It is worth noting that the misconception of equating riba with trade has been around for more than a thousand years. Some Arab traders in the era of Prophet Muhammad (peace be upon him) argued that the income earned through riba-based transactions is no different than profit earned in sales transactions on the basis that the end results of both kinds of transaction appear similar; both the lender and seller enjoy an increase to their original capital. Thus, it is no wonder that many perceive interest-based loans offered by conventional banks to be no different than the financing facilities offered by Islamic banks, a perception similar to that of the Jahili Arabs who saw no difference between riba and trade, either due to real or feigned ignorance.
Islam does not acknowledge an individual’s right of property unless it is created through an exchange of assets or through real economic activities that involve labor, skills and natural resources. Profit earned in a sale transaction is permitted because it is created as a result of exchange activity that involves the real exchange of counter-values (‘iwadayn). The profit created from the mark-up price enjoyed by the seller is justified as the counter-value is present. The profit is legitimate as it is attached to the price of the existing asset, which is traded by the contracting parties. Conversely, in a loan transaction, there is no asset or counter-value involved. The absence of countervalue implies that there is no rational basis to justify earning an excess. Islam does not acknowledge this kind of unjustifiable income as it results in akl mal al-ghayr bil batil, i.e., taking the property rights of others wrongfully. Riba is absolute exploitation as the lender asserts a claim to the property right of the borrower without valid justification.
