Quranic Perspective on Commercial Transaction (Trade) and Riba: Thousand Years of Banking Theories and Practices

Abstract

Al Quran describes the prohibition of Riba rā bā wāw ( ر ب و ) (often translated as usury) and permission of commercial transaction or trade (bā yā ʿayn ب ي ع ). We conducted a desk-study reviewing and analysing the historical connection between these two and their current implications through empirically proven and attested central bankers' modern banking theories and practices. We anchored our study on the etymological and ontological approaches. We specifically applied the spectrum of Al Quran (AQ) Chapter Al-Baqarah (2), verse 275 (AQ, 2:275) as the benchmarks. We discovered the root of the propagation of legalized riba through banks operating licenses issued by the government (temple biyaʿ ( بِیَع ) as a derivative of trade (bā yā ʿayn ب ي ع )). This makes the current permissible legal, commercial transaction or trade no longer isolated from prohibited riba. We argue that under the current banking practices and infrastructure, no transaction is riba-free, including those under Islamic banking and finance. Mitigating this requires immunized national banking practices that are detached from international banking systems and infrastructure.