Why is interest (Riba) prohibited in Islam? | By Ghulam Yasin Nizami


Why is interest (Riba) prohibited in Islam?

THE most famous and unique principle of the Islamic financial system is the prohibition of interest.

The word interest is most commonly understood as charging or promising a fixed rate of return.

For example: credit cards and conventional bank loans include interest in a form of periodic compounding interest charged on the outstanding debt amount.

Interest is widespread and common in the modern conventional financial system.The entire conventional global financial system is based on it.

But just because it’s common, does that make it the best way of doing things?There are four sets of verses of the Holy Quran revealed on different occasions. In order of revelation, they are:

1.Whatever interest (increased amount) you give, so that it may increase in the wealth of the people, it does not increase with Allah. (Ar-Rum:39) 2.

And for their charging interest while they were forbidden from it, and for their devouring of the properties of the people by false means. We have prepared, for the disbelievers among them, a painful punishment. (Al-Nisa:161) 3.

O you who believe, do not eat up the amounts acquired through interest, doubled and multiplied. Fear Allah, so that you may be successful. (Al-e-Imran:130) 4.

Those who take interest will not stand but as stands the one whom the demon has driven crazy by his touch.

That is because they have said: Sale is but like interest. While Allah permitted sale and prohibited interest.

So, whoever receives advice from his Lord and desists (from indulging in interest), then what has passed is allowed for him, and his matter is up to Allah.

As for the ones who revert back, those are the people of fire. There they will remain forever.

Allah destroys interest and nourishes charities, and Allah does not like any sinful disbeliever.

Surely those who believe and do good deeds, and establish prayer and pay charity will have their reward with their Lord, and there is no fear for them, nor shall they grieve, O you who believe, fear Allah and give up what still remains of interest, if you are believers.

But if you do not (give it up), then listen to the declaration of war from Allah and His Messenger.

However, if you repent, yours is your principal. Neither wrong, nor be wronged. (Al-baqarah:275,276,277)

There are also many Hadith stated by the Holy Prophet (Peace and blessings be upon him) in Prohibition of interest.

The following Hadith clearly states that the Holy Prophet (Peace and blessings be upon him) prohibited interest.

1.He cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: They are all alike [in guilt].

(Muslim) 2. He prohibited interest explicitly in his last hajj (pilgrimage to Mecca) which was the most attended gathering of his companions.

He said: all of the interest of the days predating Islam is annulled.The first interest that I annul is our interest, it is being cancelled completely.

(Muslim) 3.A dirham of interest which a man receives knowingly is worse than committing adultery thirty-six times.

4.On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside.

I asked Gabriel who they were.He replied that they were people who had received interest. It can be understood from the above verses of the Quran and Hadith that interest is very severe sin and prohibited strictly.

The committing of interest or involving interest-based transactions is considered as equivalent to being at war with Allah and His Holy Prophet.

What is the rationale behind the prohibition of interest? Interest has both negative effects socially and negative effects economically.

Interest-based loans exploit the poor and tend to increase poverty. Payday loans are an example of predatory lending to the poor which often charge as high as a 400% annualized rate.

Many poor people end up refinancing these loans over and over in a never-ending cycle of debt and interest.

Interest-based lender’s only care that the loan is repaid and not where the money to repay comes from or the economic hardship endured by the borrower.

Interest-based finance tends to be directed towards borrowers who are likely to repay without any consideration towards whether the underlying activity is beneficial or productive.

Unlike interest-based lenders, investors into a business need to believe in the underlying businesses outlook to generate profits by creating economic value.

Since interest-based lenders only care about the likelihood to repay the loan with interest, money flows mainly into the hands of borrowers who are likely to repay, rather than towards the best and most productive economic activities.

Interest conflicts with the spirit of brotherhood and sympathy, and is based on greed, selfishness and hard heartedness.

Rather than sharing in the risks of a business or investment, interest sets up a lender/borrower relationship.

The lender has a financial incentive to squeeze the borrower as much as possible to get the loan back with interest, regardless of the borrower’s situation.

At no point does anyone in the chain know what to do with money in the real economy. People actually prefer unlimited options.

Money is more valuable than anything you could do with it. The Holy Prophet has forewarned us of a time that would come wherein virtually every living human being would be affected by interest.

It seems to me, we have arrived. We seek Allah’s protection, deliverance, and forgiveness from interest, and we repent from its pervasive taint of our wealth in these times.

—The writer is contributing columnist, based in Islamabad.


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