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Islamic Economics – Understanding the Concept of Riba

Published: 22/12/2011 07:30:00 PM GMT
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Riba is a fundamental concept in Islamic economics. Riba is explicitly prohibited by the Qur'an and by Islamic law. This goes contrary to many capitalist practices in modern economics. The word Riba can be literally translated as “increase”. However, it is usually understood as usury, or interest. That is, it is an increase that has nothing to do with an item's true value. In other words, an increase that is not due to simple supply and demand or to an improvement in a particular item. Riba is considered a major sin against God. Specifically, Riba is used to refer to the case in which a lender or a creditor demands a price that is above the amount that is lent out. Riba can also refer to an increase that is gained through a manipulation of prices, corrupt practices, or fraudulent circumstances.

Islamic law considers two different forms of Riba: unfair or uneven trades and an increase in earnings without providing any services. The Qur'an defines Riba as an increase over the principal, which in today's modern economic system is defined as interest. Muslims consider that Riba is among the Seven Heinous Sins, which include blasphemy, magic, murder, stealing from orphans, falsely accusing pious women, and fleeing from the battlefield. The Qur'an states several times that Riba is to be prohibited. In his last sermon, the prophet Muhammad spoke specifically against Riba and revoked all Riba obligations. Because of these circumstances, the prohibition on Riba is not a point of discussion or difference between different Muslim schools of thought. The prophet Muhammad cursed not only those that deal in Riba, but those who receive it and those that witness it. It is, however, important to understand that Islam does not condemn trade. Riba and trade are not the same, and the Qur'an specifically makes the difference between the two.

Islam considers that Riba is a way to oppress others. It is a way for people to exploit the needs of others in order to make money. Islam promotes charity instead of Riba. In fact, the prophet Muhammad declared that Riba is a greater sin than drinking alcohol or eating wine. When asked whether Riba was worse than being an adulterer, the prophet Muhammad replied that Riba is worse than commiting adultery with one's own mother. Non-Muslims often fail to understand the problem Muslims have with Riba. However, with these kinds of pronouncements by the Qur'an and the prophet Muhammad, there is absolutely no doubt that lending with interest is completely contrary to the Islamic faith and what Muslims believe at a fundamental level. Modern economics deal largely with interest, which is why Muslims use an Islamic economics system that avoids breaking the prohibitions against Riba.

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