Foundations3 Apr 20253 min read

What is Riba and Why is it Prohibited?

Understanding the Islamic prohibition of interest (riba) and its significance in ethical finance.

What is Riba?

Riba, often translated as "interest" or "usury", refers to any guaranteed, predetermined rate of return on a loan or investment that is not tied to the actual performance of the underlying asset or venture. It is one of the most strongly prohibited practices in Islamic law, mentioned multiple times in the Qur'an and Hadith.

Why is Riba Prohibited?

The prohibition of riba serves several important purposes:

Social Justice — Interest-based systems tend to concentrate wealth among lenders while burdening borrowers, increasing inequality.

Risk Sharing — Islam promotes shared risk in financial dealings. Riba allows one party to profit regardless of the outcome.

Real Economic Activity — Islamic finance ties returns to tangible assets and real business activity, not money generating money.

Ethical Principle — Earning money without bearing any risk or contributing productive effort is considered unjust.

The Alternative

Islamic finance offers numerous alternatives to interest-based products — including Murabaha (cost-plus financing), Mudarabah (profit-sharing), and Musharakah (joint venture partnerships). These instruments ensure that financial transactions are fair, transparent, and tied to real value creation.

At Nashrr, we're building tools to make these ethical alternatives accessible to everyone in New Zealand.

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