In general, usury refers to the predetermined interest which a lender charges on, and collects from, a borrower. The lender receives this interest over and above the principal amount of the loan (asl al-qardh). Under Islamic shari’ah, the ban on usury (riba) is absolute and unambiguous whether in Quran or Sunnah. Riba comes in the guise of two different types: riba al nasi’aah (usury of waiting/repayment) and riba al fadl (usury of surplus). The former refers to the excess monetary compensation in the form of a predetermined interest amount or percentage. This type of riba basically relates to time, i.e., the amount of interest charged is “justified” as the compensation for the time the money remained in the hands of the borrower. The longer that time, the higher the interest. For example, riba al nasi’aah occurs when party X lends party Y a given amount of money (say USD 1000) for a given period of time (say three months) on the condition that party Y returns it back to party X in addition to USD 100 over it.

The latter type of riba arises from excess compensation without consideration, that is the inequality of the exchanged countervalues. Put differently, riba al fadl involves the simultaneous exchange of unequal quantities or qualities of a given commodity. For example, riba al fadl results from an exchange where party X receives a kilogram of high-quality dates from party Y in return for 2 kilograms of low-quality dates to be handed over to party Y.

Therefore, riba doesn’t arise only from the use of currency money, but also from the exchange of commodities that are considered by Shari’a as having a similar function to money; literally gold, silver, wheat, barley, dates and salt.

In stark contrast with conventional banking (where interest is deemed a proxy for growth, economic conditions, and the cost of capital), Islamic banking considers interest as an unfair compensation that tilts the balance of economic life to the benefit of those who have and the disadvantage of those who don’t and the broader economy. In short, Islamic banking is based on real transactions and profit sharing, not on merely financial dealings that contribute nothing to the productivity of individuals and societies.