Understanding “Riba” (interest): the religious and the rational

What is it about?

The case focuses on one of the core issues of Islamic finance, that of the prohibition of charging Riba (interest) on debt and the reasons behind this ruling. The relevance of this prohibition to modern day financial markets is essential to understand Islamic finance. Historically, the prohibition of Riba (interest) prevented the exploitation of the poor borrower who were charged exorbitant interest rates by wealthy lenders. In the modern-day banking system, which operates in a regulated setup and charges market-based interest rates, the rationale regarding exploitation of the poor seems less compelling. Furthermore, other economic realities such as inflation and currency fluctuations further lend support to protecting one’s investments through prudent financial decisions. In this case we approach this decision regarding the prohibition of Riba (interest) in Islam from the point of view of the protagonist, Ayesha Bhatti, who is religiously conscious and is faced with certain personal investment choices. The case explores Ayesha’s reasoning, who is also a financial expert, regarding how she approaches the question of Riba (interest), so that she can maximize her financial returns as well as remain true to her religious identity. The discussion in the case revolves around alternative rationalizations as to why Riba (interest) continues to remain important for many Islamic investors.

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