Interest, usury and riba – what’s the difference?

In any discussion of Islamic economics and finance, the prohibition of riba inevitably will be mentioned. It’s a fundamental tenet of the Islamic economy system.

Riba is usually translated as interest or usury.

So, which one is it? Interest or usury? Are they the same thing? And are they accurate translations of riba?

Let’s figure that out.

We’ll start with the most commonly used word, interest. According to the Merriam-Webster dictionary, interest is “a charge for borrowed money generally a percentage of the amount borrowed”.

For example, if you borrowed $1000 at a 5% annual interest rate, at the end of the year, you would owe $1050. $1000 is principal. That $50 is interest.

As for usury, the Merriam-Webster dictionary tells us it is an archaic form of the word interest. In the past, usury is the word they would have used to describe the $50 extra that you’re paying on the $1000 loan. What we now call interest is the same thing as what they used to call usury.

It’s similar to the way that “common-law relationship” today describes what used to be called “living in sin”. They’re the same thing. It’s people who aren’t married, living together like they are married. We just use a different terminology today than we used in the past.

Since the word usury has been replaced by interest, the word usury is now used a little differently. Today, usury is used to describe exorbitant rates of interest.

For example, if someone was lending money at an interest rate of 60% per year, that could be called usury.

When translating the Arabic word riba into English, this dual usage of the word usury and its similarity to the word interest can cause some confusion.

First, what is riba?

There are two types of riba:
1) Sales-based riba
2) Loan-based riba

Sales-based riba is unequal exchange of the same commodity. For example, if I traded a certain type of wheat for a different quality of wheat. I don’t know in what context this comes up, but in our modern lives, it’s not something that we have to worry about.

Loan-based riba is any excess beyond the principal that is stipulated in a loan-based contract. Note, that there isn’t a minimum amount of excess that qualifies something to be called riba. So even a 1% interest rate counts as riba.

The other thing to note is that it’s a stipulated excess. If the borrower decides to give the lender extra as a token of appreciation when he returns the loan, that’s not riba. That must be entirely voluntary and not something that the lender requests, though or else it fits into the definition of riba again.

So in summary, interest is riba. Usury is also riba. You can translate it either way.

Just don’t get confused and think that if riba is translated as usury, then it only refers to very high interest loans. That’s simply not true.

Riba refers to any excess beyond principal that is stipulated in a loan-based contract. Today, we refer to that excess as interest.

Non-fixed resources

Some resources aren’t fixed.  They become more available to you the more you use them.
It’s like how muscles grow with use and shrink when left idle.  In this case, you don’t have to carefully decide what you’re using that muscle for.  What’s important is that you’re using it.
You can walk, do housework, go to the gym, lift weights, play with kids — the more you move, the more you can move.
The ability to concentrate on deep work is also like this.  Whether you’re reading a difficult text, writing something for publication, preparing a presentation, the more you use this muscle, the stronger it gets.
The same goes for ideas.  The more ideas you come up with, whether good or bad, the more ideas will come to you.
So the key here is not to be too picky and wait for the ideal activity, application or idea. Move, concentrate, come up with ideas.  Don’t worry about doing the best thing.  Do something.  And keep doing it.  So you can do more.

Food, space and time

The problem with eating junk food is two-fold. One is the bad stuff you’re eating and two is the good stuff you’re not eating.

You only have so much space in your stomach. The more of it that’s filled with sweets and processed foods, the less that’s left for wholesome foods.

That’s also true about the space in your house. You can’t make more of it. Whatever you include in that space directly impacts what you exclude from it. And vice versa. What you decide not to put in there affects what you can put in there.

Time works the same way. The more time you spend on one thing, the less is left for something else.

These are fixed resources with hard limits.

Other resources like money, attention, energy, ideas, goodwill have limits too but they’re not absolute.
There are ways to get more of these.

We don’t want to squander any resources, but we do want to be especially careful with how we use the fixed ones.

Non-monetary compensation

Some non-monetary things people will exchange their valuable time and effort for:

– learning
– training
– experience
– opportunities for growth
– respect
– status
– purpose
– sense of belonging
– camaraderie
– being part of something meaningful
– social interaction
– the satisfaction of doing good work
– fun

When people leave one job for another, it’s often because of a shortage of these intangibles rather than a shortage of money.

Social, intellectual and spiritual technology

…our din [religion] is not, ultimately, a manual of rules which, when meticulously followed, becomes a passport to paradise. Instead, it is a package of social, intellectual and spiritual technology whose purpose is to cleanse the human heart. In the Qur’an, the Lord says that on the Day of Judgement, nothing will be of any use to us, except a sound heart (qalbun salim). And in a famous hadith, the Prophet, upon whom be blessings and peace, says that

“Verily in the body there is a piece of flesh. If it is sound, the body is all sound. If it is corrupt, the body is all corrupt. Verily, it is the heart.”

Islamic Spirituality: the forgotten revolution by Shaykh Abdal Hakim Murad

Minor steps to making magic

I love teamwork.

People getting together, helping each other, working towards a goal and creating a whole that’s more than the sum of its parts–it’s magical.

But it’s also risky. For while an individual effort can yield a viable result, the same effort can be put into a group project and yield no result at all if other team members drop the ball.

So a new team member will cautiously test the waters.

Will my team respond to my questions (or at least acknowledge them even if they don’t know the answers)? Do they care about this project as much as I do? Can I be sure that my effort won’t be wasted?

Those first few interactions are crucial.

It’s impossible to be on the ball 100% of the time. But when a new team member asks for something and gets no response, your miss rate with them is 100%. If this happens after their first four requests were responded to, it’s less of a big deal. That’s only a 20% miss rate.

Answering basic questions, replying to newbie emails and checking are minor tasks. But the impact they have in the long run can be tremendous.

More important than you think

In network theory, each additional node increases the number of connections that can be made.

For example, when you have two people, you can make one connection between them.  With three people, you can make three connections.  With four, the number of possible connections is six.  When you have five people, it’s 10.  [Note for nerds: the formula for the number of links with n nodes is n(n-1)/2]

Similarly, removing a node causes a significant loss in the number of possible connections.

If you’re working in a group of five and you decide to skip out on a meeting, you might think it’s no big deal because 80% of the team is still there.

But in fact, while a group of five can have 10 connections, a group of four can only have six. That’s a 40% drop (and for the person who missed the meeting, the loss is 100%).

You’re more important than you think.


Beyond expectations

We often want to find out ahead of time what’s expected of us — to make sure we don’t fall short and we meet expectations.

When those expectations are lower than anticipated, we can rest easy, relax and do less than we intended without any negative consequences.

There’s nothing wrong with that.

There is another option, though.

Low expectations can be an opportunity to surprise and delight.

Give an unexpected tip, put extra time into that presentation, say something especially kind in an ordinary day.

The results can be better than you ever expected.

Optimizing for what?

Sometimes I look at a company and wonder why they don’t grow. They’re performing a great and essential service, they have a brilliant idea. Why don’t they expand, serve more people and get more profit?

Maybe the people running the company are optimizing for something else.

Everything has a cost. Expanding might compromise their service. It will certainly take time and effort. Maybe the owners would rather do something else with their time. Maybe they’re not optimizing for money or size.

Even if you don’t have a company you can make these trade offs.

Do you want more money? More influence? More time? More freedom? More peace of mind? Less stress? Less risk?

Exactly what you want to optimize is up to you. The key is knowing what choice you have and making it thoughtfully.

Our hearts know what’s good

In Arabic grammar we talk about مَعرِفَة, ma’rifa, which means “definite”, and نَاكِرَة, naakira, which means “indefinite”.

If you look at the phrase Amr bil ma’roof wa nahi ‘anil munkar, which means to “encourage good and forbid wrong”, you’ll see words with the same roots.

The word for good here is مَعروف ma’roof.  Like a definite noun, it’s something which is known.  There’s something in our hearts that recognizes goodness.  Our hearts feel right about it.  Settled.  At peace.

Likewise, there is something in our hearts that recognizes when something is wrong, or مُنكَر munkar.  Like an indefinite noun, things that are wrong leave doubts in your heart.  You’re just not sure about it.  It doesn’t feel right somehow.  It scratches your heart.