Critical Analysis of the Contemporary Application of Riba in Islamic Banking
Critical Analysis of the Contemporary Application of Riba in Islamic Banking
Diana Carina Azoitei
 
Abstract: Islamic banking has become an important financial market, running parallel to conventional banking. Its expansion has attracted the attention of many Islamic law scholars and has reinvigorated the debate on one of the system’s core principles, namely, the prohibition of riba, which is commonly known as interest. The debate primarily revolves around the conflicting interpretations of the concept of riba and its application in the modern banking system. This article contributes to the ongoing debate by critically examining whether the concept of riba has been adequately interpreted in its modern context. It evaluates how and why Islamic banks circumvent riba in ways that do not reflect the underlying Sharia principles of equality, justice, fairness, risk sharing, and equal participation. The objective is to explore how frictions caused by the conflicting interpretations of the concept of riba can be remedied. The article finds that there is a pressing need for the concept of riba to be adapted to today’s financial system by rediscovering rules from the primary Sharia sources that truly reflect the underlying reasonings for the prohibition of riba. The article goes further and explores how the legitimacy of Islamic banking could be enhanced by adopting a new Islamic banking model, namely, a hybrid between a classical Islamic financial institution offering Sharia compliant products and an enterprise.

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