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Why Is Paying Interest Considered Haram?

Islam has its own peculiar economic system in which some elements of many economic systems are not allowed. Islam prohibits interest (riba) wealth preservation, public asset privatisation, and all methods of property ownership and disposal except those permitted.

Avoiding Forbidden Actions

The Qur’an frowns at high interests such as those which require double, triple, and quadruple in payments. Up to one hundred percent interest is allowed providing mutual consent of the parties exists. Paying over 100% interest (like loan sharks) is not allowed  but low interest rates may be allowed because they stimulate economic growth, as is practiced in the modern economies.

Haram is an Arabic word meaning “Forbidden.” Haram is the things that the Quran and the Sunnah forbid. It is an act forbidden by Allah and is one of five Islamic commandments. It describes the essence of human action (al-ahkam al-khamsah). Actions that are harmful result in damage, and if carried out by a Muslim, are considered a sin.

Riba is condemned in the Quran’s verses. Prophet Muhammad’s sayings describe riba as one of the worst acts that can be committed.


“And whosoever shall return (to deal in riba), these are the dwellers of the Fire— they shall dwell therein.”


Contributing to the Marketplace

In Islam, the use of cash to gain additional wealth is forbidden. Individuals with large amounts of money are discouraged from earning money by simply keeping it in the bank and doing nothing. This prevents rich people from becoming richer and poor people from becoming poorer. Islam encourages people with large amounts of money to save so that more value can be contributed the marketplace.

Riba has the power to corrupt a society in a way that other forbidden acts in Islam do not.  Religious figures and philosophers have discussed usury (interest) to significant extents.

According to Aristotle,


”The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural object of it. For money was intended to be used in exchange but not to increase at interest. And this term interest (tokos), which means the birth of money from money is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth, this is the most unnatural.” 

Lending Without Fear of Loss

An important distinction historically recognized by religious clergy was that money is an economic asset. In itself, it is not intended to be a source of income. Today riba provides an incentive for banks and the rich to lend money without fear of loss. Sequential years of lending / borrowing to people by banks help stretch the gap between rich and poor. Governments and corporations have also been involved in riba on a massive scale over the past few decades.

We are now living in a time where the consequences of coping with Interest on a global scale can really be seen. The international economy is collapsing, due in part to loans with high interest rates.

Many believe that riba creates massive and continuous gaps between the rich and the poor. Without radical changes, this gap can only be expected to widen.Riba it is opportunistic and exploitative. People using interest loans may be carrying out acts considered to be haram. It is considered to be an opportunistic practice in that people with capital make use of people in need by merely lending money and receiving higher amounts in order to raise their wealth.


Trading, Buying, and Selling

Islam does not forbid the practice of making money. Throughout history, followers of Islam have engaged in trading, buying and selling commodities to make profit in return. Not only do you make profits but you may also make losses which is considered to be better than earning interest from loans. Your profit or loss depends on how good you are at trading. You are rewarded according to your skills.

Riba was born among the Jaahiliyah people. If a debt was due, a borrower would be asked to pay their debt or pay the debt at a later date with additional money. Islam also prohibited another type of riba, namely riba al-fadl, which means adding to the sum when one object is exchanged for another of the same kind. Islam stipulated that hand-to-hand exchange should take place and that the items or goods should be of the same quality.

Islamic finance is a form of Sharia (Islamic Law) financing practice. The definition may also apply to the investments allowed under Sharia law. Islamic finance and banking common practices came into being along with Islam’s base. It provides an alternative to interest loans that are forbidden in Islam.

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