The Original Transaction
Pre-Islamic Arabia’s credit market operated on a simple principle: if you cannot pay at the due date, you can extend — but the debt doubles. This spiral of doubling was the original target of the Quranic prohibition. The Quran called it “devouring riba” — absorbing wealth that was not earned by genuine economic activity.
The verse “God permits bay’ and prohibits riba” (2:275) draws the precise distinction: bay’ (trade) involves a real exchange — goods change hands, economic activity occurs, risk is taken. Riba al-nasiah involves no real exchange — money changes hands at one date, more money comes back at a later date, and the creditor has borne only time-risk without taking commercial risk.
The Farewell Sermon
At his final pilgrimage, the Prophet explicitly abolished multiple riba obligations that were outstanding: “Every riba of the Jahiliyya is abolished. The first riba I abolish today is the riba of my uncle al-Abbas ibn Abd al-Muttalib.”
Al-Abbas, the Prophet’s uncle, was a creditor with outstanding riba-based debts. The Prophet abolished the excess (the interest), not the principal. This is the practical implementation of 2:279: “You shall have your capital — neither wronging nor being wronged.”
ra’s al-mal: The Principal Is Protected
The Quranic position is not the abolition of credit — it is the return of the system to principal-only. A creditor is entitled to their ra’s al-mal (capital/principal). They are not entitled to any guaranteed increase for the passage of time. This distinction — earned return through risk vs. guaranteed return through time — is the line Islamic finance attempts to maintain.
See also: Fiqh Al Gharar, Fiqh Al Murabaha Al Amr Bil Shira, Fiqh Al Musharaka Al Mutanaqisa, Fiqh Al Mudarabah Al Mutlaqa, Fiqh Al Sarf