Riba, Gharar, and the Moral Economy of Islam in Historical and Comparative Perspective

Abstract

Islamic banking is generally reduced and marginalised to ‘interest-free banking’. While the restrictions against riba form the very foundation of Islamic finance, debates still 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. However, to date, the debate is still lively. This chapter focuses on riba, gharar and the moral economy of Islamic banking, beginning with the riba debate and determining its origin and significance. It then discusses gharar, which is a lesser-known, yet, in the contemporary world of finance, equally significant prohibition. The moral economy of Islam is also discussed from the perspective of spirit versus the letter of Islam, and the religious versus the secular. The chapter ends with a discussion on money and religious debate in comparative and historical perspective.