Justice in finance: prohibition of riba

The Qur’an describes riba as a vehicle of injustice and makes dealing in riba as unlawful. In present-day Islamic finance, all forms of interest on loans are considered riba. However, this definition of riba creates several problems in everyday business transactions. Islamic financial institutions have adopted such operational procedures that closely resemble interest on loans, while they claim to be operating on a riba-free basis. The chapter delves into the Qur’anic text relating to riba and suggests an alternative understanding which can help resolve various controversies relating to riba and interest. It formulates a contemporary definition of riba which accommodates the current practice of the Islamic financial institutions and removes the stigma of injustice around dealings in interest-based finance.