Zakat, riba and Islamic finance
Islamic Studies · Key Stage 3 · The School
Zakat as a due, not a donation
ZAKAT is an obligatory annual payment on wealth held above a threshold called the NISAB for a full lunar year, commonly calculated at 2.5% of qualifying savings. It is framed as a right the poor hold over the wealthy rather than as generosity, which is why it is counted among the pillars and not among voluntary charity, which is called sadaqah.
Riba
RIBA is usually translated as interest or usury and is prohibited in Islamic teaching. The objection is to a guaranteed return on money regardless of what happens to the underlying venture, which transfers all risk to the borrower. Scholars have discussed the boundaries of the term extensively and have not agreed on every modern case.
Working around it
Islamic finance replaces lending at interest with structures that share risk: MURABAHA, where a bank buys an asset and sells it on at an agreed mark-up; MUSHARAKA, a partnership sharing profit and loss; and IJARA, a lease. Critics argue some products reproduce interest in substance, and that criticism comes from within the tradition as well as outside it.
CONVENTIONAL MORTGAGE: the bank lends £200,000 and you repay more, guaranteed, whatever happens. The bank takes no ownership risk. That guaranteed increase on money lent is riba. DIMINISHING MUSHARAKA: the bank and you BUY the house together; you pay rent for its share and gradually buy that share out. The bank owns part of the asset and carries part of the risk. The house and the payments look similar; the contract is a different thing.