Lecture Notes on Riba in Islamic Finance

Definition of Riba

• Riba is often translated as "interest," but it encompasses a broader and more technical understanding in Islamic finance.
• The primary manifestation of Riba is similar to what we know as interest.
• Historically, Riba was prevalent in many societies, including pre-Islamic Arabia.

Common Form of Riba

• Example: Loaning 1000 dinars and demanding 1100 after two months, with increasing amounts for delays.
• This form remains common today.

Islamic Prohibition of Riba

• Prophet Muhammad (PBUH) explicitly forbade Riba.
• The Quran equates engaging in Riba to declaring war against God and His Messenger.
  • No other sin in Islam has such a severe description.

Economic Injustice of Riba

• Riba is seen as the foundation of economic injustice in Islam.
• It allows rich individuals to profit solely because they are wealthy.
• The poor take significant risk while the rich ensure a guaranteed return.

Islamic Perspective on Wealth

• Wealth should not remain solely among the rich.
• Wealth should be distributed to benefit everyone, not just the affluent.
• Islam promotes investment and shared risk rather than guaranteed profit.

Riba as a Major Sin

• Riba is one of the seven deadly sins in Islam, on par with murder and idol worship.
• Muslims should avoid earning through Riba and not engage in Riba-based contracts.

Alternative Methods in Islamic Finance

• Sharia-compliant options include:
  • Interest-free loans.
  • Charity.
  • Investment with shared profit and loss.
• Entrepreneurs should present solid business plans to attract investments.

Conclusion

• The Western model of guaranteed profits from wealth is seen as economic injustice.
• Muslims are strongly advised to avoid Riba and adhere to Islamic financial principles.

Dua: May Allah protect us from engaging in Riba and committing major sins.