Introduction

Riba refers to interest or usury. In traditional jurisprudence, Riba is categorized into two primary types: (a) Riba al-nasi, which involves deferred payments with interest, and (b) Riba al-fadl, which refers to inequitable exchanges of commodities of the same type. A fundamental principle of Islamic finance is Riba. This means that Islamic financial institutions are forbidden to charge or pay interest in loans or deposits. The United Arab Emirates has upheld this Islamic finance principle through its streamlined regulations. 

Forbiddance of Riba in the UAE

The Higher Sharia Authority was established under UAE Cabinet resolutions and reinforced by Decretal Federal Law No. (14) of 2018. The HSA oversees the Sharia governance and standardization of Sharia-compliant activities, and ensures all financial products and services offered by the Islamic financial institution are interest free in accordance with Rules of the Islamic Sharia. Along with this, UAE provides numerous regulations prohibiting Riba. 

Federal Law by Decree No. (31) of 2021 Promulgating the Crimes and Penalties Law

Article (458) imposes a penalty of incarceration for a period not less than one year and fine not less than fifty thousand (50,000 AED) on any person who deals with another person by usury interest. In addition to this, latent interest is forbidden, which includes commission or benefit stipulated by a creditor that lacks a real legal benefit provided by the creditor. 

Article (459) imposes further stringent penalties for any individual who acquires a habit of usury. 

Federal Law No. 5 of 1985 Civil Transactions Law 

Article (714) extends further to contracts, and infers that a condition can be void, provided that a loan contract is conditioned upon paying a benefit that exceeds the contract requirements, other than guaranteeing the borrower’s right. However, it is imperative to note that this will not invalid the contract.  

Federal Decree-Law No. 50/2022 Issuing the Commercial Transactions Law

As per Article (72), if there is a contract between the parties, the creditor can charge interest on the commercial based on the rate specified in the contract. But if the interest rate is not stated in the contract, it will be determined according to the prevailing market rate, at the time of transaction. However, in this circumstance, the interest rate shall not exceed nine per cent (9%) per annum until full payment. 

However, even if in a commercial context, interest is allowed, the courts are sustaining the Rules of Islamic Sharia by further restricting the interest rate that can be imposed. In Court of Cassation case Appeal No. 1 of 2021, the General Assembly of the Court of Cassation unanimously held that in absence of an agreement, the interest rate of legal interest and delay interest shall be reduced to five per cent (5%) per annum until full payment. 

Sharia-Compliant Products and Services

In the UAE, Islamic financial institutions offer various sharia-compliant products and services to ensure compliance with the Rules of Islamic Sharia. These include Islamic insurance (takaful), Islamic banking accounts, Islamic mortgages, and Islamic investment funds. While adhering to the Rules of Islamic Sharia, these options aim to address the financial needs of individuals and businesses. 

Conclusion

Islamic finance demand is rapidly increasing globally, unlike conventional finance, Islamic finance is based on moral principles that promotes fairness. However, to uphold the true essence of Islamic financing, to ensure sustainability, and continuous growth, robust legal, and regulatory frameworks are essential. To establish UAE as the global hub for Islamic economy, UAE is continuously developing economic policies and legislations to strengthen Islamic finance, and in general the Islamic economy. It is imperative for businesses and individuals to comprehend the evolving laws and regulations that govern Islamic finance. By being compliant with the laws and regulations, businesses and individuals can manage risks, and can be financially inclusive.