The definition of Riba

A forced "increase of value" in "the medium of exchange" that is loaned or swapped is Riba.

Explanation :

Below is explanation of different meaningful parts of this definition:

A forced means demanded, desired, claimed, requested, practiced, agreed etc. Any of the above or similar words would fall under the "forced" category that define and create an extra liability on other party. 

Increase in value means the increase in terms of value which comprises the quantity and the quality, there is no issue of the minimum or maximum increase, fixed or variable increase, just increase no matter how small or large it is and how that increase is defined.

The medium of exchange means any thing that can serve the purpose of exchange of good(s) and/or service(s) in the society at any level i.e., international, national, or local. We all know and recognize currency and gold etc. as the best examples of the medium of exchange, but still for instance in some parts of the world, agro-labour are paid in grains from the harvest they had worked upon, and that grains serve as the medium of exchange on a very localized level and certainly that would fall under the classification of "medium of exchange". Other than this, any thing would become a "medium of exchange" if the loaning party forces the borrower to pay in extra on return.

That is loaned or swapped means the same medium of exchange that was given as loan or used in the exchange. Loan is a liability on a party created either by direct borrowing or by obtaining credit, to be discharged (paid off) in the future to other party on times when it becomes due. It is generally understood that exchange is "on spot" and loan is "time related" but both the transactions are based on a single produce, no increase either on spot or in a time frame is allowed because there is a definite potential of using the exchange mechanism for riba if it were only banned in loan transaction. Some people question about the sense of allowing exchange of equal quantity and quality on spot, why some one would do that? The answer is very simple, if one has a currency note of 100 and need to change it into lower denominations, what he gets must be equal to 100 in any combination of lower denominations.

Summarizing the rules for the analysis of riba in a transaction, we might conclude the following:

  1. Riba is only present in a transaction of single produce, generally "the medium of exchange".
  2. Riba is not necessarily time related; it can be on spot or in any time frame.
  3. Riba is the "increase", not the "decrease".
  4. Riba is forced; volunteer extra return from the beneficiary shall not be regarded as Riba.