The Pros And Cons Of Riba

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Riba is Arabic term defined for usury or interest. The word Riba means excess, increase or addition. According to Islamic terminology, interest means effortless profit which comes free from compensation or in the simple meaning, any excess compensation without due consideration. Any positive, fixed, predetermined rate tied to the maturity and the amount principal is considered Riba and is prohibited in Islamic financial systems. This prohibition is based on an arguments of social justice, equality, and property rights. Islam itself encourage the earning of profits but forbids the changing of interest because profits.
The different between the amount received by the borrower and the amount paid by him is interest. And this is exactly what the …show more content…

It does not believe in generating wealth by accumulating interest by mere passage of time. For example here is where an individual takes an interest based loan of RM100, 000 for a period of one year. He is asked to return this amount of RM3, 000 for every month of the year. This means that overall he need to pay is RM136, 000 after a year. Notice the debt growing as soon as the amount borrowed while wealth generation on the invested money is not start yet. This is due to time required for business setup, business generation and closing sales to allow the profit to flow into the company’s account. While the initial profits may only cover running costs, the interest rate of RM3, 000 per month is allowing the debt to grow while the rate of actual growth of wealth is dependent on sale of services or goods. In case if after 1 year the borrower has not made enough profit, his debt keeps increasing by passing of every month. This economic exploitation is visible at every level of economic cycle of society. People and countries end up in debt for unrealistic amount while real trade activities may never be able to generate such amounts to pay them off. The practice of Riba now has been applied in almost all sectors of the economy. It impact to macroeconomic problem such as inflation. There are many opinion stated that the interest is a compensation of inflation, but when we take a look, in fact, Riba actually will impact to the

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