What is Interest?
Examples and Types
There are three main forms of financial transactions:
1. Given as a Trust (Amanat)
2. Given as a Loan (Qarz)
3. Given as an Investment (Invest)
Rules of Trust (Amanat)

A trust (Amanat) cannot be spent; it must be safeguarded.

If full care is taken but it still gets stolen or lost naturally, there is no liability.

However, if it is lost due to personal negligence, the person will be held responsible for
compensation.
Rules of Loan (Qarz)

The purpose of a loan is to be spent.

The loaned item does not remain intact as it is taken to fulfill needs.

If the borrowed item is lost, whether naturally or due to personal negligence,
compensation must be paid in both cases.
Use of Invested Money

The money given as an investment is called "Capital" (‫(لام ا سار‬

This money is given to someone on a profit-and-loss basis.

If the recipient also contributes money, the agreement is called "Partnership(‫)شراکت‬

If the recipient only provides labor (without investing money), it is called
"Mudarabah"(‫ (تبالضم‬or Sleeping Partnership.

In Mudarabah, the extent of the worker’s (Mudarib’s) liability for loss differs from
that in a partnership agreement.
Examples of Loans and Trusts in Our Daily Transactions
1. Lending money to someone on credit is considered a loan (Qarz).
2. Depositing money in a bank's current account is classified as a loan.
3. Money deposited in a "BC" or committee system is also considered a loan.
4. If someone deposits a small amount in a BC/committee and receives a larger amount
earlier, the extra amount is a loan on them.
5. Money deposited in a GP Fund is treated as a loan to the company or bank.
6. Money given as a security deposit (e.g., for renting a shop or house) is a loan to the
recipient.
7. Keeping money with someone for safekeeping is considered Amanat (Trust).
8. If someone finds a lost item or a customer forgets something in a shop, it is an
Amanat (Trust).
Two Types of Interest (‫)سود‬
1. Interest gained on a loan or in some cases of credit transactions.
2. Interest occurring in specific types of exchanges of goods.
Definition of Interest (‫)سود‬
Interest(‫ )سود‬is defined by Islamic jurists as:
"‫"الربا هو الفضل المستحق الحد المتعاقدين في المعاوضة الخالي عن عوض شرط فيه‬
Translation: Riba (interest) is the excess amount that one of the two contracting parties
becomes entitled to in an exchange, under a condition, without any equivalent
compensation(Hidayah).
In simple terms, interest refers to any additional amount that one party receives as a
condition in a transaction, without offering anything in return.
Difference Between Interest (Riba) and Trade (‫)تجارت‬
Example of Interest (Riba)
If a person lends 100,000 rupees and demands 110,000 rupees in return, the additional 10,000
rupees is without any equivalent compensation—this is interest (‫)سود‬.
Example of Trade (‫)تجارت‬
If a person buys goods worth 100,000 rupees from a wholesaler and sells them to a customer
for 110,000 rupees, the 10,000 rupees profit is part of a lawful business transaction. Here, the
extra amount is justified because it is in exchange for goods.
The Quranic Distinction Between Interest and Trade
Allah Almighty says in the Quran:
"‫الر ٰبوا‬
ِ ‫ّٰللاُ ا ْل َب ْي َع َو ح ََّر َم‬
ِ ‫" ٰذ ِلكَ بِاَنَّ ُه ْم قَالُ ْۤ ْوا اِنَّ َما ا ْلبَ ْي ُع ِمثْ ُل‬
‫الر ٰبوا ۚ َو اَ َح َّل ه‬
(Surah Al-Baqarah, 2:275)
Translation (Kanz-ul-Iman):
"This is because they said, 'Trade is just like interest,' whereas Allah has made trade lawful and
interest unlawful."
This verse clarifies that trade involves a legitimate exchange of goods and services, while
interest is an unjust gain without exchange or effort.
The Quranic Distinction Between Interest (Riba) and Trade (Tijarat)
When the disbelievers objected that both trade and interest serve the same purpose—earning
profit, Allah Almighty refuted their claim by declaring trade as lawful and interest as
forbidden, making the difference clear.
The key difference lies in the method of earning profit.
Islam provides lawful trading methods (Modes of Trading) such as:

Contract of Sale (‫)معاہدہ بيچ‬

Partnership Agreement (‫)معاہدہ شراکت‬

Mudarabah (Profit-Sharing Investment)
By following these Shariah-approved methods, one can earn halal (lawful) profit without
falling into interest. Otherwise, mistakes may occur at any time that could lead to involvement
in interest unknowingly.
First Type of Interest (Riba) – Profit on Loans
Interest on loans can be taken in two main ways:
1. Direct Cash Profit on a Loan
2. Profit in the Form of Benefits or Additional Advantages
Common Forms of Cash Profit on Loans (Riba in Practice)
1. Interest-Based Bank Accounts

Any account that gives profit on deposits, such as savings accounts or various
certificates, falls under interest.
2. Interest-Based Financing for Vehicles and Goods

Many financing plans clearly separate the principal amount from the interest
in installment plans.

The amount labeled "Interest" is explicitly usury (Riba).
3. Life Insurance Policies from Interest-Based Institutions

Any additional money received from life insurance policies is considered
interest.
4. Stock Market Trading on Borrowed Money (Badla System)

In this system, banks or broker houses lend money to investors who don’t have
enough funds to buy shares, and in return, they charge interest.
5. Preference Shares (Preferred Stock)

Fixed profits on preference shares are considered interest.
6. Retailer Token Payment System

Some retailers pay customers based on a token system, then claim a higher
amount from the company.

The extra amount received by the retailer is pure interest.
7. Premium Bonds

The quarterly or semi-annual profit received on bonds like the 40,000
Premium Bond is interest (Riba).
8. Credit Cards and Interest Agreements

Holding a credit card requires agreeing to pay interest if payments are delayed,
which is a sin.

If the cardholder fails to pay on time and incurs interest, this becomes a second
sin.
9. Security Deposits by Companies
o
Some companies deposit large amounts as security with the government or
other institutions.
o
Instead of blocking their funds, they borrow money from banks to deposit as
security and pay monthly interest on it, which is a clear example of an
interest-based transaction.
Conclusion
Interest-based transactions can easily enter daily life due to a lack of awareness. It is important
to be cautious in financial dealings to avoid involvement in Riba (interest), which is strictly
forbidden in Islam.
Forms of Profit-Based Interest on Loans
In many cases, people do not receive direct cash interest on loans, but they gain other benefits
solely because of the loan. If the loan did not exist, these benefits would not be received,
making them interest-based advantages that are also prohibited in Islam.
The Prophet Muhammad (PBUH) said:
"Any loan that brings a benefit is Riba (interest)." (Kanz-ul-Ummal)”
Examples of Interest-Based Benefits on Loans
1. Providing Free Housing in Exchange for a Loan

If someone lends 500,000 or 1,000,000 rupees and, in return, the borrower
allows them to stay in their house for free, this is a form of interest and is
forbidden (haram).

The free accommodation is directly linked to the loan, making it Riba.
2. Excessive Advance Deposits for Reduced Rent

In real estate markets, the normal security deposit is around 200,000 rupees,
but some tenants offer 500,000 or even 1,000,000 rupees.

In exchange, the landlord reduces the rent—this reduction is a benefit derived
from the extra deposit, making it interest-based gain.
3. Mobile Network Promotions on Minimum Balance

Some mobile companies offer promotions like:
“Maintain a minimum balance of X rupees, and you will receive free minutes.”

This is an interest-based benefit because the company uses the customer's
deposit and rewards them in return.

Opening such an account is haram (forbidden).
4. Bank Current Account Perks Based on Minimum Balance

Some banks waive fees on services (e.g., free checkbooks, online transfers,
SMS alerts) if a certain minimum balance is maintained.

This is an interest-based benefit because the bank profits from holding the
customer’s money.

However, if there is no minimum balance requirement, then these benefits are
not considered Riba.
5. Agricultural Loans with Forced Sales Conditions

Middlemen (Aarthis) lend money to farmers with a condition that they must
sell their crops to them.

The middleman benefits from guaranteed supply and possibly lower prices,
making this a form of Riba.

Without the loan, the farmer would have been free to sell to anyone, proving
that this condition is an interest-based gain.
Conclusion
Interest is not only limited to cash payments any advantage gained solely because of a loan
is also considered Riba (interest). These hidden forms of interest can easily be found in daily
transactions, making it important to be cautious and avoid such financial dealings.
Types of Interest (Riba) and Examples
Interest (Riba) is classified into two main types:
1. Riba Al-Nasiah (Interest on Loans)
o
This occurs when an additional amount is charged on a loan or deferred
payment.
o
Example: Taking a loan of 100,000 rupees and returning 110,000 rupees.
2. Riba Al-Fadl (Interest in Exchange Transactions)
o
This occurs when certain commodities or currencies are exchanged in an
unfair manner.
o
The Prophet (PBUH) prohibited the exchange of certain goods (such as gold for
gold, wheat for wheat) in unequal quantities or with delayed payments.
Examples of Riba Al-Fadl (Interest in Trade and Exchange)
1. Buying New Banknotes at a Higher Price
o
If someone buys a bundle of 100 new notes worth 2,000 rupees for 2,200 or
2,500 rupees, this is allowed only if both parties pay immediately.
o
However, if one side delays payment, it becomes Riba (interest).
2. Bank Withdrawal Fee Manipulation
o
If someone needs to withdraw 100,000 rupees, but the bank charges 600 rupees
as a tax, and another person offers to withdraw the amount for only 500 rupees,
this is a Riba-based transaction.
3. Selling Post-Dated Cheques for Less Cash
o
If a person has a post-dated cheque (e.g., payable after 15 days) and sells it for
a lower cash amount today, this is Riba because the payment is delayed, and
the value is altered.
4. Cash Advances Against Post-Dated Cheques at Truck Stations
o
In transport businesses, truck drivers often receive post-dated cheques for their
payments.
o
Some people offer them cash immediately but deduct a certain amount—this
is an interest-based transaction.
More Examples of Riba Al-Fadl
5. LC (Letter of Credit) Discounting in Business
o
In international trade, companies open an LC for 90 days, meaning they receive
payment after 90 days.
o
If a bank offers to pay them today but at a lower amount (e.g., 4.9 million
instead of 5 million), this is Riba.
6. Committee/Bidding System in Saving Groups
o
Some informal saving groups (known as BC or Committees) allow members to
bid for an early payout.
o
The one who agrees to take the least amount gets the payout—this is an
interest-based system.
7. Gold Exchange in the Jewelry Market
o
If a goldsmith provides 100 grams of jewelry to a retailer, who later returns
only 90 grams of pure gold, this is Riba.
o
The exchange of gold for gold must be in equal quantity and immediate.
8. Exchanging More Wheat for Less Wheat in a Sale
o
If someone sells 50 sacks of wheat in exchange for 60 sacks of wheat (instead of
money), this is Riba because the exchange is unequal.
Conclusion
Riba Al-Fadl can easily be found in daily business transactions, banking, and informal
financial dealings. It is important to be cautious and follow Shariah-compliant trade practices
to avoid engaging in interest-based transactions.
The Second Type of Interest (Riba Al-Fadl)
Hadith on Riba Al-Fadl
Narrated by Ubadah bin As-Samit (RA):
The Messenger of Allah (PBUH) said:
"Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for
salt—must be exchanged in equal quantities, hand to hand. But if the types differ, then sell as you
wish, provided that the exchange is immediate (hand to hand)."
(Sahih Muslim, Vol. 2, Page 25, Karachi Edition)
What is Riba Al-Fadl?
Riba Al-Fadl refers to interest found in the exchange of specific commodities when there is
inequality in quantity or delay in payment.
Conditions that Lead to Riba Al-Fadl
1. Same Type of Commodity )‫(جنس‬
o
If the exchanged items belong to the same category (e.g., gold for gold, wheat
for wheat), they must be of equal quantity and exchanged immediately.
2. Measurable or Weighable Items (‫(قدر‬
o
If items are sold based on weight or volume (e.g., grains, metals), any increase
or delay in exchange makes it Riba (interest).
Examples of Riba Al-Fadl

Selling 100 grams of gold for 110 grams of gold (even with immediate payment) is
Riba, as it is the same commodity but unequal in quantity.

Exchanging wheat for wheat but one side gives more or delays payment, making it
Riba.

Selling one kilogram of salt for 1.2 kilograms of salt is also Riba Al-Fadl.
Conclusion
Islam strictly prohibits Riba Al-Fadl to maintain fairness and transparency in trade. To avoid
Riba, exchanges of the same commodity must be equal in quantity and immediate. If the
commodities differ (e.g., gold for silver, wheat for barley), they can be exchanged in any
agreed quantity, but the transaction must be hand-to-hand (without delay).
Explanation of "Qadr" (Measurement in Trade)
Qadr (Measurement) refers to how items are measured or counted in trade. It can be
classified into different types:
1. Volume-based measurement – e.g., a bucket, an empty container, or a can.
2. Countable items – e.g., eggs, mobile phones.
3. Weight-based measurement – e.g., rice, flour, or other goods sold by weight.
Four Types of Exchanges and the Ruling on Interest (Riba)
1. Same Type of Commodity, Same Quantity → Allowed
o
Example: Exchanging 1 kg of wheat for 1 kg of wheat immediately.
2. Same Type of Commodity, Different Quantity → Riba (Interest) Exists
o
Example: Exchanging 1 kg of wheat for 1.5 kg of wheat (even if done
immediately).
3. Different Commodities, Same Measurement Method → Allowed
o
Example: Exchanging 1 kg of wheat for 1 kg of rice, as they are different items.
4. Different Commodities, Different Measurement Method → Allowed
o
Example: Exchanging 1 dozen eggs for 2 kg of rice is acceptable because the
items and measurement methods are different.
Conclusion: Interest (Riba) only applies when exchanging the same commodity with an
unequal quantity or delayed payment.
First Case: Same Commodity, Same Quantity

Ruling: Both delay (credit) and difference in quantity are prohibited (Haram).

Example:
o
Buying: Wheat
o
Selling: Wheat
This means if you exchange wheat for wheat, it must be equal in quantity and done immediately.
Any delay or difference in amount would be considered Riba (interest).
Second Case: Same Commodity, Different Quantity

Ruling: Delay (credit) is prohibited, but difference in quantity is allowed if
exchanged immediately.

Example:
o
Buying: Horse
o
Selling: Horse
This means if you exchange a horse for another horse, the trade must be done immediately. If
one horse is of higher value than the other, the difference can be adjusted, but the transaction
must be hand-to-hand without delay.
Third Case: Different Commodity, Same Quantity

Ruling: Delay (credit) is prohibited, but difference in quantity is allowed if
exchanged immediately.

Example:
o
Buying: Wheat
o
Selling: Rice
This means if you exchange wheat for rice, the transaction must be completed immediately
(hand-to-hand). However, it is permissible to exchange different quantities since they are
different types of goods.
Fourth Case: Different Commodity, Different Quantity

Ruling: Both delay (credit) and difference in quantity are allowed.

Example:
o
Buying: Gold
o
Selling: Mobile
Since the commodities are completely different, there are no restrictions on quantity differences
or delayed payments.
Summary:
1. Riba al-Nasi’ah: This involves gaining a benefit in exchange for a loan.
2. Riba al-Fadl: This occurs in the exchange of specific goods where interest is found. By
understanding the rules of commodity type (Jins) and quantity (Qadr), one can avoid
this type of interest.
Note: Another form of interest, known as Shubha Riba (Doubtful Interest), can also make
income unlawful. There are many scenarios where this applies, so further religious knowledge is
necessary to identify and avoid it.
How to Purify Wealth if Interest Has Been Received?

Interest provides ownership but cannot be used lawfully because it is impure wealth.

The correct way to dispose of interest money is to give it to the poor (Zakat-eligible
people) without the intention of reward.

One should also sincerely repent to Allah and avoid dealing with interest in the future.
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