Riba al-Nasi'ah

The increase a lender receives for giving the borrower time, whether set at the start of a loan or added when payment is late. This is the riba the Qur'an condemns directly (2:275-279) and the one that corresponds to interest on loans, credit cards, bonds, and savings accounts.

The prohibition applies regardless of rate, purpose, or whether the borrower is rich or poor, and it covers both charging and paying the increase. It is distinguished from riba al-fadl, the riba of unequal exchange in spot trades of like commodities.

Riba al-nasi'ah is the prohibition that organizes all of Islamic finance, so it helps to be precise about what it forbids. It forbids any stipulated increase on a debt in exchange for time: a 6% mortgage rate, a 24% card APR, a 4% savings yield, and a 1% late fee calculated on the balance are all the same thing in different amounts. It does not forbid a higher price for deferred payment in a genuine sale, because the increase there is the price of goods, not of time on money; the four Sunni schools agree on that, and it is what makes Murabaha and installment sales possible.

It does not forbid rent, because rent is the price of using an asset the owner still owns and still bears risk on. And it does not forbid profit from partnership, because profit is uncertain and shared with loss. Those three carve-outs (sale, lease, partnership) are the three families of halal financing.

The practical corollary for U.S. households: the riba is in the contract type, not the product label. A 'halal' contract that keeps the financier whole regardless of what happens to the asset, and increases what you owe if you are late, has the economics of riba al-nasi'ah whatever it is called; a conventional 0% installment plan with no interest clause that can ever activate may not. Interest you have already received (on a checking account, for example) cannot be kept; scholars direct it to charity without expectation of reward.