Ribâ is generally defined as interest. Semantically, ribâ means an excess or an addition.
The two forms
There are two types of Ribâ
Ribâ An-Nasia
Interest on lent money. Ultimately, the concept of Riba depends on the specific financial institution following Shariah. Some believe that any interest is Riba, while others only believe it is unlawful if it is sneaky or done in an evil way to hurt someone. Most Islamic finance lessors believe that Riba can be charged up to the current value of inflation in the country the loan is completed in. This is believed because the person asking for a loan should return the time value of the money they receive. This does not allow the lessor to earn an excessive amount of money, but is an act of good faith. Riba An-Nasia is ultimately interest paid on money that was loaned to someone.
Ribâ Al-Fadl
Taking a superior thing of the same kind of goods by giving more of the same kind of goods of inferior quality — for example, dates of superior quality for dates of inferior quality in great amounts. During an exchange of goods or agreement, it is unlawful for an uneven number of items, or items of a different quality, to be exchanged. This means that if the borrower or buyer wants to give the seller something a little extra, even if it is of a different quality, it is forbidden. Most of these types of transaction are considered barter; thus many believe that this practice is acceptable.
The IjaraTM transaction avoids not only both types of Riba but also Gharar.
