What's Islam's take on Riba?

In Islam, Riba refers to the concept of usury or interest. It is explicitly prohibited in the Quran and Hadith (the sayings and actions of Prophet Muhammad, peace be upon him). The prohibition of Riba is mentioned in several verses of the Quran, including Surah Al-Baqarah (2:275-278) and Surah Al-Imran (3:130).

The Quran describes Riba as an unjust and exploitative practice that leads to economic inequality and social injustice. Islam encourages a fair and just financial system that promotes equality and cooperation among individuals. Instead of seeking profits through lending money, Islam encourages investment in productive and tangible assets.

Islamic finance provides alternative methods for financial transactions that are free from Riba. It promotes principles such as profit-and-loss sharing, partnership-based contracts, and asset-backed transactions. Examples of these financial instruments include Musharakah (partnership), Mudarabah (trust financing), and Murabaha (cost-plus financing).

It is important to note that the prohibition of Riba primarily relates to lending and borrowing money with interest. However, Islam permits trade and business transactions where profit is generated from the selling of goods/services at a higher price than the cost price. This is known as Halal profit and is considered lawful in Islam.

Islamic scholars and financial institutions have worked on providing Sharia-compliant financial products and services that adhere to the principles of Islamic finance, avoiding Riba and promoting ethical financial practices. It is recommended for Muslims to seek such alternatives when conducting financial transactions to align with the teachings of Islam.