KembaraXtra-Islamic Finance - Islamic Banking and the Prohibition of Riba: A Study Guide

Core Principles

• Riba Definition: Riba is the Arabic term for interest or usury, and it's fundamentally prohibited in Islamic finance.
• Money as a Medium, Not a Commodity: Unlike conventional banking, Islamic finance does not view money as something that can inherently generate more money (through interest). Instead, it's a:
  • Medium of Exchange: Facilitates transactions.
  • Store of Value: Holds purchasing power over time.
  • Unit of Measurement: Provides a standard for pricing goods and services.
• The Rejection of Interest: Islamic Law categorically denounces interest (Riba).

Islamic Banking vs. Conventional Banking

• Alternative to Interest: Islamic banking seeks to establish a connection between money and profit.
• Activities: Primarily involved in trading, leasing and fee-based as well as investment activities.