Riba is an Islamic word which translates most closely to Interest. According to El-Gamal (2003), Riba is used in the concept of banking and is regarded as an act of exploitation for financial gains, which is similar to usury. Although the act of usury is considered unethical and unjust in all law systems, the Islamic Law states that the act of all Riba is a serious sin and is strictly prohibited is Islamic Law, thus all types of interest is considered illegal (Foster 2007). It is therefore, commonly known that interest is illegal in Islamic law and there is no business of lending money in return for higher interest.
The main reason why Riba is prohibited in Islamic law is the fact that Allah forbade all Riba, and thus it has become part of the divine order(Visser 2013). All Islamic laws will be based on Islamic religious beliefs and Allah strict forbade all Riba. This meant that banks cannot operate on interest rates. The main reasons why Riba is prohibited by Allah is the fact that interest will cause the person that lends something for interest to separate himself from Allah. The concept revolves around the fact that a person who can depend on interest will lose his way with Allah.
Riba is also considered as a sin. There are 3 reasons why riba is prohibited in Muslim world. Firstly, it leads to inequity. The interest paid to the lender will make the latter better off while the borrower takes disadvantage. The second reason is that the lender might not be interested in doing any business other than receiving the interest. Qureshi (1991) stated that riba will hinder the progression of the world productivity. Thirdly, it is against the concept of mutual sympathy, human goodliness and obligations. This is because riba can lead to borrowing and overspending
There are many types of common business practices which will be considered Riba such as discount interest, default interest, compensatory interest, legal interest, etc. All these types of interest would theoretically be considered Riba and is therefore prohibited in Islamic law.
“…if ye repent, ye shall have your capital sums; deal not unjustly and ye shall not be dealt with unjustly”(Dutton 2013)
“God has forbidden you to take usury (riba), therefore all riba obligation shall henceforth be waived. Your capital, however, is yours to keep. You will neither inflict nor suffer inequity” (Dutton 2013).
These two verses in the Quran accentuate the fact that lenders may only collect what they have lent.
Riba is an Islamic word which translates most closely to Interest. According to El-Gamal (2003), Riba is used in the concept of banking and is regarded as an act of exploitation for financial gains, which is similar to usury. Although the act of usury is considered unethical and unjust in all law systems, the Islamic Law states that the act of all Riba is a serious sin and is strictly prohibited is Islamic Law, thus all types of interest is considered illegal (Foster 2007). It is therefore, commonly known that interest is illegal in Islamic law and there is no business of lending money in return for higher interest.
The main reason why Riba is prohibited in Islamic law is the fact that Allah forbade all Riba, and thus it has become part of the divine order(Visser 2013). All Islamic laws will be based on Islamic religious beliefs and Allah strict forbade all Riba. This meant that banks cannot operate on interest rates. The main reasons why Riba is prohibited by Allah is the fact that interest will cause the person that lends something for interest to separate himself from Allah. The concept revolves around the fact that a person who can depend on interest will lose his way with Allah.
Riba is also considered as a sin. There are 3 reasons why riba is prohibited in Muslim world. Firstly, it leads to inequity. The interest paid to the lender will make the latter better off while the borrower takes disadvantage. The second reason is that the lender might not be interested in doing any business other than receiving the interest. Qureshi (1991) stated that riba will hinder the progression of the world productivity. Thirdly, it is against the concept of mutual sympathy, human goodliness and obligations. This is because riba can lead to borrowing and overspending
There are many types of common business practices which will be considered Riba such as discount interest, default interest, compensatory interest, legal interest, etc. All these types of interest would theoretically be considered Riba and is therefore prohibited in Islamic law.
“…if ye repent, ye shall have your capital sums; deal not unjustly and ye shall not be dealt with unjustly”(Dutton 2013)
“God has forbidden you to take usury (riba), therefore all riba obligation shall henceforth be waived. Your capital, however, is yours to keep. You will neither inflict nor suffer inequity” (Dutton 2013).
These two verses in the Quran accentuate the fact that lenders may only collect what they have lent.
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