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The laws recognized by the State and upheld by the Courts of Justice make up the law, which is sanctioned and subject to enforcement. Laws are intended to further justice, fairness, and social order and are upheld by legal systems. They may be unwritten or written, and breaking them could have a number of negative effects, such as fines or imprisonment. As civilizations develop and change throughout time, laws may also be changed or removed.

Islamic law also sources of Malaysian Law, also known as Shariah law. In Malaysia, Shariah law is only applicable to Muslims and administered in the Syariah courts. Shariah law is complete legal and ethical system established from the Qur'an, Hadith (Prophet Muhammad’s saying and actions), and intellectual agreement within the Islamic tradition. It guides Muslims in questions of personal conduct, morals and governance (Robinson, 2021). Shariah law is a complex system that includes not only legal concepts, but also social, economic and cultural values. The term "Shariah" means "the path" or "the way," reflecting its function in guiding Muslims to live their lives in line with Islamic ideals. It addresses a wide range of issues, including family relationships, corporate transactions, criminal justice, and rituals (Clack, 2015). For example, riba is one of the prohibited acts under Islamic law. The forbidding of riba is rooted in Islamic theology, which is principally taken from the Quran, Islam's holy book. Several scriptures expressly prohibit usury, emphasizing fairness and condemning practices that result in economic inequity. Theologically, the prohibition of riba is provided by Quranic passages, which frame it as a question of ethical conduct and societal justice (Imtiaz, 2023)

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In Arabic, 'riba' means 'extra', 'raise' or 'growth' in loan rates. In the Shari'ah, riba is the name Allah gave in the Quran to any rise in debt or loan until it is repaid. In Arabic, riba is commonly translated as 'usury' or 'interest'. In other words, riba refers to the extra money paid when someone borrows or delays repaying a loan. The extra fee or interest rate rises with time when someone borrows money or debt repayment is delayed. (Zakat Foundation of America, n.d.).

What types of riba are there?

Islamic science of law identifies two primary types of riba: riba an-nasiah and riba al-fadl. In Shari'ah, buyers and sellers must learn about the rules of riba before entering the marketplace. (Zakat Foundation of America, n.d.).

Riba An-Nasiah

The most common type of interest transaction is riba an-nasiah or the interest of delay. Riba an-nasiah is the surplus or extra amount added to the original transaction sum from the lenders to the borrowers. It often occurs in loans, where additional money is charged for delaying the repayment. For example, suppose Person A lends RM1000 to Person B with the agreement that Person B will pay back the original amount plus additional RM100 as interest after one month. In this scenario, the RM100 charged for the one-month delay in repaying the loan is considered riba an-nasiah. Examples of riba an-nasiah in conventional banks are conventional mortgages, car loans and student loans. In Islamic Finance, the extra charge is unfair to the party who borrows money because the lender will benefit simply because of the passage of time.

Riba Al-Fadl

The second type of riba is the riba al-fadl, or the interest of excess. Riba al-fadl refers to unequal exchange or barter transactions. More straightforwardly, riba al-fadl is when items are traded in unequal amounts due to an exchange delay. For example, suppose Person A has 10 kilograms of wheat, and Person B has 5 kilograms of the same type of wheat. They agree to exchange their wheat after one week, on the condition that Person B will give another 2 kilograms of wheat to Person A. This transaction is not allowed in riba al-fadl because the items exchanged are similar but unequal quantities. During the age of ‘jahiliyyah’ or ‘ignorance’, riba al-fadl always happens during the exchange of gold. For instance, 10 grams of gold (type 916) is traded for 15 grams of gold (type 999). This kind of trade is prohibited since both parties should weigh 10 or 12 grams. In Shari'ah, the transaction should be one-to-one without additional quantity specified due to the time delay.

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Riba is any form of interest payment which is given based on the weight or measurement of the products in exchange for the property according to Islam law (Ahmad et al. 2018). Riba in Islamic financial perspective is the banning of imposition of interst or carrying out usury. Riba Al Fadl refers to trade where goods are involved whereas Riba Al Nasiah involve excess trade in the delayed exchange where one has charged interests for late reimbursements.

In pre-Islamic history there existed a form of trade in Jahilliyah. Riba Al Fadl is excessive usury and it involved high interest rates. A usual practice involved barter trade using for instance, weighing scales, a standard measure quantity, and amount. For example, the trade of ribawi goods, such as gold or silver. This resulted in one party becoming more powerful hence one side was benefited causing Riba Al Fadl. The transactions though natural for that society were widespread at this time. Nonetheless, the coming of Islam has led to a lot of attempts which aimed at curbing these disparities. This is an undoubtable fact that Riba Al Fadl was strictly forbidden by the Quran and Hadith. Contributed towards transformations in the Economic aspect during the Jahiliyah period. Considering this historical context, it is vital that Islamic interactions be dealt with and eliminated as well as develop economic principles for Islamic finance.

Riba Al Nasiah refers to interests which arise in connection with banking or delayed payment charges. Penalties for late payment or delayed payments are referred to as delayed payment charges. For instance, on credit cards with a minimum payment requirement and traditional savings account where interest is earned upon repayment delay. In Islamic finance, the fee is termed as Riba Al Nasiah. Ensure more burdensome covenants upon lenders which favor equity between lender and borrower, and prohibit usury. It provides an option through compliance with Sharia principles and prohibitions against interest-bearing dealings.

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There are two types of sources in regulating the Syariah Law. They are the primary sources and the secondary sources.  The Holy Book (Al Quran), Practices of Prophet Muhammad (As Sunnah), Consensus (Ijma’) and Analogical Reasoning (Qias) is the primary source of Syariah Law in Islam while secondary law is divided into five categories. They are Islamic Law Equity (Istihsan), Public Interest (Maslahah Mursalah), Custom (Uruf), Blocking the Means (Sad Ad-Dhara’i) and finally Critical Thinking (Ijtihad).

This part of the report will specifically talk about the first two primary sources that includes Riba which is: Al-Quran and As-Sunnah. Below is more elaboration regarding Riba in both Al-Quran and As-Sunnah which consist on how Riba is strictly prohibited in Islam.

Al Quran

In Al-Quran the revelations of verse regarding and related to Riba is divided into four. They are the First (Surah Ar-Rum), Second (Surah An-Nisaa), Third (Surah Ali Imran) and Fourth (Surah Al-Baqarah). Each revelation was taken directly from the Holy Book which has been translated by Abdullah Yusuf Ali.

i.          First Revelation

Al Quran, Surah Ar-Rum(30)/ verse 38-39

38. So give what is due To kindred, the needy, And the wayfarer. That is best for those Who seek the Countenance, Of God, and it is they Who will prosper.

39. That which ye lay out For increase through the property Of (other) people, will have No increase with God : But that which ye lay out For charity, seeking The Countenance of God, (Will increase) : it is These who will get A recompense multiplied.

Above verse is taken from the Holy Book which been said in Surah Ar-Rum that shows the earliest revelation regarding Riba in Al-Quran. In this verse, it did not speak directly on prohibiting the Riba but Allah however, clearly says that who does Riba will not be rewarded and not favoured. In the other hands, the encouragement of doing charity (Zakat) will surely get rewarded by Allah.

ii.          Second Revelation

Al Quran, Surah An-Nisa’(4)/ verse 160-161 .

161. That they took usury (interest) though they were forbidden; and that they devoured men’s substance wrongfully; We have prepared for those among them who reject faith a grievous punishment.

162. But those among them who are well-grounded in knowledge and the believers believe in what hath been revealed to thee; and (especially) those who establish regular prayer and practice regular charity and believe in God and in the Last Day: to them shall We soon give a great reward.

Moving on the second revelation, in Surah An-Nisaa we can see that this verse is directly speaks about the Jews in Jahiliyyah times. Even though they already know that usury is prohibited in Islam, they still follow their ancestor to do Riba in order to gain wealth. In the next verse, Allah declare that they who followed the right things will be rewarded.

iii.          Third Revelation

Al Quran, Surah Ali Imran (3)/ verse 130

130. O ye who believe! devour not usury doubled and multiplied; but fear God; that ye may (really) prosper.

In this part, the strict prohibition of usury in Islam are finally delivered in Surah Ali Imran. This verse clearly stated that it is an order or command that need to be followed. Hence, it is clear in this verse that Riba is prohibited (Haram) in Islam and cannot be taken lightly.

iv.          Fourth Revelation

Al Quran, Surah Al- Baqarah (2)/ verse 275-281

275. Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say: “Trade is like usury but God hath permitted trade and forbidden usury. Those who after receiving direction from their Lord desist shall be pardoned for the past; their case is for God (to judge); but those who repeat (the offence) are companions of the fire: they will abide therein (for ever).

276. God will deprive usury of all blessing but will give increase for deeds of charity: for He loveth not creatures ungrateful and wicked.

277. Those who believe and do deeds of righteousness and establish regular prayers and regular charity will have their reward with their Lord: on them shall be no fear nor shall they grieve.

278. O ye who believe! fear God and give up what remains of your demand for usury if ye are indeed believers.

279. If ye do it not take notice of war from God and his Apostle: but if ye turn back ye shall have your capital sums; deal not unjustly and ye shall not be dealt with unjustly.

280. If the debtor is in a difficulty grant him time till it is easy for him to repay. but it ye remit if by way of charity that is best for you if ye only knew.

281. And fear the day when ye shall be brought back to God. Then shall every soul be paid what it earned and none shall be dealt with unjustly.

In the third revelation, we can see that usury is prohibited and it is an order or command from to God (Allah). In the other hand, the fourth revelation in Surah Al- Baqarah above explain more on the details regarding why actually Riba is prohibited in the religion. The elaboration is more detailed regarding the severity on the prohibition of riba. From above verses, the encouragement on doing charity is still being emphasized. This indicates that the opposite of doing usury is charity. From here we can see Allah has already give us the choice whether to do good or the other. They who done the good deeds will surely be rewarded and they who done the bad deeds will be punish as Allah promise is just and true.

As Sunnah

Prophet Muhammad’s way of life is called As-Sunnah in Islam. This means that all habitual practices by Prophet Muhammad is considered as As-Sunnah. This includes all of His words, doings and actions. Specifically in this part one of the Hadith that contains the words of Prophet Muhammad will be taken into consideration as the evidence regarding the prohibition of usury.

Before that, hadith literally means statements, communication or story. Therefore, hadith means in Islam is the words that have been taken from Prophet Muhammad to be a way of life. Below is a valid example of hadith that is no doubt in the terms of chain and also the narrator. That is why Authentic Hadith (Sahih) becomes one of the sources of Islamic Law together with the advantage of being a guide in obligatory worship.

i. Authentic Hadith (Sahih):

"Stay away from these seven major sins (destructive things). The companions asked: What is it O Messenger of Allah? Rasulullah SAW said: Syirik with Allah SWT, witchcraft, killing a soul that has been forbidden by Allah SWT except with the truth, taking usury, eating the property of orphans, running away from war and accusing believing women of adultery". [Narrated by al-Bukhari (2766) (6857) and Muslim (145)]

From the Hadith above we see “taking usury” is one of the major sins that has been mentioned by Prophet Muhammad. Therefore, it is already undeniable that Islam strictly prohibited the taking of usury or Riba as it will only bring more harm than good to others. Islam also encourage their believers to do more charity because this is a good deed that will be taken in account in the hereafter.

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Why riba is being prohibited in Islam?

Riba was forbidden in Islam in order to encourage Muslims to make wise investments and to protect one another's wealth from unjust exploitation, as well as to discourage enmity, immorality, and envy among them (Gani, 2020). At the same time, this prohibition of riba further helps to promote a kind and merciful mindset among Muslims by encouraging them to contribute to one another voluntarily and without expecting anything in return beyond the amount borrowed.

How riba influence the business sector?

Besides, Riba may force business entities to declare bankruptcy if they are unable to pay the high interest on their loans, resulting in job losses for their employees and a loss of productive opportunities for society as a whole. Not only that, Riba limits small firms' ability to innovate since it makes them hesitant to take out loans and face high rates of interest for innovative projects that are often considered to carry greater risk. Therefore, this situation could hinder the growth and productivity of the business sector, which would then influence the economy of the country (Attahiru, 2022).

How riba influence the society?

Riba causes wealth to be distributed unequally in society. For instance, individuals with sufficient funds would lend them to others at a fixed interest rate that is predetermined, which means that they confirm they will get the financial benefit. However, the borrower is required to repay the Riba (interest) amount despite the condition, even though the business is at risk. Hence, the guaranteed profit will concentrate the wealth of the general public and the poor into a small number of rich individuals, making the rich richer and the poor poorer. When this situation happens, the poor could feel envy and hatred towards the rich, which in turn could cause conflicts among them (Islam, 2016).

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In conclusion, it should be noted that the idea of riba, or usury, is crucial to Islamic ethics and money. We have discussed the Quranic injunctions and the wider economic ramifications of riba throughout this report. Islam forbids riba in order to advance economic justice, deter exploitation, and encourage a more equitable distribution of wealth. Islamic finance provides a framework for a financial system that is in line with Islamic principles by offering substitute models that place an emphasis on risk-sharing and moral investing. The basic message of riba avoid unjust gain and promote everyone's economic well-being remains unchanged despite ongoing disagreements about how to interpret it and apply it to contemporary financial transactions (Hussain, 2023). The concepts underlying the prohibition of riba remind us of the necessity of ethical concerns in economic operations as we negotiate the complexities of the global financial system. Whether one practices Islamic banking or not, the lessons of the riba prohibition challenge us to consider the ethical elements of our financial practices and strive for a more inclusive and just economic system. Riba is not just a pillar of Islamic banking, but also an appeal for individuals and society to examine the ethical foundations of their economic activity. We can draw inspiration from the values implicit in the prohibition of riba as we imagine the future of global finance, finding new solutions that prioritise economic justice, equality, and the common good. As a result, we are moving towards a more ethical and inclusive financial landscape that crosses cultural and religious lines (Islamic Finance Foundation, 2014).

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6. Hussain, A. (2023, September 22). Riba: What It Is, and How to Avoid it. Zoya Blog. https://blog.zoya.finance/riba-what-it-is-and-how-to-avoid-it/

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8. Imtiaz, & Imtiaz. (2023, January 19). RIBA and Financial Crises: the Islamic Solutions. Ethis Blog - Ethical Crowdfunding. Impact Investing. Effective Charity. https://ethis.co/blog/riba-financial-crises-and-the-islamic-solution/

9. Islam, S. M. (2016). Riba (Usury): Its Adverse Impact on Business and Its Place in Islam. Scholar Journal of Business and Social Science, 2. https://www.researchgate.net/publication/349044429_Riba_Usury_Its_Adverse_Impact_on_Business_and_Its_Place_in_Islam

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