What is Riba?

iba is a practice forbidden by Allah. It is often translated as "usury" and usually associated with interest, but this is not accurate. From various hadiths, there are three occasions when riba occur:

1. When money (or some other item) that is lent is repaid with an increase or some benefit: For example, if someone who had borrowed money gives a gift to the lender before the loan is repaid, even if the lender had not asked for the gift, then the gift is considered riba. In this case, the borrower should not have offered the gift, and the lender should not accept it.

2. Trading of two of the same items that are different in measurement: For example, 22k gold and 24k gold are the same because they are both gold, even if they are of different purities. If one gram of 22k gold is exchanged with a lesser amount (not one gram) of 24k gold, then this is riba. To perform this exchange, the 22k gold must be traded with something else first, e.g. cash, and then the cash can be exchanged with the 24k gold.

3. Trading of two of the same or categorically similar items that are not done simultaneously: For example, cash and gold are both money and, therefore, categorically identical. If we make a cash payment for buying gold, but the gold is not present or is not handed to us at the same time, then it is riba. However, if we exhange the cash for something categorically different, say wheat, and the wheat is handed to us later, it is not riba.

Money Printing

Central banks and the governments that control them engage in riba when they do three things:

1. The central bank prints new money (i.e. increase the money supply) without having the gold (or silver or any other permissible asset) to back up the printing because it is the same as exchanging money with the gold not present.

2. The central bank lends money to the government or banks with interest because the interest increases the money loaned. Instead of lending with interest to banks, the central bank should invest in the banks and earn profit. Instead of lending to the government, well, the government should learn to spend within their means.

3. They government sells bonds with a yield - which is borrowing money with interest - because the yield inceases increases the money borrowed. The yield should be zero. Or, instead of selling bonds, the government should seek investors to fund its projects and offer a share of the profit.

How bad is riba?

Allah promises war with Believers engaged with riba. (Quran 1:279)