Question

What is the role of Market Practice in Riba?

Answer 1

Riba is an Islamic banking term which refers to interest paid. It was also defined as usefulness or the charge of extremely high interest rates. According to most Islamic lawyers it is also possible to trade products with an unfair quantity or quality at the same time.

According to the modernists’ market practice of riba
trend towards riba,extra charges are permitted where they are used:
1. for the purposes other than exploiting the weak people of the community by the strong;
2. for loans that are similar to what were practised in the pre-Islamic period;
3. for the present form of interest-based banking transactions but not for usurious
transactions transactions;
4. for business investment but not for consumption loans;
5. for the loss suffered by the creditor due to inflation;
6. for simple interest but not for compound interest; and
7. for institutional credit.

Some modernists tend to vary from "consumption loans" to "investment loans," and and Argue that riba is unlawful on consumer loans, but it is lawful on development or investment,Lending Loans.

The Shari’ah allows for transactions where both counter-values are transacted at the time of the dealing or one counter-value now and one in the future, however, not both counter-values in the future as this creates gharar (uncertainty) about the fulfillment of
the contract. However, this is allowed where the benefit outweighs the harm.

Riba (interest) results in a financial system where the debtors bear the majority of the risk and the creditor most
of the reward.