of Surah al-Baqarah 2:275:
Those who consume riba (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. So, whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to (dealing in interest) – those are the companions of the Fire; they will abide eternally therein.
Riba hinders goodness
Riba is opposed with the call to goodly and lawful things in acquiring wealth and consumption in general. As explained in the hadith below:
On the authority of Abu Hurairah RA who said: The Prophet of Allah said: “Allah the Almighty is good and accepts only that which is good. Allah has commanded the Believers to do that which He commanded the Messengers, and the Almighty has said: “O ye Messengers! Eat of the good things, and do right.” (al-Mu’minun 23:51). And Allah the Almighty has said: “O ye who believe! Eat of the good things wherewith We have provided you..” (al-Baqarah 2:172). Then he mentioned [the case of] a man who, having journeyed far, is dishevelled and dusty and who spreads out his hands to the sky [saying]: O Allah! O Allah! While his food is unlawful, his drink is unlawful, his clothing unlawful, and he is nourished unlawfully, so how can he be answered!” (Muslim).
In a nutshell, riba is unlawful as the increment is unjust and causes harm, therefore hindering goodness, and is unaccepted by Allah SWT. Issues of riba and the ways of Islamic banking without riba is discussed deeper in IBFIM programmes.
IBFIM Online offers Associate Qualification in Islamic Finance (AQIF) as a series of modules, where practitioners may access anytime, anywhere. Try our 5-day trial and find out for yourself the convenience of online learning with IBFIM.