What is Riba?

Dr. Monzer Kahf, a prominent Muslim economist and counsellor, answers: Riba is any contractual increment in a lending relation. It is prohibited and considered one of the major sins and acts of disobedience to Allah. The parties to a Riba-based contract are declared war on by Almighty Allah and His Messenger, as stated in the Qur’an, Surat Al-Baqarah 2, verse 279: “And if ye do not, then be warned of war (against you) from Allah and His messenger.”

The Prophet, peace and blessings be upon him, invoked the wrath of Allah on the person who deals with Riba, the one who gives it and the person who writes its contract. The Prophet, peace and blessings be upon him, also classified dealing with Riba as worse than adultery. Both sayings of the Prophet are classified as authentic Hadith.

Bank interest is plain Riba, no more no less because the relation is a lending relation and there is an increment. Although the matter is so clear from the definition of Riba. The OIC Fiqh Academy discussed it in one of its meetings and resolved that “banking interest is the same as the Riba that is declared Haram (prohibited) in the Qur’an.”

The prohibition of Riba does not mean that financing is free, it rather means that financing has to take other forms and other venues. Permissible venues include leasing, if no other conditions that violate rules of Shari’ah are attached to it, deferred-payment sale or instalment sale, and equity financing.

Of course, the Shari’ah has a general and basic objective that its rulings are always for the good of people, women and men, in both this life and the Hereafter. One of the Shari’ah rules is that any prohibited thing may be relaxed in case it becomes necessary. For instance, a person lost in a desert and in need to drink for survival may drink alcohol if nothing else could be found. Such a relaxation of prohibition is certainly restricted to the amount of necessity and each person must find out his limit of necessity on her/his own self, keeping in mind that Allah the Almighty is the one who is going to judge and Allah cannot be fooled by a false excuse. In other words, anything made under the rule of necessity should be made only to the limit of necessity, no more.

Buying a car with an interest-based loan from a conventional bank is a Riba-based transaction. One has to find some other form of contract, some sale opportunity that gives financing without interest, try to always save more for a cash purchase, and with vivid consciousness apply the rules of Shari’ah, including the necessity rule.