Riba & Islamic Finance
When it comes to the world of Islamic banking and financing, Riba is a concept that relates to the interest being charged. Under Islamic religious law, known as Sharia, Riba is a forbidden concept because it is believed that this charged interest is exploitive in nature.
Depending on how the lending institution interprets things, sometimes Riba refers only to an excessive amount of interest. However, to many people, any concept involving interest is considered to be Riba, and so charging interest in any manner is often perceived to be unlawful in nature. Sharia is a religious law as part of Islam that governs religious rituals and numerous other parts of life including aspects of the Islamic day to day life.
Islamic finance compliant with Sharia is a modern look at finance that is readily being accepted by investment houses and banks worldwide. Financial service firms located in the Western world are now beginning to offer investment vehicles that are Shariah-compliant, meaning that they do not pay interest and they do not benefit from any form of gambling. It is important to understand that there is a very wide spectrum of different interpretations when it comes to Riba, not only in terms of Islamic finance as a whole, but specific areas of Islamic finance as well such as a Muslim mortgage.
Some people believe that Riba specifically relates to the point where interest becomes exploitive in nature, while other people believe that interest can be charged but only up to the current value of the inflation. This is because this would make it feasible to compensate the lender in question for the time value for their money without being allowed to create an excessive amount of profit.
Riba is considered to be one of the "Seven Heinous Sins" or Al-Saba al-Mubiqat. According to the Qur'an, "3:130 O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful." and "2:275 Allah has permitted trade and has forbidden interest." According to Mohammad, God has forbidden anyone to take Riba.
Riba is a Muslim mortgage concept that is going to play an important and ever-present role in Islamic finance. As a member of the Muslim faith, Riba is something that you must have a firm understanding of to make sure that lenders you choose to work with are not taking advantage of you.
As a lender administering investing vehicles and loans to Islamic individuals, you need to understand the concepts behind Riba and Islamic religious law so that you can be fair and just in the way that you administer these investing and lending vehicles so that you do not take advantage of anyone based on their faith.