Sood Kia Hai? (سود کیا ہے؟)

Riba is an Arabic word that can be roughly translated as "usury", or unjust, exploitative gains made in trade or business under Islamic law. Riba is mentioned and condemned in several different verses in the Qur'an (3:130, 4:161, 30:39 and perhaps most commonly in 2:275-2:280). It is also mentioned in many hadith (reports describing the words, actions, or habits of the Islamic prophet Muhammad).

While Muslims agree that riba is prohibited, not all agree on what precisely it is. It is often used as an Islamic term for interest charged on loans, and the belief this is based on — that there is a consensus among Muslims that all loan/bank interest is riba — forms the basis of a $2 trillion Islamic banking industry. However, not all scholars have equated riba with all forms of interest, or agree whether its use is a major sin or simply discouraged (makruh), or whether it is in violation of sharia (Islamic law) to be punished by humans rather than by Allah.

Definition of Riba or Interest:
The word “Riba” means excess, increase or addition, which correctly interpreted according to Shariah terminology, implies any excess compensation without due consideration (consideration does not include time value of money)

This definition of Riba is derived from the Quran and is unanimously accepted by all Islamic scholars. There are two types of Riba, identified to date by these scholars namely ‘Riba An Nasiyah’ and ‘Riba Al Fadl’.

‘Riba An Nasiyah’ is defined as excess, which results from predetermined interest (sood) which a lender receives over and above the principle (Ras ul Maal)

‘Riba Al Fadl’ is defined as excess compensation without any consideration resulting from a sale of goods. ‘Riba Al Fadl’ will be covered in greater detail later.

During the dark ages, only the first form (Riba An Nasiyah) was considered to be Riba. However the Holy Prophet also classified the second form (Riba Al Fadl) as Riba.

The meaning of Riba has been clarified in the following verses of Quran:

“O those who believe, fear Allah and give up what still remains of the Riba if you are believers. But if you do not do so, then be warned of war from Allah and His Messenger. If you repent even now, you have the right of the return of your capital; neither will you do wrong nor will you be wronged.” Al Baqarah 2:278-9

These verses clearly indicate that the term Riba means any excess compensation over and above the principal which is without due consideration. However, the Quran has not altogether forbidden all types of excess; as it is present in trade as well, which is permissible. The excess that has been rendered haram in Quran is a special type termed as Riba. In the dark ages, the Arabs used to accept Riba as a type of sale, which unfortunately is also being understood at the present times. Islam has categorically made a clear distinction between the excess in capital resulting from sale and excess resulting from interest. The first type of excess is permissible but the second type is forbidden and rendered Haram.

“Seized in this state they say: ‘Buying and selling is but a kind of interest’, even though Allah has made buying and selling lawful, and interest unlawful.” Al Baqarah 2:275

Classification of Riba

The first and primary type is called Riba An Nasiyah or Riba Al Jahiliya.
The second type is called Riba Al Fadl, Riba An Naqd or Riba Al Bai.

Since the first type was specified in the Quranic verses before the sayings of the Holy Prophet , this type was termed as Riba al Quran. However the second type was not understood by the Quranic verses alone but also had to be explained by the Holy Prophet , it is also called Riba al Hadees.

Source: Dr. Muhammad Imran Ashraf Usmani, Meezan Bank’s Guide to Islamic Banking.

Quran and prohibition:
Twelve verses in the Quran deal with riba. The word appearing eight times in total — three times in 2:275, and once each in verses 2:276, 2:278, 3:130, 4:161 and 30:39.