Understanding Islamic Finance #

Yes, the interest in a conventional loan contract is considered a form of riba because the borrower is imposed to compensate the creditor for the money advanced.

From the Shariah perspective, a loan contract is a benevolent contract intended as a humanitarian arrangement to help people in need. Hence, profiting of any kind from a loan contract violates its Shariah objective.

It is noteworthy to highlight that scholars also viewed benevolent loan contracts as superior to sadaqah (donation) in terms of deeds.

It was narrated from Anas bin Malik that the Messenger of Allah (ﷺ) said:“On the night on which I was taken on the Night Journey (Isra), I saw written at the gate of Paradise: ‘Charity brings a tenfold reward, and a loan brings an eighteen fold reward.’ I said: ‘O Jibril! Why is a loan better than charity?’ He said: ‘Because the beggar asks when he has something, but the one who asks for a loan does so only because he is in need.’”