Most definitions reduce Islamic banking to “interest-free” banking. While the injunctions against riba are indeed the cornerstone of Islamic finance, debates persist as to the exact significance of the word. Since the early days of Islam, the majority of scholars have adopted a restrictive definition: any form of interest constitutes riba. The debate is nonetheless still lively. This chapter starts with the riba debate, its origin, and significance. It later discusses gharar, a lesser known yet in the contemporary world of finance equally significant prohibition; the moral economy of Islam; a broader approach focusing on the spirit, as opposed to the letter of Islam; and the religious versus secular approaches to these issues. The final section places the money and religion debate in comparative and historical perspective.

Riba

Riba means increase. Given that definition, there is in riba both more and less than meets the eye. Riba is not necessarily about interest as such, and it certainly is not exclusively about interest. It really refers to any unlawful or undeserved gain derived from the quantitative inequality of the counter-values. Interest or usury (that is, reimbursing more than the principal advanced) would then be only one form of riba. Imposition of late fees would be an example of non-interest riba.