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Philosophy and Fundamentals of Sharī’ah for Islamic Finance
SHA0011

The prohibition of ribā is clearly stated in the Qur’ān and Ḥadīth:

Qur’ān Versers:

Allāh SWT says:
“They say: trade is like ribā, but Allāh SWT has permitted trading and
forbidden ribā”
(al-Baqarah 2:275)

Allāh SWT says:
“O you who believe: Fear God and give up what remains of your demand
for usury if you are indeed believers”.
(al-Baqarah 2: 278)

Ḥadīth:

Jābir ibn Abdillah said that Allāh ‘s Messenger SAW cursed the accepter of
interest and its payer, and one who records it, and the two witnesses, and
he said: “They are all equal (in guilt)”.
(Ṣaḥīḥ Muslim)

Division of Ribā

Notwithstanding of the foregoing, ribā can be divided into ribā al-duyūn and
ribā al-buyū’.

Debt-Based Ribā (Ribā al-Duyūn)

Debt based ribā involves imposing an interest or any other extra benefits
in favour of the creditor by virtue of lending money. Debt based ribā mainly
takes two forms:

1. Ribā al-Jāhiliyyah: An additional benefit imposed on the borrower
attributed to borrower default in repaying the sum borrowed
with the stipulated time. In ribā al-jāhiliyyah, the additional
benefit was never been stipulated upfront, instead it comes
into effective due to borrower failure to settle the debt within
the agreed period. It was initially and widely practiced during
the period of jāhiliyyah among the pagan.

2. Ribā al-Qarḍ: Simply put, ribā al-qarḍ refers to any benefit
imposed upfront by virtue of lending money regardless
whether the borrower will default in the future or not. Ribā
al-qarḍ takes many forms as the benefit imposed is not confined
to monetary term, instead it could be in term of kind, usufruct
or any other possible forms of benefits.