What is Riba?
There are two types of Ribâ:
- Ribâ An-Nasia - Interest on lent money. Ultimately, the concept of Riba depends on the specific financial institution following Shariah. Some believe that any interest is Riba, while others only believe it is unlawful if it is sneaky or done in a evil way to hurt someone. Most Islamic finance lessors believe that Riba can be charged up to the current value of inflation in the country the loan is completed in. This is believed because the person asking for a loan should return the time value of the money they receive. This doesn’t allow the lessor to earn an excessive amount of money, but is an act of good faith. Riba An-Nasia is ultimately interest paid on money that was loaned to someone.
- Ribâ Al-Fadl - Taking a superior thing of the same kind of goods by giving more of the same kind of goods of inferior quality, eg.,dates of superior quality for dates of inferior quality in great amounts. Ultimately, during an exchange of goods or agreement, it is unlawful for an uneven number of items or items at a different quality to be exchanged. This means if the borrower or buyer wants to give the seller something a little extra, even if it’s at a different quality, it’s forbidden. Most of these type of transactions are considered barter; thus many believe that this practice is acceptable.
The IjaraTM transaction avoids not only both types of Riba but also Gharar