"As far as commercial dealings are concerned, riba is to be avoided at all costs. Riba means "increase," and covers any unjustified accumulation of capital; hence it is generally translated as "interest," though "unlawful gain" might be more appropriate. Islamic law pays close attention to the interpretation of this term, and merchants too much legal advice on ways to avoid the full rigor of the law. But the Qur'an is unequivocal: "Those who eat up riba shall only stand as would one who has been touched by Satan. That is because they say 'Trading is just like riba.' Allah has permitted trading and has forbidden riba." "O believers, devour not riba, doubling and redoubling, and keep your duty to Allah that you may be successful. And guard yourselves against the Fire which has been prepared for the disbelievers."...

The cardinal principles of commercial transactions are (1) to avoid riba, and (2) to avoid the appearance of gambling or speculation - both strictly forbidden by the Qur'an. Since these are integral to most commercial practice, many stratagems were devised to get round them, generating a whole literature of "lawful" stratagems (hiyal). Riba is defined by Schacht as "any advantage to be derived from the granting of a loan." This means not merely paying back more than was borrowed, but for example, receiving any favors from the debtor - food, the use of his property, horse, or even (in theory) sitting under the shade of his tree.

One way to make a loan at interest is through fictitious sale (bay al-in or bay al-ayniyya). The debtor sells the creditor an item and immediately repurchases it for a higher sum, payable at a later date. The difference represents the cost of the loan (the "interest") and the object is retained by the creditor as security. The loan could also be unsecured through a fictional sale. The creditor sells the debtor an item for a sum (x + y) representing the base price plus interest, the total amount to be paid at some future date. He then buys back the object at its base price (x) which he pays to the creditor immediately. The debtor thus ends up with the sum he wants (x), and later repays the originally agreed price (x + y)...

It is a principle of trading in the Islamic system that there be no unjustified enrichment - no monetary advantage is to be received without giving counter value. It is not permitted to purchase an item and resell it immediately before paying the first owner his money. This amounts to riba. Items that can be weighed or measured cannot be exchanged for items of the same type in greater or lesser quantity, nor should there be a delay in performance of the contract. For example gold, if worked, can only be sold for the equivalent weight in gold, which means that the artisan receives no wage for his work. The solution is to pay for the worked object in silver, or to supply the raw gold and hire the artisan to work it. Contracting parties should have sure knowledge of the counter-values intended for exchange as a result of their transaction. These values should be determined at the "session". As a general rule (to which, naturally, there are exceptions) one cannot arrange the sale of things at a future date, since this involves "risk" (gharar), and may entail dealing in non-existnet commodities. For example, one cannot sell crops that have not been harvested, animals that are as yet unborn, salt that has not yet been mined. Insurance has thus been regarded with some suspicion, since this is selling a commodity (an accident claim) that does not yet, and may never, exist."

- Islamic Financial Institutions: Theoretical Structures and Aspects of Their Application in Sub-Saharan Africa, John Hunwick


HWMNBN informs me that Islamic derivatives and insurance exist.