Lesson 2: Interest and Riba

About 30 minutes — Values-based lesson

What You Will Learn

This lesson covers:

What interest is: the cost of borrowing money
How compound interest works (simple explanation)
What Riba means and why it is prohibited in Islam
The ethical concerns about interest-based lending

What interest is: the cost of borrowing money

This section covers the key ideas about what interest is: the cost of borrowing money. Discuss with your group or family and explore the concepts together.

How compound interest works (simple explanation)

This section covers the key ideas about how compound interest works (simple explanation). Discuss with your group or family and explore the concepts together.

What Riba means and why it is prohibited in Islam

This section covers the key ideas about what riba means and why it is prohibited in islam. Discuss with your group or family and explore the concepts together.

The ethical concerns about interest-based lending

This section covers the key ideas about the ethical concerns about interest-based lending. Discuss with your group or family and explore the concepts together.

Check Your Understanding

1. What is interest?

Answer: Interest is a fee charged for borrowing money. If you borrow $100 at 10% interest, you pay back $110. The extra $10 is interest.

2. Why is interest (Riba) prohibited in Islam?

Answer: Because it creates an unfair burden on borrowers, allows money to make money without productive work, and can trap people in debt cycles. Islam promotes risk-sharing instead.

3. What does Riba literally mean?

Answer: Riba literally means 'increase' or 'excess' in Arabic. It refers to any guaranteed, predetermined return on a loan — making money from money.

4. What is the Islamic alternative to interest?

Answer: Profit-sharing, where both lender and borrower share in the risk and reward of an investment. If the venture succeeds, both benefit. If it fails, both share the loss.

Key Takeaways

What interest is: the cost of borrowing money
How compound interest works (simple explanation)
What Riba means and why it is prohibited in Islam
The ethical concerns about interest-based lending

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