Why Riba (Usury) Is Haram In Islam

“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 God 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 God (to judge); but those who repeat (the offence) are companions of the Fire: They will abide therein (for ever).”
- Quran Verse 2:275 (Chapter Al-Baqara)

For some such Quranic verse will come down as very unpleasant & stern judgment and they are infact very severe as Islamic Shari’a looks upon consumption of Usury (common definition: interest on money) as serious offence.

Quran prohibits its followers from Riba (Usury) and has couple of stern verses to dissuade the people from brining in the concept of Usury in their economic & social life.

At another place Al-Lah says:

“O ye who believe! Fear God, and give up what remains of your demand for usury, if ye are indeed believers.”
- Quran Verse 2:278 (Chapter Al-Baqara)

Verses like such (“…if ye are indeed believers.”) further highlights the gravity of offence by exhorting people to obey if they indeed think themselves as Muslims.

Quran not only put a stop on Usury but it also encourages leniency towards debt-ridden as way to social upliftment.

“If the debtor is in a difficulty, grant him time Till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.”
- Quran Verse 2:280 (Chapter Al-Baqara)

But why has Islamic Shari’a prohibited the Usury from economic and Business transactions?

To understand the wisdom behind such prohibition we need to be first aware of 2 key Islamic principles on wealth-creation.

1. Islam permits increase in capital through trade and, at the same time, it blocks the way for anyone who tries to increase his capital through lending on interest (riba) – whether it is at a low or a high rate.

Allah Almighty says :

“O you who believe, do not consume your property among yourselves wrongfully, but let there be trade by mutual consent…â€?
- Quran verse 4:29 (Chapter An-Nisa)

I would also like to point to another prohibited means of earning (though not the subject of this post) – ‘gharar’ (transactions based on speculation/gambling).

Modern financial practices that are Haram under ‘gharar’ include use of derivatives such as futures and the purchase of insurance. However, investment in the stock market, except holding preferred stock with a fixed dividend, is permissible on the principle of shared risks and rewards.

The Hadith of Prophet says:

Do not buy fish in the sea, for it is gharar. (Ibn Hanbal)

Buying ‘fish in the sea,’ or alternatively, ‘what is in the womb’ highlights the speculative nature of the transaction.

2. ‘Gharar’ (speculation/gambling) violates the principle that all parties have both complete knowledge and access to the product before the transaction.

In summary, Quran forbids both risk-less gain, as in the case of Riba (Usury), and transactions based entirely on risk, as in ‘Gharar’ (Speculation/Gambling). Islamic Shari’a encourages Muslims to be “risk neutral” and earn profit through neither seeking speculative gain nor hoping to lock down all risk with fixed returns.

With these explanations on Islamic principles of Wealth-creation let me now put forward the wisdom behind prohibition of Usury (interest on money) in Islam.

The strict prohibition of Interest in Islam is a result of its deep concern for the economic, moral, and social welfare of mankind.

Economic: Dependence on interest discourages people from working/trading to earn money and the value of work/trade is reduced. Such people won’t bother to take the trouble of running a business or risking money in trade/industry. For most of the readers this statement may not make sense (or won’t be able to relate) as they themselves are from class of Workers or Traders (and not money-lenders). For such reader, I would recommend them to read this short macro-level explanation of today’s debt-ridden economies (The facts about Usury: Why Islam is Against Lending Money at Interest)

Moral: Acceptance of Usury discourages people from doing good to one another and lend out of good will. A society which encourages interest on lending will require needy people to pay back more than he borrowed, which quite often is a source of huge burden.

Social: If interest is allowed, the rich (who are most likely to be lender) will exploit the poor (borrower). As a result, the rich becomes richer and the poor becomes poorer. This generates envy and hatred among the poor toward the rich, resulting in social disorders, conflicts and at times breeds revolutions & movements.

To understand these economic, moral and social effects we Indians don’t have to look further than Vidarbha and the plight of farmers there which in recent time has received much publicity for unfortunate circumstances. And Vidarbha is a part of much larger problem area.

Between 2001 and 2006, over 14000 farmers have committed suicide in various regions including Vidarbha and Telangana. In almost each of these suicide cases the only recurring reason is debt-trap.

Jaideep Hardikar in his report Loan after Loan notes:

A farming family holding 27 acres in Vidarbha has become a marginal landholder in a span of few years, and a vicious cycle of usurious debt robbed their lands and hopes. There are hundreds of others in the lurch similarly.

These farmers who very often had to borrow from money-lenders at 60-120% interest, to sow seed, and toil every day from sunrise to sunset and if-and-only-if the harvest is good or saved from natural torments will they be able to pay out the interest and some principal. But seldom it happens as willed and for years after years they are still trying to come out of debt. And for many the only way out of these miseries was through death. Suicide is not an easy route as some would think. It is an end for those who see all hopes vanished. It is also thus no surprise that Vidarhba and Telangana are demanding separate States.

Thus, in a society which permits interest, the strong benefit from the suffering of the weak, resulting in conflicts, social-disorders, and revolutions.

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65 Responses to Why Riba (Usury) Is Haram In Islam

  1. Zafar says:

    For those who may read this website (and the like) and comment in the future, as a practicing Muslim in the U.S. I too believed that interest is haram, but what is truly haram is “usury” which is NOT the same as what interest in the form of an credit card company’s or bank’s APR is understood to be. Please look up the definition of both (usury AND interest) in any english dictionary or refer to the Quran in the Arabic context of what is being refered to as haram.
    As far as Islamic Shari’ah is concerned, the dinar is an actual coin which has a value specific to the amount of gold that makes up the coin. The riyal, the Saudi Arabian currency (I’m only using Saudi Arabia as an example, because people believe that they have the toughest form of interpreting Shari’ah) is minted– rather, PRINTED, like all paper money and is truly a currency!
    PLEASE NOTE: Money and Currency are NOT the same!
    So let’s take an example: According to strict Islamic Shari’ah, if you wish to buy something valued at 100 gold pieces, but don’t have the money, then you ask someone/some group of people for that amount, AND you return 100 gold pieces from whomever you borrowed from. According to what is meant by the Quran and Shari’ah, you borrow 100 gold pieces and you return them based upon a certain time period. Obviously, very few people can return 100 gold pieces right away and the people you borrowed from are not going to wait until you can return all 100 at once nor can they wait for you to return it in piecemeal (eg, 1 gold piece per week for 100 weeks– that would be nearly 2 years after lending you the money!) [please note, I said money].
    Naturally, the person lending you this money wants something in return, cause otherwise they would have kept the 100 gold pieces to themselves or given it to someone else to do something else with. So, you have an agreement before money is exchanged ahead of time: you get 100 in exchange for you to return 1 piece, per week, but instead of 100 weeks, it is now 150 weeks. Why is this good? Because you get to slowly return what you borrowed without it being a burden on you, nor does the lender get nothing in return for helping you for the first 2 years that it takes to return his investment in you.
    Why does this over-simplified example exist? Because many Muslims have the concept of money and currency confused. You have currency in your wallet (ie: CURRENCY EXCHANGE whenever you go to a foreign country) You do not have money, which has a value that is recognized globally at a set rate. Currency is exchanged, rises in value, falls in value. Inflation occurs to currency, not to money! You CANNOT take your dollar bills out of your wallet and get something for it unless someone recognizes what the value of that paper currency is: if talking about the United States, then it means that sitting in “somewhere” between the Federal Reserve Banks and Bullion Depository aka Fort Knox, is gold that the U.S. government says gives the person holding the paper version the ability to exchange and do commerce with another entity (person, company, or bank) and get a value for it, BUT not get gold in exchange for it. This is the same around the world– no one can get a straight value of gold for their currency because there is not a single country/nation/kingdom that runs by having a direct link of being valued with gold. (The U.S. was devalued from gold back in 1971!)
    Interest on currency is LEGAL and completely HALAL, so long as it is not excessive to the person who borrows nor illegal for the person who lends it to such a person. Also, whatever the arrangement for repayment, consequences for early, late, or deficient repayment must be made and understood, by both, ahead of time. As far as banks are concerned– that is not a 3rd party, they are always the lender. The people who invest in the bank (such as savings accounts or CDs- certificates of deposit) expect to get something in exchange, otherwise they could have kept in underneath their mattresses. [However, inflation would cause that paper money to decrease in value over time!]
    And Allah knows best and may He forgive me if I have spoken anything wrong. But, I do say all this because people need to be told the truth and seek it out for themselves.

  2. MMM says:

    I don’t need explicit explanations of what is currency and money. In pratice they both are same. Even gold (as if on gold coin)has a value which is exchanged for goods or services as in a currency. To say that riba or usury becomes halal if it is currency is an desperate act of projecting oneself as illiterate in study of sharia.

    May Allah forgive you for your misunderstanding. But please do not publish your views unless you have the backing of a qualified Aalim, Mufti or Mujtahid. If you still want to publish them without any authentic verification then there is no stopping you, as you have FREEDOM OF SPEECH. But always remember there is no freedom of speech on day of judgement.

  3. Shah Quadri says:

    Salaam All,

    I live in US, have a mortgage and pay interest and IT IS NOT HALLAL paying interest.
    Interest, sood, usury no matter what you call it.. is Haraam in Islam (period).

    Just because millions of Muslims pay some form of interest on their loans, and probably do not have a choice unless they decide not to purchase that product, does not make it a Halaal. I agree with the last comment from MMMM… and of course with the author of this article.

    Salaam, Shah Quadri.

  4. Kutub Uddin Ahmad says:

    What is the defination of Riba?
    Pls give reference for Quran and Hadid.
    So far I understand that the interest of Commercial Bank does not fall under the defination of Riba. Is that correct?

  5. shazia says:

    i have query..i have taken my fathers money several times without his knowledge,now i want to return the amount..i have calculated the money as far as i remember,it was not more than 5 lakh indian rupees.now i want to return the amount to him,but the issue is the gold rate per tola has increased .so if i want to return the money should i return it according to the new increased gold rate or the actual amount of 5 lakh rupees..i dont want to give usury

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