What is riba?

The meaning of riba

The word riba means increase or growth. In Islamic law it names two things. The first is riba on loans: money lent and repaid with more, whatever the extra is called. The second is riba in exchange: the same kind of gold, silver, money or staple goods swapped in unequal amounts, or with one side delayed.

The Qur’an puts trade and riba side by side and separates them: “God has permitted trade and forbidden riba” (al-Baqarah 2:275). Profit from selling something you own and risk is trade. Profit from money itself, charged for time, is riba. That single line is the test behind every question on this site.

Riba in the Qur’an

The prohibition was revealed in stages. Ar-Rum 30:39 contrasts riba with charity. Al-Imran 3:130 forbids riba “doubled and multiplied”, the pre-Islamic practice of increasing a debt each time it fell due. An-Nisa 4:161 counts riba among what was forbidden to earlier nations. Al-Baqarah 2:275–279 closes the door: those who take riba are warned, trade is permitted, riba is forbidden, and the lender may keep only the principal, “wronging no one, and being wronged by no one”.

That last phrase settles a common question. The lender is not wronged by getting back exactly what was lent, and the borrower is not wronged by paying exactly that. Anything more is the wrong the verse names.

Riba in the hadith

The hadith of ‘Ubada ibn al-Samit in Sahih Muslim lists six things: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt: like for like, equal for equal, hand to hand. But when the kinds differ, sell as you wish, so long as it is hand to hand.” This is the source of riba in exchange.

The Prophet cursed the one who takes riba, the one who pays it, the one who writes it and the two who witness it, and said they are alike (Sahih Muslim). The sin is shared by both sides of the deal, not only by the lender.

The two types of riba

Riba al-nasi’ah, the riba of delay, is an increase charged for time. A loan repaid with more, a debt that grows when payment is late, and a same-kind swap with one side left for later all belong here. This is the riba of the pre-Islamic Arabs and of modern interest.

Riba al-fadl, the riba of surplus, is an unequal swap of the same kind of riba item on the spot: one gram of old gold for less than a gram of new gold, or a kilo of good dates for two kilos of poor ones. The Prophet’s advice for trading up is to sell for money, then buy with the money.

Which things carry riba: the Hanafi rule

The four Sunni schools agree on the six things in the hadith and differ on how far the rule reaches. The Hanafi school, which this site follows, says the cause is being sold by weight or measure together with being the same kind. So iron for iron, copper for copper and rice for rice fall under the rule, and so do gold, silver and every currency.

Hanafis add one rule the other schools do not: the same kind of anything may never be swapped with delay, even things that are not weighed or measured. One car now for two cars later is not allowed. The Prophet forbade selling an animal for an animal on credit (Jami’ al-Tirmidhi). Money for goods carries no such condition: any price, paid now or later.

The Shafi’i school counts money and every food; the Maliki school counts money and storable staples; the Hanbali school’s main view is the Hanafi one. Where they differ from the Hanafi answer, this site says so in a note.

Does riba apply to paper money?

Yes. The hadith names gold and silver because those were the money of the time. Mufti Taqi Usmani treats paper money like the old copper coins, money by convention; the OIC Fiqh Academy treats it like gold and silver. The everyday rules come out the same: the same currency must be exchanged equally and at once, two different currencies may be exchanged at any rate but both sides must be delivered on the spot, and money lent must come back as the same amount.

A bank loan, a credit card balance, an overdraft and a savings-account rate are all money returned for money with an increase. The rate, the lender and the label make no difference.

What is not riba

Riba is not the same as profit, and it is not the same as a higher price for later payment. These are trade, not riba:

• Selling something you own at a profit, including a fixed higher price paid in instalments, as long as the price never rises for delay.
• Rent for a real asset you own and bear the risk of: a house, a car, equipment.
• A share of actual profit in a business, with the loss borne if it fails.
• A fee for a real service that does not grow with a loan: an account fee, a transfer fee, a card’s annual fee.
• A gift the borrower gives freely at repayment, never agreed and never expected.
• A discount the creditor freely gives, not promised in the contract.

Common mistakes about riba

“Only high rates are riba.” Any increase on a money loan is riba; the Qur’an sets no threshold.

“It is only riba if you are the lender.” The Prophet cursed the payer as well as the taker.

“Bank interest just compensates for inflation.” A loan is repaid with its like. Tying repayment to inflation when the loan is made is riba in the main Hanafi view; Turkey’s Diyanet allows repaying the original value by agreement when money has really lost value.

“Islamic finance is interest under another name.” It can be, when the financier never owns anything and the “rent” or “profit” is a loan repayment priced by a rate. It is not, when the financier buys the asset, bears its risk, and nothing is added for delay.

“It is riba only between strangers.” A brother who repays double, a friend who adds “a little something” because it is expected, and a landlord who gives cheap housing for a big deposit are all inside the rule.

If you have earned or paid riba

Interest already received should not be used for yourself. Give it to the poor or to a public good without expecting reward, and stop the source: close or change the account, or refinance the loan into a halal structure as soon as you reasonably can. Sincere repentance covers what is past; the Qur’an says “whoever desists after receiving warning may keep what is past” (2:275).

People also ask