Questions and Answers
According to Islamic banking, what is riba?
A type of interest charged on loans
What is the purpose of making riba illegal under Sharia law?
To ensure equity in exchange and prevent unjust and unequal exchanges
What is the difference between riba and murabaha?
Riba is a type of loan, while murabaha is a type of credit sale
Study Notes
Riba in Islamic Banking
- Riba is a term in Islamic banking that refers to the act of usury or interest, considered a prohibited practice in Islamic finance.
- It involves charging excessive interest or exploiting the borrower, which is seen as unjust and unethical.
Purpose of Making Riba Illegal
- The purpose of making riba illegal under Sharia law is to promote fairness, justice, and equality in financial transactions.
- It aims to prevent exploitation of the borrower and protect their rights, ensuring that both parties benefit from the transaction.
Difference between Riba and Murabaha
- Riba is a prohibited practice in Islamic finance, while murabaha is a permissible and Sharia-compliant financing technique.
- Murabaha involves a cost-plus financing arrangement, where the seller discloses the cost of the product and the profit margin, allowing the buyer to make an informed decision.
- The key difference lies in the transparency and fairness of the transaction, with murabaha promoting a more ethical and just financial practice.
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