Riba in Islam: Is It Halal or Haram? Islamic Finance Principles
In Islamic finance, the term “riba” refers to interest or usury, which is strictly prohibited under Islamic law. The prohibition of riba is based on clear directives from the Quran and the teachings of Prophet Muhammad (peace be upon him).
Riba is an Arabic word that means “to increase” or “to exceed.” In finance, it refers to any guaranteed interest on a loan or deposit. This means that earning or paying interest on money is considered riba.
The Prophet (ﷺ) said, “Avoid the seven great destructive sins.” The people enquire, “O Allah’s Messenger (ﷺ)! What are they? “He said, “To join others in worship along with Allah, to practice sorcery, to kill the life which Allah has forbidden except for a just cause, (according to Islamic law), to eat up Riba (usury), to eat up an orphan’s wealth, to give back to the enemy and fleeing from the battlefield at the time of fighting, and to accuse, chaste women, who never even think of anything touching chastity and are good believers.
O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger.”
Riba Haram in Islam because it is seen as an unjust and exploitative practice. Charging interest on loans can lead to the exploitation of borrowers, especially those in financial need. The Quran explicitly forbids riba in several verses, emphasizing fairness and justice in financial transactions.
Since riba is haram, Muslims should avoid using it for personal benefit. If you already have accumulated interest, it is important to dispose of it in a way that is not sinful. Here’s how:
1. Give It Away to Charity
The best way to get rid of riba is to donate it to charitable causes without the intention of earning any reward (sawab) from Allah. The interest money should not be seen as a form of sadaqah (charity) because riba is haram. However, giving it away cleanses your wealth and removes the sinful nature of holding onto riba.
2. Use It for Public Welfare
Interest money can be given to public welfare projects, such as building roads, schools, and hospitals, or providing clean water. Again, the intention is not to earn a reward, but to get rid of the haram money in a way that benefits the community.
3. Pay Off Debts for Those in Need
You can use interest money to help pay off the debts of people in financial hardship, as long as you don’t expect any personal benefit or reward in return.
4. Avoid Using It for Religious Purposes
It’s important not to use interest money for religious acts, such as building mosques or buying Islamic books, as this could contradict the purpose of ridding yourself of something haram.
Can Riba Be Utilized for Personal Use?
No, you should not use riba for any personal gain, such as buying food, clothing, or luxury items. Using haram income for personal benefit is not allowed in Islam. Even if the interest money is donated or used for public good, it should never be considered a blessing or used for personal consumption.
To avoid dealing with riba, you can use Islamic banking services. These banks follow Shariah law and offer financial products that are free from interest, like profit-sharing accounts (Mudarabah) or home financing based on rent-to-own (Ijarah).
2. Invest in Halal Investments
Instead of earning interest from traditional savings accounts, consider investing in Islamic finance halal options, such as equity investments in Sharia-compliant companies or participating in business ventures that involve real economic activity.
3. Seek Financial Advice from Islamic Scholars
If you’re unsure about certain financial dealings or investments, it’s always helpful to consult Islamic scholars or financial experts who specialize in Islamic finance. They can guide you on how to manage your wealth in a way that complies with Islamic principles.
4. Avoid Conventional Loans:
Refrain from taking loans that involve interest, such as mortgages or credit card debt, and look for alternatives like Islamic financing or interest-free loans(Qard Hasan).
The Harm of Riba and Why Islam Supports Fair Trade
• Unjust Gain: Riba involves earning money without providing any goods or services in return, which is considered Riba Haram in Islam.
• Economic Inequality: It can lead to increased debt and financial hardship for borrowers, contributing to economic inequality.
• Encouragement of Fair Trade: Islam encourages trade and investment based on real economic activity, where both parties share the risks and rewards.
Frequently Asked Questions:
1. Is it Haram to pay interest on a mortgage?
Yes, paying interest on a mortgage is considered haram (forbidden) in Islam. This is because interest (riba) is explicitly prohibited in the Quran and Hadith. Riba refers to any additional amount charged on loans or debts, which creates an unjust financial burden on the borrower. In traditional mortgages, banks charge interest on the loan amount, which falls under the definition of riba. Alternative Solution: To avoid riba, Muslims are encouraged to use Islamic financing options, such as Islamic home financing (Ijarah or Murabaha models), which follow Shariah principles. These models involve profit-sharing or rent-to-own schemes rather than interest-based payments.
2. What is the difference between Riba and profit in Islam?
The key difference between riba and profit in Islam lies in how they are earned and the fairness involved in the transaction.
Riba (Interest): Riba is a guaranteed, predetermined increase on loans or debts, regardless of the borrower’s financial situation or the outcome of the transaction. It is exploitative, as the lender profits without taking any risk, and it can lead to economic inequality and hardship for the borrower.
Profit (Halal Earning): Profit, on the other hand, is earned through business activities, trade, or investments where both parties share the risks and rewards. Profit is halal (permissible) in Islam, as it involves mutual consent and fair trade. Unlike riba, profit is not guaranteed — it depends on the success of the business or investment.
Example:
Riba: A person borrows $10,000 from a bank and is required to pay back $12,000 (an extra $2,000 in interest) regardless of their financial situation.
Profit: A person invests $10,000 in a business, and if the business succeeds, they receive a share of the profits. If the business fails, both the investor and the entrepreneur share the loss.
What is Riba, is it same as Interest Money? – Assim al hakeem
Conclusion
In Islam, earning or paying interest (riba) is considered haram (forbidden), and it is important to avoid using it for personal benefit. Muslims are encouraged to engage in financial transactions that are free from riba, promoting fairness and justice in economic dealings. If you have accumulated interest money, you should dispose of it by donating it to charity, public welfare, or helping those in need, without seeking any reward. This helps cleanse your wealth and align your financial activities with Islamic principles, which encourage alternatives like profit-sharing and risk-sharing to ensure fairness.
“If you found this article helpful, please share it with others who want to learn about Riba in Islam. Stay tuned for more insightful articles on Islamic finance and principles of Halal living!”
About Me
I am Sameena Mohsin—a proud mother, blogger, nutritionist, and health coach. Being a Muslim, I believe it is my duty to share the beauty of Islam and the teachings of the Prophet Muhammad (peace be upon him) with authenticity and simplicity.
My journey began in 2018, when I started blogging about Islamic topics. Together with my co-mate, Sania Sajid Kazi, we dedicated ourselves to writing content that highlights the Sunnah and is supported by authentic Hadith.
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