In Islam, the most common form of Riba is interest that is charged on borrowed money. This may be in the form of loans or deposits. The literal meaning of Riba in Arabic is ‘to exceed’, referring to the additional money which is added to that which has been borrowed.
Islam forbids interest (Riba), both receiving and paying it. Many of us can end up accumulating interest through our bank accounts even if we don’t want it, so what should we do with this Interest money, and many individuals remain confused on the matter.
Since it is not permissible to utilise interest for one’s own benefit one should donate it to charity. Although there may be no religious reward for doing so, it disposes of the haram funds in a shariah-compliant way.
In Islam, Riba is interest gained or paid on transactions or savings. This includes:
In the case of donating Riba to charity, you would be required to donate the amount of interest earned e.g. the money accumulated as savings interest.
Essentially there is no difference. “Riba” is the Arabic word which is used in an Islamic context.
Allah (SWT) tells us in the Holy Qur’an to not engage in interest-based transactions/investments:
“O you who believe! Fear Allah and give up what remains [due to you] of interest, if you are true believers.”
Qur’an | 2:278
High levels of interest can lead to debts and financial insecurity, exploiting people on low incomes and without a financial safety net.
Islam instead encourages non-interest based giving, charity and long-term investments for the benefit of others such as Sadaqah Jariyah and Waqf projects. Zakat also ensures a social-security net for people in need.
Riba (interest) is generally considered one of the major sins in Islam and explicitly discouraged in the Qur’an, and for the one who indulges in it, is considered to be waging a war with Allah (SWT) and his Messenger (SAW).
Ideally, we should not invest/engage in interest-based activities. However, this may not always be possible.
In this case, you can keep note of any interest earned and donate the money to charity in a Shariah-compliant way (for halal purposes).
There are two main types of Riba according to the Holy Qur’an and teachings of the Prophet Muhammad (peace be upon him). These are:
This translates to ‘the interest of delay’, and is the most common form of interest. It is time-specific interest – referring to the addition of money on loans in which there is a delay in returning the money.
This translates to ‘the interest of excess’ and is a less common form of interest. It refers to the buying and selling of goods, in which transactions are unfair and exploitative. It is where two items are exchanged in a particular deal of the same type but the quantity of one of them is more than the other.
Ubida b. al-Simit (Allah be pleased with him) reported Allah’s Messenger (SAW) as saying:
“Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.”
[Tirmidhi]
In a society where usury is common, it can be difficult to avoid Riba completely. The majority of banks, mortgages and financing systems involve some level of interest.
Here are some tips on how to avoid Riba:
If you have committed the son of Riba in the past, it’s essential that you ask Allah for forgiveness.
The following is a Dua for forgiveness from the Qur’an:
رَبَّنَآ إِنَّنَآ ءَامَنَّافَٱغْفِرْ لَنَا ذُنُوبَنَا وَقِنَا عَذَابَ ٱلنَّارِ
Transliteration: “Rabbanaaa innanaaa aamannaa faghfir lanaazunoobanaa wa qinaa ‘azaaban Naar’
Translation:” Our Lord! surely we believe, therefore forgive us our faults and save us from the chastisement of the fire.”
[Quran 3:16]
Both Riba al-Nasi’ah- ‘the interest of delay’ and as Riba al-Fadl- ‘the interest of excess’ are haram – prohibited. One must take measures to ensure all forms of interest is avoided.
“Those who consume interest will stand on the Day of Judgement like those driven to madness by Satan’s touch. That is because they say “Trade is no different than interest”. But Allah has permitted trading and forbidden interest. Whoever refrains – after having received warning from their Lord – may keep their previous gains, and their case will be left to Allah. As for those who persist, it will be those who will be the resident of the Fire. They will be there forever.”
[Quran 2:275]
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