Ribaand interest in Islamic finance: semantic and terminological ıssue

Ugi Suharto

International Journal of Islamic and Middle Eastern Finance and Management, 2018, vol. 11, issue 1, 131-138

Abstract: Purpose - The aim of this paper is to argue analytically that interest andribaare not exactly the same and not an interchangeable terminology. There are similarities and differences between the two at the conceptual level. Design/methodology/approach - To support the argument, the paper shows that it is possible to prove cases where theribais involved but the interest is not. Hence, there is a situation of the presence ofribawithout interest. Furthermore, it is also possible to prove cases where the interest is involved but theribais not. Hence, there is a situation of the presence of interest withoutriba. The notion and concept of interest in finance are analysed critically in comparison withribain Islamic jurisprudence (fiqh Islami). So a comparative conceptual analysis is the main methodology of the paper. Findings - The paper finally suggests that the correct expression should be that Islamic banking and finance is “a ribawi free of banking and finance” instead of “interest free of banking and finance” as it is popularised. Research limitations/implications - The paper is conceptual in nature. No empirical analysis is pursued. Practical implications - Islamic finance should not claim it self as interest-free finance, ratherriba-free finance. Social implications - It is more truthful to the society to say that Islamic finance isriba-free finance. Originality/value - The paper is expected to contribute in the conceptual level of Islamic banking and finance’s understanding by clearing up the basic confusion and misconception aboutribaand interest. This would consequently minimise or even eliminate the taken-for-granted tendency of denoting the semantic ofribaand interest as an interchangeable term, especially when writing in English and addressing the finance’s students and scholars. The semantic clarification between interest and riba hopefully becomes the main contribution of this paper.

Keywords: Interest-free banking; Future value; Interest-riba; Islamic jurisprudende; Present value; Time value of money (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-08-2016-0109

DOI: 10.1108/IMEFM-08-2016-0109

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