Riba (literally "increase" or "excess") is the prohibition of interest or usury in Islamic finance. It is one of the most fundamental principles in Shariah-compliant economics. The Quran explicitly prohibits riba in several verses, and it is considered among the most serious financial transgressions in Islamic teaching.
Scholars distinguish between two main types: Riba al-Nasiah (interest on loans, where a lender charges a premium for deferred payment) and Riba al-Fadl (excess in exchange, where unequal quantities of the same commodity are exchanged simultaneously). Both forms are prohibited, though Riba al-Nasiah — which encompasses conventional bank interest — is the more commonly encountered form in modern finance.
The prohibition of riba has led to the development of alternative financial structures. Instead of interest-bearing loans, Islamic finance uses profit-sharing (Mudarabah, Musharakah), cost-plus sale (Murabaha), and leasing (Ijara) arrangements. These structures ensure that returns are tied to real economic activity and risk-sharing rather than guaranteed interest on capital.
Frequently Asked Questions
Is all bank interest considered riba?
Most scholars consider conventional bank interest — whether on savings accounts, mortgages, or personal loans — to fall under the prohibition of riba. Islamic banks offer alternative structures that avoid interest.
Why is riba prohibited in Islam?
The prohibition is based on explicit Quranic verses and Hadith. Scholars explain that riba creates unjust enrichment, exploits borrowers, and disconnects returns from real economic productivity and risk-sharing.
Related Terms
Gharar(غرر)
Excessive uncertainty or ambiguity in a contract. Transactions with significant gharar are considered impermissible in Islamic finance.
Maysir(ميسر)
Gambling or games of chance. Any transaction where the outcome depends entirely on chance is prohibited in Islamic finance.
Murabaha(مرابحة)
A cost-plus sale where the seller discloses the original cost and adds an agreed-upon profit margin. Widely used in Islamic banking.
Mudarabah(مضاربة)
A profit-sharing partnership where one party provides capital and the other provides expertise. Losses are borne by the capital provider only.
Musharakah(مشاركة)
A joint partnership where all parties contribute capital and share profits and losses according to their investment ratio.
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