Is the concept of “Riba” during the pre-Islam era the same as the concept of “interest” today? Discuss!

RIBA

Riba is the Quranic term for usury or interest. It was used in pre Islam to refer to an increase, growth or exceeding or charging unreasonable high rated interest. Riba is forbidden under Shari’ah law because it is thought to be exploitative. It is pursuit of illegal, exploitative gains made in the business or trade. There are two types of Riba :-

i. Riba in loan contract

ii. Riba in sale or exchange contract

Riba refers to interest charged on loans and deposits in Islamic Law.

INTEREST

Interest is a monetary charge from a borrower or deposit from a financial institution to a lender. It is different from fee. Interest rates are affected by inflation rate, length of time, liquidity, risk of default when one is unable to pay back the amount, opportunity cost, possibility of government intervention on interest rate etc. It is money that is charged by bank or any financial institution. There are two types of interest:-

i. Simple interest

ii. Compound interest

Today interest rate apply to various financial products such as credit card, car loan, house loan, mortgage, personal loan etc.

Is RIBA and Interest are same:-

Riba is the Arabic word which is used for the predetermined return on the use of money. Previously riba refers to interest but now this term covers all forms of interest and not only “excessive” interest. Some people claim that riba and interest are not similar and they differentiate between these two. They claim that riba is usury and interest is bank interest which does not cover riba. Riba relate to loans from poor while interest relate to profitable loan.

All these points are irrelevant and are baseless. The amount received by borrower and amount paid by lender is interest and that what exactly is riba also. Interest and usury both are treated as the same. The difference between loans either it is personal or home or commercial doesn’t make any difference in finance for poor or rich. It depends upon fact i.e. lending time, liquidity, productivity etc.

So yes we can say that Riba in the pre Islam era was same as interest in today’s scenario.