Riba

Riba is an Arabic word used in Islamic law and roughly translated as "usury": unjust, exploitative gains made in trade or business. Riba is mentioned and condemned in several different verses in the Qur'an. It is also mentioned in many hadith.
While Muslims agree that riba is prohibited, not all agree on what precisely it is. The term is often used to refer to interest charged on loans, and the widespread belief among Muslims that all loan or bank interest is riba forms the basis of the $2 trillion Islamic banking industry. However, not all Islamic scholars have equated riba with all forms of interest; nor do they agree on whether riba is a major sin or simply discouraged, or on whether it is a violation of Sharia law to be punished by humans rather than by God.
The primary variety or form of riba is the interest or other 'increase' on a loan of money—known as riba an-nasiya. Most Islamic jurists also acknowledge another type of riba: the simultaneous exchange of unequal quantities or qualities of some commodity—known as riba al-fadl.

Etymology and definitions

The word riba was used by the Arabs prior to Islam to refer to an "increase". In classical Islamic jurisprudence, the definition of riba was "surplus value without counterpart".
The difficulty of defining riba in Islam was noted by early Islamic jurists such as Ibn Majah and Ibn Kathir, who quotes the second Rashidun Caliph Umar ibn al-Khattab:

"There are three things, If God's Messenger had explained them clearly, it would have been dearer to me than the world and what it contains: kalalah, riba, and khilafah."

Taqi Usmani—"one of the leading" modern day "religious experts on Islamic finance"—disagrees, arguing that scripture concerning riba could not possibly be ambiguous because God would not condemn a practice without revealing its "correct nature" to Muslims.

Definitions

Definitions of riba include:

Unjustified increment in borrowing or lending money, paid in kind or in money above the amount of loan, as a condition imposed by the lender or voluntarily promised by the borrower. This is called fiqh riba al-duyun .
Unequal exchange. In addition to loan interest, this can include the exchange of nonequivalent quantities of goods or unequal exposure to risk.
All forms of interest, "any excess on the principal sum of loan", i.e. any and all interest, irrespective of how much is lent, whether the borrower is rich or poor, or the use of the loan for investment or for consumption. Some translations of verses of the Quran substitute the word "interest" for riba or "usury". This is the "orthodox" or "conservative" view of classical jurists, as well as revivalists such as Abul A'la Maududi.

The orthodox revivalist Taqi Usmani gives these definitions for riba al-Quran:

A contract of loan or debt for any additional amount over the principal and for the three varieties of riba-al-sunnah:
An exchange of money "of the same denomination where the quantity" exchanged is not equal, whether it is in a spot transaction or with deferred payment.
"A barter exchange between two weighable or measurable commodities of the same kind", where either the quantity exchanged is not equal, or delivery of one side is deferred.
"A barter exchange between two different weighable or measurable commodities where the delivery of one side is deferred."

Some sources emphasize a dichotomy in the prohibition of riba, with classical scholars and orthodox revivalists interpreting its meaning broadly and strictly, and others using a narrower definition which is more easily evaded in modern practice.

Broad definition of interest: "Prohibiting any loan contract that specifies a fixed return to the lender" on the grounds that it provides "unearned profit" and imposes "an unfair obligation on the borrower". In the modern era Islamists and revivalists preach that all interest is socially unjust and should be banned.
Narrower definition in most Muslim-majority countries: riba means "excessive interest" or "compound interest". However, they allow interest-like charges, described as "commission", or legal subterfuges, such as a lender buying something from the borrower for cash, while arranging to sell it back later for a greater amount.

Some Islamic modernists emphasize the moral prohibition on exploiting the needy, defining riba not as interest on all loans, but only "exploitive" loans, including:

Loans for consumption not investment: investment loan interest is allowed, since such loans were allegedly unknown in Mohammed's time, and by their nature earn borrowers a return with which to pay the interest ;
Loans motivated by a desire of risk-free return, with no concern to whether the funds are invested to enhance the earning ability of the lender.
Loans charging compound rather than simple interest ;
Loans at "exorbitant" interest rates;
Loans to the poor and needy, or
Loans to the economically strong from the economically vulnerable : this understanding would allow interest to be paid by large banks to individual deposit account holders.
Varieties

According to various ahadith, the prophet Muhammad said there are either 70, 72, or 73 varieties of riba, without giving specifics. Most Islamic jurists describe several different kinds of riba:

Riba al-jahiliya: usury in pre-Islamic Arabia. Scholars differ on its definition. According to Raqiub Zaman and M.O. Farooq, a riba al-jahiliya debt was "doubled and redoubled" each year if the borrower could not pay what was owed. Another similar definition is that riba al-jahiliya was a kind of loan where the borrower was not charged any additional amount above the principal, unless they could not repay when the loan was due, in which case they were charged an additional amount, but not necessarily double or triple the principal. Usmani believes both of these definitions are incorrect, and that in reality a number of transactions where "an increased amount was charged on the principal amount of a debt" were in vogue at this time and can be considered riba al-jahiliya. Other orthodox scholars agree and state riba al-jahiliya, riba an-nasiya, riba ad-duyun, riba al-Quran, riba al-qardh are all names for one of the two types of riba.
Riba an-nasiya: the excess accruing from a loan transaction. Riba an-nasiya is the riba on a credit transaction, when two quantities of items are exchanged, but one or both parties delays delivery or payment and pays interest .
Riba al-fadl, also riba al-sunna: excess accruing in a sale or barter transaction, i.e. riba involving the simultaneous exchange of unequal quantities or qualities of a given commodity. Riba al-fadl and prohibition of it—according to Usmani—was developed by Muhammad, and so was not part of pre-Islamic jahiliya.

Still another source describes two types of riba, each with two sub sets :

History

''Riba al-jahiliya''

describes riba as a pre-Islamic practice in Arabia "that doubled a debt if the borrower defaulted and redoubled it if the borrower defaulted again". It was held responsible for enslaving some destitute Arab borrowers.
Abdullah Saeed quotes the son of Zayd b. Aslam on what the means by riba being "doubled and redoubled":

"Riba in the pre-Islamic period consisted of the doubling and redoubling , and in the age . At maturity, the creditor would say to the debtor, "Will you pay me, or increase ?". If the debtor had anything, he would pay. Otherwise, the age of the cattle would be increased... If the debt was money or a commodity, the debt would be doubled to be paid in one year, and even then, if the debtor could not pay, it would be doubled again; one hundred in one year would become two hundred. If that was not paid, the debt would increase to four hundred. Each year the debt would be doubled."

Orthodox Islamic scholar and Islamic banking advocate Taqi Usmani disagrees. In describing "riba in the days of Jahiliyya", he makes no mention of debts being doubled, but states that riba "had different forms" and that "the common feature of all these transactions is that an increased amount was charged on the principal amount of a debt".

''Riba''

According to orthodox sources, "some jurists" saw riba "forbidden early in Mecca, some in the year 2 AH, and some after the opening of Mecca, but the majority agreed on its prohibition". Usmani cites sources declaring that 3:130 "clearly" forbade interest and these verses were revealed in 2 AH.
Other sources—such as the Encyclopedia of Islam and the Muslim World—state that early Muslims disagreed on whether all or only exorbitant rates of interest could be considered riba, and thus declared forbidden, but the broader definition won out with a consensus of Muslim jurists holding that any loan that involved an increase in repayments was forbidden. One particular jurist is credited with establishing the orthodox definition of riba—stipulating that it was excess payment "in a loan or debt". M. A. Khan argues that attempts to ban interest resulted in either the development of black markets and higher prices for "interest-bearing credit", which "defeat the very purpose for which interest was banned"; or in various "subterfuges to camouflage interest so as to bypass the legal sanctions".
Some attribute the basis of religious condemnation of interest on loans to the widespread practice in the ancient world of selling loan defaulters into slavery and shipping them to foreign lands. Feisal Khan argues that "all pre-modern, and not just Muslim societies" banned interest on loans, using a ban as "a simple and effective risk-mitigation mechanism for small borrowers that cannot afford the down-side risk inherent in financial transactions". Among other monotheist Abrahamic religions, Christian theologians condemned interest as an "instrument of avarice", the Jewish Torah prohibited lending at interest to fellow Jews, but allowed it to non-Jews .
With modernity and economic development, higher incomes and more complex mechanisms such as insurance eliminated the need for the ban. This, rather than religious backsliding, explains the lack of interest in the ban among the contemporary Christian and Jewish counterparts of the Islamic ulema.
Historically, while the Islamic states followed classical jurisprudence in prohibiting an increase in repayments on loans in theory, in practice the giving and taking of interest continued in Muslim society "at times through the use of legal ruses, often more or less openly". One common Ottoman era stratagem to circumvent of the ban on interest, according to Timur Kuran, was known as istiglal and involved the borrower selling his house to a lender and immediately leasing it back. The proceeds of the sale served as the sum loaned, the lease/rent/mortgage payment served as principal and interest repayment of the loan.
According to Kuran, only transactions "that satisfied the letter of the ban" on interest "through stratagems" were allowed. In addition, in the sixteenth century, an Ottoman sultan "limited the annual rate of interest to 11.5%" "throughout the empire" on these loans. This order "was duly ratified by a legal opinion ". Another source quotes several sources indicating the Ottoman Empire forbid as riba only interest rates above a certain level.
According to Minna Rozen, the business of money lending was completely in the hands of Jewish Sarrafs in the Ottoman Empire. Europeans who visited Ottoman Empire stated that Ottoman economy would not function without these Sarrafs, though they sometimes were accused of cheating. In Persia, money lending was also dominated by Jewish Sarrafs. In nineteenth century Shiraz, for example, almost all Jews were active in lending money on interest.
Taqi Usmani maintains that outside of Dar al-Islam, riba allowed the Rothschild family to "acquired financial mastery over the whole of Europe and the Rockfeller over the whole of America".