Riba explained: Understanding ‘interest’ in Islamic finance

What do we really mean when we use the Arabic term riba? The literal translation of the word is “increase, addition or growth,” though it is often translated as “usury.” English speakers typically understand usury as the charging of an exploitative interest rate. But riba refers to any excess value in transactions that our Sacred Law has prohibited. The prohibition of those transactions is determined with the aid of interpretation of the text of the Qur’an and Sunnah and through inferences and extension by qualified scholars of fiqh al-muamalat. There are two common types of riba recognized by almost all Muslim scholars: riba al-fadl and riba al-nasee’ah. The latter term, riba al-nasee’ah, is commonly referred to as compound interest. It is the most egregious type of riba in the marketplace. Riba al-fadl is called the riba of surplus. It refers to trading goods for one another in unequal amounts (e.g., gold, silver, wheat, barley, etc.). Some have said that Prophet Jesus (peace be upon him) evicted the money changers from the Temple in Jerusalem for engaging in riba al-fadl. Jewish pilgrims arriving in Jerusalem were required to pay the Temple tax but preferred to use the half shekel since it