Riba

DEFINITION of 'Riba'

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.

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