"The dictionary meaning of Riba is increase and the reference in the verse is to every increase against which there is no exchange or consideration".

This includes the increase which is obtained by offering money on credit because repayment of the principal is obtained against the amount originally lent. The increase called "interest" is without any exchange or financial consideration. Kinds of sale, purchase are also included in Riba where any increase is obtained without offering anything in exchange, of which the details will be discussed in this hook. In the period of ignorance, the word Riba was used only for the transaction of the first kind The other kinds were not considered Riba.

Various forms of Riba were in vogue in Arabia when Prophet Muhammed (SAW) was sent. Most common practice was to lend a specific amount for a specific period and at an agreed rate determined in advance. If the borrower repaid at the agreed time then only the agreed amount of interest was charged. If he was unable to repay at that time, then the amount of interest would be increased. In any case, even before the revelation of Qur'an, the essence of riba was considered to be the gain, made out of loaning of money. This very aspect has been highlighted in the saying of the Prophet (PBUH),

"Every loan which brings a gain is a riba based loan”

lbn-e-Abbas has defined riba as the otter by the borrower that he will pay an extra sum of money if the lender extends the moratorium for repayment. It is therefore obvious that riba is the compensation or the excess paid for an extension in the tenor of the loan. Riba was common in Arabia and in the early days of Prophet Mohammed (SAW) prophet hood, the situation did not change. Almost 8 years after migration to Madinah, verses in respect of riba were revealed and riba was categorically prohibited. As soon as these verses were revealed, everyone realized that these referred to taking any profit on loans or credit that this was now prohibited, and gave it up.

The Prophet however, in keeping with his position as the last messenger of Allah, elucidated upon these verses. The meaning of riba, as explained by the Prophet (SAW) included a kind of trade which was not hitherto considered riba by the Arabs. The second kind of riba, in the words of the Prophet was

"Exchange of gold with gold, silver with silver, wheat with wheat, barley with barley, dates with dates and salt with salt should be of equal quantities and spot. Anyone who varies the quantities or allows one side of the exchange to be deferred, indulges in riba for which both buyer and seller are equality responsible. "

This saying is included in all books of Prophet (SAW) sayings, under various headings, with authentic and highly reliable chains of reporting.

Based on this, a new kind of riba was identified which is that in the case of the six commodities mentioned in it, if exchanged against themselves, the quantities should be equal and these should be exchanged simultaneously (Spot) by both parties. Varying the quantity or deferring the exchange (even though the quantity may not be varied) is riba. The well known and commonly accepted meaning of riba, taking profit on loans, was obvious to the companions of the Prophet and was abandoned immediately. But the other kind of riba, mentioned in the saying quoted above was not known until such time that the Prophet elaborated upon it.

       Prohibition of Riba in Quran

The Qur'an states the following on Riba:

“That they took riba, though they were forbidden and that they devoured men’s substance wrongfully – We have prepared for those among men who reject faith a grievous punishment”
(Qur'an 4:161)

“Those who charge riba are in the same position as those controlled by the devil's influence. This is because they claim that riba is the same as commerce. However, God permits commerce, and prohibits riba. Thus, whoever heeds this commandment from his Lord, and refrains from riba, he may keep his past earnings, and his judgment rests with God. As for those who persist in riba, they incur Hell, wherein they abide forever”
(Qur'an 2:275)

It is because trade and usury are absolutely different. In trade one earns profit as a result of initiative, enterprise, efficiency and hard work. But the interest is not earned through hard work or any value creating process. It is not the reward of labour but is in fact unearned income. Moreover interest is fixed whereas profit fluctuates. In case of trade there is risk of loss also, but in case of interest the lender gets his fixed amount irrespective of the fact whether the debtor earns any profit or sustains loss. God has forbidden interest but has permitted trade.

“God condemns riba, and blesses charities. God dislikes every disbeliever, guilty. Lo! those who believe and do good works and establish worship and pay the poor-due, their reward is with their Lord and there shall no fear come upon them neither shall they grieve. O you who believe, you shall observe God and refrain from all kinds of riba, if you are believers. If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice. If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew.
(Qur'an 2:276-280)

“O you who believe, you shall not take riba, compounded over and over. Observe God, that you may succeed."
(Qur'an 3:130)

“And for practicing riba, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution.”
(Qur'an 4:161)

“The riba that is practiced to increase some people's wealth, does not gain anything at God. But if people give to charity, seeking God's pleasure, these are the ones who receive their reward many fold.
(Qur'an 30:39)

       Prohibition of Riba in Hadith

Riba is also mentioned in Ahadith and is considered one of the seven major sins:

“Jabir said that Allah's Messenger (may peace be upon him) cursed the accepter of usury and its payer, and one who records it, and the two witnesses, and he said: They are all equal.”
(Ref: Sahih Muslim)

“It is reported on the authority of Abu Huraira that the Messenger of Allah (may peace be upon him) observed: Avoid the seven noxious things. It was said (by the hearers): What are they, Messenger of Allah? He (the Holy Prophet) replied: Associating anything with Allah, magic, killing of one whom God has declared inviolate without a just cause, consuming the property of an orphan, and consuming of usury, turning back when the army advances, and slandering chaste women who are believers, but unwary.
(Ref: Sahih Muslim)

Abdullah-bin-Hanjalah reported that the Messenger of Allah said: A Dirham of usury a man devours with knowledge is greater than thirty-six fornications.
(Ref:Ahmad, Darqutni)