Riba

What is 'Riba'

Riba is a concept in Islamic banking that refers to charged interest. It is forbidden under Sharia, Islamic religious law, because it is thought to be exploitive. Depending on the interpretation, riba may only refer to excessive interest; however to others, the whole concept of interest is riba, and thus is unlawful.

Also known as "usury".

BREAKING DOWN 'Riba'

Even though there is a wide spectrum of interpretation on the point at which interest becomes exploitive, many modern scholars believe that interest should be allowed up to the value of inflation, to compensate lenders for the time value of their money, without creating excessive profit.

RELATED TERMS
  1. Takaful

    A type of Islamic insurance, where members contribute money into ...
  2. Islamic Banking

    A banking system that is based on the principles of Islamic law ...
  3. Sharia

    Islamic religious law that governs not only religious rituals, ...
  4. Murabaha

    An Islamic financing structure, where an intermediary buys a ...
  5. Accounting and Auditing Organization ...

    A not-for-profit organization that was established to maintain ...
  6. Usury

    The act of lending money at an interest rate that is considered ...
Related Articles
  1. Retirement

    Working With Islamic Finance

    There is no division between the spiritual and the secular in this type of socially responsible investing.
  2. ETFs & Mutual Funds

    A Guide To Faith-Based Investing

    If you've wondered how to invest in a way that reflects your religious belief, we've got the answers for you.
  3. Markets

    The 3 Most Dangerous Terrorist Organizations

    A brief look at the Islamic State, Al Qaeda and Boko Haram. What are they? What do they want? Where did they come from?
  4. Investing

    Understanding Compound Interest

    Compound interest is often called one of the most powerful concepts in finance. Find out what it is and how it can work for you.
  5. Markets

    Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  6. Investing

    How The Islamic State (IS) Got Its Start

    Despite its relatively new emergence in radical Islamist terrorism, the Islamic State, or ISIS, has been around for nearly 12 years.
  7. Markets

    Forces Behind Interest Rates

    Interest is a cost for one party, and income for another. Regardless of the perspective, interest rates are always changing.
  8. Markets

    Explaining Interest

    Interest is the price charged to borrow money, and is typically expressed as a percentage of the principal, or the amount loaned.
  9. Markets

    Calculating Interest Expense

    Interest expense is the cost of borrowing money.
  10. Trading

    Understanding The Time Value Of Money

    The time value of money is a fundamental concept in finance - and it influences every financial decision you make, whether you know it or not. Learn the basics here.
RELATED FAQS
  1. What is an Islamic investment policy?

    Islamic investments are a unique form of socially responsible investments because Islam makes no division between the spiritual ... Read Answer >>
  2. Can I match a fund to my religion?

    Specialized mutual funds offer investments tailored for particular religions including Judeo-Christian faiths and Islam. ... Read Answer >>
  3. What is the difference between yields and interest rates?

    The main difference between yields and interest rates is that each term refers to different financial instruments. Yield ... Read Answer >>
  4. What is the relationship between inflation and interest rates?

    Inflation and interest rates are linked, and frequently referenced in macroeconomics. Inflation refers to the rate at which ... Read Answer >>
  5. How can I use the correlation coefficient to predict returns in the stock market?

    Read about simple interest loans, how they function, and some of the loan products or contracts that are most likely to carry ... Read Answer >>
  6. What is the difference between real and nominal interest rates?

    Learn what nominal interest rates and real interest rates are, how real interest rate takes into account the inflation rate, ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center