Riba, Interest and Six Hadiths: Do We Have a Definition or a Conundrum?

Abstract:     
The Qur’an categorically prohibits riba, but does not define it. It is commonly argued that riba is defined by hadith. At the time of the revelation about riba, the only type of riba known was riba al-jahiliyyah. If only that type is considered, usury or usurious/exploitative transactions would be prohibited. Later, the scope of the definition of riba was broadened based on hadith as textual proof, leading to the traditional position that all forms of interest are prohibited. In this paper it is explored whether the commonly-cited hadiths to define riba hold up as claimed. Based on the analysis presented here, while the Qur’anic prohibition can be easily understood in the case of riba al-jahiliyyah, and the rationale for it is obvious, as the readers would find, it is indeed a daunting task to use hadiths to define riba and justify the broadened scope in terms of the riba-interest equation.

Number of Pages in PDF File: 37

Keywords: Islam, Islamic Economics, Islamic Finance, Islamic Banking, Riba, Interest, Haram, Usury, Hadith

JEL Classification: B, B19

Accepted Paper Series