Often interpreted as a prohibition against interest, riba is more broadly defined as a prohibition against unjust enrichment or advantage obtained by a lender without regard to risk or additional consideration. For example, in a conventional financing, a borrower must pay interest to the lender on the loan even if the borrower's business is unsuccessful. This structure does not comply with Sharia because the lender did not do anything to earn the additional funds and is not sharing in the risks of the business. Riba does not prohibit parties from earning a return on their investments but this return must be based on the profitability of the business. Riba also prohibits transactions with guaranteed returns.

Because interest is a fundamental aspect of conventional loan transactions, Islamic finance transactions are generally structured to avoid the borrower having to pay interest while allowing the lender to make a profit.

For more information on Islamic finance in the US, see Practice Notes:

For more information on Islamic finance in the UK, see Practice notes: