Saturday 3 February 2024

Interest based transactions in Islam

In Islam, the concept of interest, known as "riba," is considered forbidden and is strictly prohibited. Riba refers to the charging or paying of interest on loans or financial transactions. The prohibition of riba is explicitly mentioned in the Quran and is emphasized in various Hadiths (sayings and actions of Prophet Muhammad).

The primary Quranic verses regarding riba are found in Surah Al-Baqarah (2:275-281). Here are some key verses:

"Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to dealing in interest or usury - those are the companions of the Fire; they will abide eternally therein." (Quran 2:275)

Islamic scholars have interpreted riba broadly, encompassing not only usury but any unjust increase or excess gained from a financial transaction. The prohibition of riba is rooted in Islamic principles of justice, fairness, and the avoidance of exploitation. The Quran encourages fair and ethical economic practices that benefit society as a whole.

Islamic finance offers alternative models that comply with Sharia principles, such as Mudarabah (profit-sharing), Musharakah (partnership), and Islamic banking systems that avoid the payment or receipt of interest. These financial instruments aim to promote economic justice and ethical behavior in financial transactions.

It's important to note that the prohibition of riba is one of the fundamental principles in Islamic finance, and Muslims are encouraged to seek Sharia-compliant alternatives when engaging in financial transactions. Scholars and financial experts work to ensure that financial systems align with Islamic principles while meeting the modern needs of the Muslim community.



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