The evidence on the Qur’an and Sunnah relating to the prohibition of ribaa is reproduced below:
“O ye who believe! Devour not usury, doubled and multiplied; but fear Allah; that ye may (really) prosper.” (Qur’an 3: 130)
“Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: “Trade is like usury,” but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (for ever).” (Qur’an 2: 275)
“Allah will deprive usury of all blessing, but will give increase for deeds of charity: For He loveth not creatures ungrateful and wicked.” (Qur’an 2: 276)
“O ye who believe! Fear Allah, and give up what remains of your demand for usury, if ye are indeed believers.” (Qur’an 2: 278)
Most important here is the distinction Qur’an makes between interest and sale. We will explore this distintion in much more detail late but let us analyse the explanation provided by the Sunnah.
Zaid B. Aslam reported that interest in pagan times was of this nature: When a person owed money to another man for a certain period and the period expired, the creditor would say: You pay me the amount or pay the interest. If he paid the amount, it was well and good, otherwise the creditor increased the loan amount and extended the period for payment again.” (Al-Muwatta, Imam Malik)
The Prophet (pbuh), during his last sermon addressed his revered companions, “Every form of riba (interest) is cancelled; capital indeed is yours which you shall have; wrong not and you shall not be wronged. Allah has given His Commandment totally prohibiting riba. I start with the amount of interest, which people owe to Abbas and declare it all cancelled. He then, on behalf of his uncle, Abbas, cancelled the total amount of interest due on his loan capital from his debtor” (Tafsir Al-Khazin, vol.1, p.301)
The Prophet (pbuh) is reported to have said “Sell gold for gold, silver for silver, wheat for wheat, barley for barley, date for date, salt for salt, in same quantities on the spot; and when the commodities are different, sell as it suits you, but on the spot” (Muslim)
Bilal visited the Messenger of Allah (pbuh) with some high quality dates, and the Prophet (pbuh) inquired about their source. Bilal explained that he traded two volumes of lower quality dates for one volume of higher quality. The Messenger of Allah (pbuh) said: “this is precisely the forbidden Riba! Do not do this. Instead, sell the first type of dates, and use the proceeds to buy the other.” (Muslim)
One may note here that the first two ahadith relate to the prohibition of interest in a loan contract where as the last two relate to the prohibition in an exchange contract.
Source: Obaidullah, Mohammed. Islamic Financial Services. Jeddah: Islamic Economics Research Center, 2005. 23-24.