What is RIBA? Why it is prohibited in ISLAM?

In our globally connected society, the concept of riba, often referred to as interest or usury, plays a pivotal role not only in financial transactions but also in shaping economic structures, social relationships, and ethical values. This deep dive explores the wide-ranging effects of riba on economies and societies, emphasising the importance of Islamic finance.

Riba significantly influences various aspects of the economy, most notably through the exacerbation of wealth inequality. This system channels resources from the less affluent to the wealthy, perpetuating a cycle of economic disparity and obstructing efforts aimed at fair wealth distribution.

Additionally, economies that depend on interest-based financing are prone to increased volatility and are more susceptible to financial crises. Riba-driven speculative investments can warp market dynamics, redirecting funds away from productive economic activities and hampering long-term sustainable growth.

The repercussions of riba extend beyond economics into the social and moral fabric of communities. Families and communities grappling with high interest rates face significant financial stress, which can fray interpersonal relationships and weaken the bonds of societal cohesion. Moreover, riba contributes to higher poverty rates, reinforcing cycles of deprivation and blocking pathways to social mobility and inclusive development. Ethically, riba contradicts the principles of fair finance, eroding transparency, fairness, and equity in financial dealings.

Quranic References: ٱلَّذِينَ يَأْكُلُونَ ٱلرِّبَوٰا۟ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيْطَـٰنُ مِنَ ٱلْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوٓا۟ إِنَّمَا ٱلْبَيْعُ مِثْلُ ٱلرِّبَوٰا۟ ۗ وَأَحَلَّ ٱللَّهُ ٱلْبَيْعَ وَحَرَّمَ ٱلرِّبَوٰا۟ ۚ فَمَن جَآءَهُۥ مَوْعِظَةٌۭ مِّن رَّبِّهِۦ فَٱنتَهَىٰ فَلَهُۥ مَا سَلَفَ وَأَمْرُهُۥٓ إِلَى ٱللَّهِ ۖ وَمَنْ عَادَ فَأُو۟لَـٰٓئِكَ أَصْحَـٰبُ ٱلنَّارِ ۖ هُمْ فِيهَا خَـٰلِدُونَ ٢٧٥ “Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allāh has permitted trade and has forbidden interest. Whoever refrains—after having received warning from their Lord—may keep their previous gains, and their case is left to Allah. But whoever returns [to dealing in interest or usury] - those are the companions of the Fire; they will be there forever.” (Surah Al-Baqarah 2:275)

Recognising the profound influence of riba is critical for moving towards more ethical and sustainable financial practices. By adopting principles of Islamic finance and considering alternative financial models, societies can foster more equitable economic systems. Exploring Sharia-compliant financial instruments and other non-interest-based finance options can offer viable alternatives that promote risk-sharing, reduce inequality, and enhance economic stability.

In summary, the complex nature of riba and its broad implications call for a thorough understanding and proactive measures to mitigate its effects. By embracing Islamic financial practices, we can pave the way for a more equitable and sustainable future in global finance.