Interest is considered haram in Islam because it is viewed as riba, an unjust and exploitative gain, which is forbidden under Islamic law.
Understanding Riba
- Definition: Riba, in the context of Islamic finance, refers to the interest charged on loans or deposits.
- Prohibition: Islamic religious practice strictly prohibits riba, regardless of how low the interest rate is, as it is considered unethical, usurious, and illegal. This applies to both lending and borrowing.
- Rationale: The prohibition of riba is rooted in the belief that it leads to an imbalance of wealth, promotes exploitation, and hinders economic justice.
Reasons for Prohibition
| Reason | Description |
|---|---|
| Exploitation | Riba is seen as exploiting the borrower's need for funds by adding an additional cost (interest) to the principal amount. |
| Unjust Gain | It creates an unfair advantage for the lender, allowing them to earn money passively without engaging in any productive or beneficial activity. |
| Wealth Imbalance | The practice of charging interest can concentrate wealth in the hands of lenders, thus exacerbating economic inequality and social disparity. |
| Ethical Concerns | Charging interest is seen as fundamentally unethical and immoral, promoting greed and hindering the spirit of fairness and mutual support. |
| Prohibition in Religious Texts | Islamic scriptures explicitly forbid riba, highlighting its negative effects on both individuals and the society as a whole. |
Practical Implications
- Islamic Banking: Islamic banking and finance systems operate according to Sharia principles. They use alternative methods such as profit and loss sharing, murabaha (cost-plus financing), and leasing, to avoid riba.
- Financial Ethics: The prohibition of interest encourages ethical financial practices, focusing on real economic activity, risk sharing, and community welfare.
Conclusion
In summary, interest is deemed haram because it falls under the Islamic prohibition of riba. This concept is rooted in the belief that charging interest is exploitative, unjust, and detrimental to the overall financial well-being of society, thus necessitating ethical alternatives.
