A Deeper Understanding on the Prohibition of Riba

This paper focuses on understanding the reasons for the prohibition of interest. Lending without interest is a difficult concept to grasp for those educated in the Western system as interest is the backbone of all conventional modes of finance. This paper takes the several different perspectives to probe if there are valid reasons other than a religious prohibition on interest. Chapter one and two provide a background and historical perspective on the Islamic Financial Industry. Chapter three focuses on the basic principles of Islamic Finance. The next three chapters focus deeply on the different perspectives in understanding the prohibition of riba: the religious perspective, the consumer's perspective and the economic perspectives of debt and interest. Chapter eight highlights the more common Islamic Financial Instruments with some examples and provides some comparison to western financial models as well. This paper looks closely at the religious prohibition of interest and also how it affects an individual, a corporation and the economy as a whole. It highlights the perils of the current banking system. This sheds light on the validity of the prohibition and draws attention to the negative effects of riba. The author hopes that with this, future financial engineers in the Islamic System will be cautious in imitating conventional banking practices and focus instead on financial products that embody the spirit of Islamic Finance