Riba and interest in Islamic finance: semantic and terminological ıssue

Abstract

PurposeThe aim of this paper is to argue analytically that interest and riba are not exactly the same and not an interchangeable terminology. There are similarities and differences between the two at the conceptual level.Design/methodology/approachTo support the argument, the paper shows that it is possible to prove cases where the riba is involved but the interest is not. Hence, there is a situation of the presence of riba without interest. Furthermore, it is also possible to prove cases where the interest is involved but the riba is not. Hence, there is a situation of the presence of interest without riba. The notion and concept of interest in finance are analysed critically in comparison with riba in Islamic jurisprudence (fiqh Islami). So a comparative conceptual analysis is the main methodology of the paper.FindingsThe paper finally suggests that the correct expression should be that Islamic banking and finance is “a ribawi free of banking and finance” instead of “interest free of banking and finance” as it is popularised.Research limitations/implicationsThe paper is conceptual in nature. No empirical analysis is pursued.Practical implicationsIslamic finance should not claim it self as interest-free finance, rather riba-free finance.Social implicationsIt is more truthful to the society to say that Islamic finance is riba-free finance.Originality/valueThe paper is expected to contribute in the conceptual level of Islamic banking and finance’s understanding by clearing up the basic confusion and misconception about riba and interest. This would consequently minimise or even eliminate the taken-for-granted tendency of denoting the semantic of riba and interest as an interchangeable term, especially when writing in English and addressing the finance’s students and scholars. The semantic clarification between interest and riba hopefully becomes the main contribution of this paper.