Why is RIBA Prohibited in under 5 mins 💁🏻‍♂️

Asalam Alaikum

Fuad here, 🙋🏻‍♂️

Welcome to our latest newsletter, where we explore the fundamental principle of Islamic finance that prohibits riba (interest).

In Islamic finance, riba refers to the charging or paying of any excess or predetermined interest on loans or debt-based financial transactions. This principle is based on the belief that money should not be used to generate more money, but should instead be used as a means of exchange for goods and services.

Here are some reasons why Islamic finance prohibits riba:

1. Promoting social justice: Islamic finance emphasizes the principles of fairness and social justice in economic transactions. Riba is seen as a means of exploiting the borrower, particularly the poor, and perpetuating inequality. By prohibiting riba, Islamic finance seeks to promote equitable economic growth and reduce poverty.
   

2. Encouraging risk-sharing: Islamic finance encourages risk-sharing between parties in financial transactions. By prohibiting riba, Islamic finance discourages excessive speculation and encourages investments in productive economic activities that generate real value.
   

3. Fostering real economic growth: Islamic finance emphasizes the importance of investing in real economic activities that generate sustainable growth and development. Riba-based transactions are often viewed as speculative and divorced from the real economy. By prohibiting riba, Islamic finance encourages investment in productive economic activities that generate real value and contribute to sustainable growth.
   

4. Aligning with religious principles: Prohibiting riba is a core principle of Islamic law (Sharia). Islamic finance seeks to align financial transactions with the principles of Sharia and promote ethical and socially responsible investing.

In Islamic finance, there are several alternative modes of financing that comply with the prohibition of riba, such as profit-sharing (Mudarabah), partnership (Musharakah), and sale with deferred payment (Murabahah), among others. These modes of financing emphasize risk-sharing, asset-based financing, and the importance of real economic activity.

In conclusion, the prohibition of riba is a fundamental principle of Islamic finance that seeks to promote social justice, encourage risk-sharing, foster real economic growth, and align with religious principles. By adhering to this principle, Islamic finance offers a unique and socially responsible alternative to conventional finance.

Thank you for reading, and we hope you found this newsletter informative. Stay tuned for our next edition, where we will explore other topics in the fascinating world of Islamic finance.

Best regards,
Fuad Z. Rafei