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Islamic Finance in a Minute, episode 1: Riba

An increase over principal that Shariah prohibits: extra stipulated on a loan, or an unequal exchange of certain like-for-like goods. (Shariah fundamentals)

1:03Amina (Host) · Yusuf (Expert)
0:00 / 1:03

Transcript

  1. Amina

    Hi! Islamic Finance in a Minute, episode 1. Today's term: Riba. Let's start with the word everyone hears first. What exactly is riba?

  2. Yusuf

    Riba is an increase that Islamic finance prohibits. The classic case is a loan where the lender stipulates getting back more than was lent, simply because time has passed.

  3. Amina

    So any profit on money is riba?

  4. Yusuf

    No. Profit from a real sale, a lease or a partnership is allowed. What is prohibited is a return stipulated on a loan itself, or an unequal swap of certain like-for-like items, such as gold for more gold.

  5. Amina

    And that's why Islamic banks use contracts like murabaha and ijarah?

  6. Yusuf

    Exactly. Instead of lending at interest, the bank buys and sells, leases, or invests as a partner. Each of those carries its own risk, and that risk is what justifies the return.

  7. Amina

    The full definition and related terms are in the IslamicOpenFinance™ glossary. Our voices were made with AI; see you tomorrow!

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