interest

The prohibition of riba, often translated as interest or usury, constitutes a fundamental tenet within Islamic finance. This prohibition stems from interpretations of the Quran and Sunnah, which are considered primary sources of Islamic law. Riba is broadly defined as an excess amount charged in a loan transaction, beyond the principal amount. For example, if a sum of money is loaned with the condition that the borrower repays a larger amount, this increment is typically categorized as riba.

The rationale behind the prohibition is multifaceted. It is often seen as a mechanism that perpetuates economic inequality, as it allows lenders to profit without contributing productive effort or bearing risk. Historically, the prohibition served to protect vulnerable populations from exploitation by creditors. Islamic scholars have argued that a system reliant on fixed interest rates can stifle economic growth and exacerbate societal disparities. The absence of interest theoretically encourages investment in ventures that share risk and reward equitably, fostering a more just distribution of wealth.

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The prohibition of riba (often translated as interest or usury) in Islamic finance is a central tenet derived from the Quran and the Sunnah (teachings and practices of the Prophet Muhammad). The core argument against it centers on the belief that money should not beget money without productive activity and that fixed returns, regardless of profit or loss in an enterprise, are inherently unjust. An example would be charging a borrower a predetermined percentage on a loan, regardless of whether the underlying business venture succeeds or fails.

The rationale behind this prohibition encompasses several principles. It aims to promote risk-sharing, discourage exploitation, and encourage investment in real economic activity. By forbidding predetermined interest, Islamic finance encourages participation in ventures where both lenders and borrowers share the potential for profit and the risk of loss. This promotes a more equitable distribution of wealth and fosters a sense of shared responsibility in economic endeavors. Historically, the prohibition served to protect vulnerable populations from predatory lending practices, which could lead to cycles of debt and poverty.

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