Riba can be roughly translated as "Usury" or unjust, exploitive gains made in trade or business.
Riba can be roughly translated as "Usury" or unjust, exploitive gains made in trade or business. In Islamic Fiqh the term riba has a special meaning. Riba in Islamic Banking 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.
During the dark ages, only the first form Riba An Nasiyah was considered to be Riba. The meaning of riba Islamic finance has been clarified in the following verses of Quran: But if you do not do so, then be warned of war from Allah and His Messenger.
If you repent even Riba its types, you have the right of the return of your capital; neither will you do wrong nor will you be wronged.
However, the Quran has not altogether forbidden all types of excess; as it is present in trade as well, which is permissible. The excess that has been rendered haram in Quran is a special type termed as Riba. In the dark ages, the Arabs used to accept Riba as a type of sale, which unfortunately is also being understood at the present times.
Islam has categorically made a clear distinction between the excess in capital resulting from sale and excess resulting from interest.
The first type of excess is permissible but the second type is forbidden and rendered haram. This is because they claim that riba is the same as commerce. However, God permits commerce, and prohibits riba. Thus, whoever heeds this commandment from his Lord, and refrains from riba, he may keep his past earnings, and his judgment rests with God.
In trade one earns profit as a result of initiative, enterprise, efficiency and hard work.
But the interest is not earned through hard work or any value creating process. It is not the reward of labour but is in fact unearned income.
Moreover interest is fixed whereas profit fluctuates. In case of trade there is risk of loss also, but in case of interest the lender gets his fixed amount irrespective of the fact whether the debtor earns any profit or sustains loss.
God has forbidden interest but has permitted trade. God dislikes every disbeliever, guilty. O you who believe, you shall observe God and refrain from all kinds of riba, if you are believers.
If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice.
If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew. Observe God, that you may succeed.TYPES OF RIBA Despite there are many types of Riba prevalent in the world and the Quran never stipulated any specified one, the fact of its prohibition in Quran is the prohibition of interests which were common in the pre-Islamic days1.
The first is riba al-nasi’a and the second is riba al-fadl. 4. Types of Riba: Riba has been classified into two categories: • • Riba al-nasi'a Riba al-fadl 4 Riba al-nasi'a is excess by way of deferment of completion of exchange, for example a loan of USD 1, for a deferred repayment of USD 1, a year later.5/5(1).
Riba and Its Types The word riba means excess, increase, or addition. From a Shariah point of view, it can be interpreted as: an excess compensation or unjustified .
Riba' The word "Riba" means excess, increase or addition, which correctly interpreted according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money).
Several methodologies exist in traditional and modern literature for understanding riba and its many types. However, two common elements of riba that are identified by almost all Muslim scholars and that all Shariah-sensitive investors should know are riba al-fadl and riba al-nasee’ah.
There are two types of Riba, identified to date by these scholars namely ‘Riba An Nasiyah’ and ‘Riba Al Fadl’. ‘Riba An Nasiyah’ is defined as excess, which results from predetermined interest (sood) which a lender receives over and above the principle (Ras ul Maal).