What constitutes riba?

JazakAllahu Khayra that helps me understand it better

Not all types of interest are riba. Fixed rate interest is not riba.

You pay interest on them regardless

I was just going to say, fluctuating is riba!

Riba is interest. It’s a lender/borrower relationship where the company does a credit profile check and lends money to the borrower based on the likelihood of them repaying the loan. The higher someone’s credit score is the more they can borrow.

Sadly riba exploits the poor (people who borrow) and makes the rich (lender) richer with interest

Assalamulaikum. Thank you Reece for bringing up this topic.

In Islamic Law, the topic of Usury is listed to occur in the form of

  1. Debt-Based Transactions.

  2. Sales-Based Transaction

Debt based Usury entails interest charged due to a loan, either at the beginning of the transaction, as we find with home-based mortgages as an example, or at the end of the time period of the loan in the event of the borrower requiring extra time to pay off the loan, as we find with credit card based transactions.

Islam also forbids Sales-based Riba with respect to certain types of wealth which is called Riba-based wealth.

The teachings of the Messenger (May Allah’s praise and blessings be upon him) list Riba-based wealth as two categories, as follows:

  1. Gold, Silver, and wealth are considered similar. In today’s age, this would include fiat money, like dollars and pounds, etc.

  2. Dates, wheat, Barley, Salt, and similar storable staples, such as rice in today’s age.

Islam’s rule with regard to these categories of Riba-based wealth is as follows:

  1. If the same wealth from the same category is traded between the parties; the exchange will be invalid unless two conditions are met, as follows:

a) That the transaction is Spot- with an immediate exchange of both counter-values taking place at the time of the contract, and:

b) That the quantities of the counter-values are equal.

Examples of this would include 10kgs of old gold for 10kgs of new gold, or 5kgs of Silver for 5Kgs of Silver, or 100 Dollars for 100 Dollars, or 50Kgs of a particular type of date, for 50 Kgs of another type of date.

Failure to meet these two conditions constitutes an interest-based transaction having taken place.

  1. If different wealth from within the same category is traded with each other; the exchange will be invalid unless one condition is met. This condition is that the transaction is Spot. It is not a requirement for the quantities of the counter-values to be equal.

Examples of this would include a spot exchange of 2kgs of Gold for 5kgs of Silver, 2Kgs Silver for 500 Dollars, or 50 Pounds for 1g of Gold, Wheat for Dates, Barley for Rice, etc.

Failure to meet this condition constitutes an interest-based transaction to have taken place.

  1. If wealth from one category is exchanged with wealth from another category; there are no rules which apply. This means it would be permissible to have a deferred exchange of 100 dollars for 4kgs of dates or 1g of gold for 10kgs of rice for example.

There are many financial and social wisdom that can be derived from the genius listing of these types of wealth and their rules by Islam, which can be learned in a simplistic course I have scripted on the following free short online program: iDeal - Hour Islam