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Last Updated: 2013/07/10
Summary of question
What is the concept of riba (interest) in Islam?
question
What is the concept of riba (interest)in Islam? What is the difference between usury and sale which makes the first unlawful and the other lawful and permissible?
Concise answer
What is the concept of riba (interest)in Islam?  What is the difference between usury and sale which makes the first unlawful and the other lawful and permissible?
Answer:
The term ‘riba’ is used in two different meanings:
  1. Interest bearing loan
  2. Interest bearing transaction
The interest bearing loan is a loan in which interest is stipulated in the loan given to someone. (As for what kind of stipulations or conditions are considered to be unlawful and prohibited in a loan, there are discrepancies amongst the scholars.)
As for an interest bearing transaction, it is a transaction in which, firstly, two homogenous items are exchanged or sold for one another. Secondly, the seller sells a commodity which is sold by weight or measurement. Thirdly, the seller sells a commodity at a higher rate against the same commodity, for examples he sells two kilos of tarum (Iranian) rice against three kilos of Thai rice. [1]
In fact, it has to be noted that it is very much possible that the transactions carried out might seem to be none of the above or they may look to be excluded from the above category but if we take a closer look at them, we will come to see that they are nothing but an interest bearing transaction. They have formulated a transaction to avoid riba. For further information in this regard, you can refer to indexes: 14977: (Interest based transaction in the form of cash and loan) and 17097 (Riba and tender in the form of Ju’alah).
 
 
 

[1] See Manual of Islamic Laws (Tawzih al-Masail) section “Rules of Purchase and Sale” extracted from Index: 1275.
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