Riba

Riba, Its Economic Rationale and Implications

By Dr. Abdel-Rahman Yousri Ahmad

Director General

Institute of Islamic University

Pakistan

Introduction

The word "Riba", in Arabic language, literally means an "increment' or addition". In Islamic Fiqh the term riba has a special meaning. Riba is 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 or voluntarily by the borrower. Riba defined in this way is called in Fiqh riba al-duyun (debt usury). Riba also is an unjustified increment gained by the seller or the buyer if they exchanged goods of the same kind in different quantities. This is called "riba al-fadl" or "riba-al-buyu" (trade usury).

The Prophet (p.b.u.h.) exposed to his companions, also, this form of riba known as "riba al-buyu". He warned them that barter exchange of commodities of the same kind will be leading to riba. He (p.b.u.h.) advised all traders to use money for the exchange of such goods to avoid riba. In Islamic literature this kind of riba is also described as riba al-khafi, i.e. disguised or implicit riba, in contrast to "riba al-duyun" which is considered "Jali" i.e., explicit or clear.

Riba prohibition in Quran is mentioned in three distinct passages. To consider the chronological order of the Quranic revelation, Allah, firstly, gave a warning (Sura 30:39) that riba earnings will be wiped out while persons giving charity will be rewarded more than they have spent. Secondly, believers have been ordered, and warned never to take riba at compound rates (Sura 3:130). Thirdly riba in all forms was utterly condemned, and those cared not for its prohibition were threatened a holy war to be waged against them by Allah and his Messenger (Sura 2:275-279). It was made clear that riba transaction is different than trade and that it is the Will of Allah to prohibit riba irrespective of any reasons which may be given for its support. Prohibition of riba in...