Riba al-Nasi'ah

Riba al-nasi'ah (Arabic for "riba of deferment" or "riba of delay") is the form of riba that arises from time. It covers two situations: any increase that a lender or creditor stipulates in return for granting or extending time for repayment, which includes conventional interest on loans; and any deferral of delivery in an exchange of commodities, such as gold, silver or currencies, that Islamic law requires to be settled on the spot. It is the form of riba that Islamic scholars regard as most clearly prohibited by the Quran.

Riba al-nasi'ah is distinguished from riba al-fadl, the riba of excess in a same-kind exchange. Riba al-nasi'ah is also known as riba al-duyun (riba of debts) when it arises on loans, and the pre-Islamic practice it targeted is often called riba al-jahiliyyah.

Several Quranic verses condemn riba, most directly verses 275 to 279 of Surat al-Baqarah, which state that God has permitted trade and forbidden riba, and instruct believers to give up what remains due of riba and to take only their principal. Verse 280 adds that a debtor in difficulty should be given time until repayment is easy. Classical commentators describe the pre-Islamic practice the verses addressed: when a debt fell due, the creditor would ask the debtor either to pay or to increase the amount owed in return for more time, so that debts could multiply. That increase for time is the core of riba al-nasi'ah.

Interest on loans and debts

Any benefit stipulated as a condition of a loan, or qard, falls within the prohibition, whether it is a fixed amount, a percentage, or a rate linked to a benchmark. So does an increase in an existing debt in return for extending its maturity, and a late-payment charge that accrues to the creditor as profit. Because interest is defined by its link to time and principal, the prohibition captures most conventional deposits, bonds and loans.

This does not mean that time can never be reflected in price. In a credit sale, such as a murabaha, the seller may set a higher price for goods paid for later than for cash, provided the price is fixed at the time of the contract and is not increased if the buyer pays late. The distinction lies between a sale of goods on credit, which is trade, and the sale of money for more money over time, which is riba.

Deferment in exchanges of like commodities

The second form concerns the six commodities named in the hadith of riba, and items sharing their effective cause. When gold is exchanged for silver, or one currency for another, the exchange must be hand to hand. Delaying either side, even without any increase, is riba al-nasi'ah. This is why possession, or qabd, is central to currency exchange in Islamic law, and why most scholars reject conventional forward contracts and futures on currencies and gold.

Avoiding riba al-nasi'ah is the main reason Islamic banks do not lend at interest. Instead they use:

• Sale-based contracts with deferred prices, such as murabaha and tawarruq, and forward sales permitted by exception, such as salam and istisna'.
• Lease-based contracts, such as ijarah.
• Partnership contracts in which the financier shares profit and loss, such as mudarabah and musharakah.
• Promises (wa'd) in place of forward FX contracts for hedging.

Late payment is handled through a charity undertaking: a defaulting customer may agree to pay an amount that the bank must donate to charity rather than keep, which preserves the deterrent without creating riba. Critics argue that some structures, such as bay' al-'inah and organized tawarruq, replicate interest in substance, and the debate continues among scholars and Sharia supervisory boards.

A recurring question is whether indexing a debt to inflation is riba. Most scholarly bodies, including resolutions of the International Islamic Fiqh Academy, have held that a loan must be repaid in the same amount regardless of changes in purchasing power, and that agreeing in advance to index it is not permitted. Some scholars have argued for exceptions in cases of severe hyperinflation. The broader principle is that Islamic law recognizes the time value of money in trade and partnership returns, but not as a guaranteed return on a loan.

Jewish law prohibits interest between Jews under the rules of ribbit and developed the heter iska to allow investment returns; medieval Christian canon law prohibited usury on similar grounds. In each case, the prohibition targets a fixed gain for the passage of time on a loan, while leaving room for profit earned through trade or shared risk, the approach that underlies modern Islamic finance.