Why Riba Is Prohibited In Islam.Why does God permit trade and forbid usury? Capital invested in trade brings excess called profit. Capital invested in banks also brings excess called interest. God disallows one-excess and permits another. The difference is that profits are the result of initiative, enterprise and efficiency. Profits result after a definite value creating process, which is not the case with interest. The interest may even handicap a value-creating or productive process and very often it does.
Why Riba Is Prohibited In Islam;Facts You Must Know.
Another fundamental difference between interest and profit is that the interest is fixed while the profit fluctuates. In the case of interest, return is predetermined and one can be sure of it. In the case of profit, one has to put in effort in order to ensure it.
If a banking structure could be worked out in such a way that the return for capital would fluctuate according to the actual profits accrued from it, Islam would have no objection to it. In that case, it would be a developed form of “SHIRKAT”, which is already recognized in Islamic Jurisprudence.
What the Holy Quran forbids is a fixed return for the use of money, irrespective of the profit gained or the loss sustained by the borrower. In short, Riba or interest means fixed return for the use of money. It is always prohibited whether it results from the “loans of gold and silver” or “economic credit”, which is the product of modem banking and finance.
‘Riba’ is an Arabic word. It means increase, addition, expansion or growth.
In banking and economic scenario, it means the additional amount, which a lender recovers from the borrower according to the fixed rate over and above the principal sum.
- “Interest is the charge for the use of money”.
(it) uInterest is the price paid for the use of credit or money ”.
It may be worth noting that an amount can be called interest when it fulfils following two characteristics:
- It has been calculated on the basis of pre-determined rate.
- It has no relationship with the risk of profit or loss that an enterprise ordinarily faces.
Note: It is agreed that word “interest” by and large has the same meaning as “Riba”.
Why Riba Is Prohibited In Islam;Facts
In Islam, riba refers to any form of excessive, unjustified, or exploitative interest charged on loans or debts. Riba is considered haram (prohibited) because it goes against the principles of justice, fairness, and compassion in Islamic teachings.
There are several reasons why riba is prohibited in Islam:
- Exploitation: Riba is seen as a form of exploitation because it allows the lender to gain more than the actual amount they lent, while the borrower is forced to pay more than they received. This leads to an unequal distribution of wealth and resources, which is against the principles of social justice in Islam.
- Risk avoidance: Riba encourages lenders to seek profits without taking any risks, as they are guaranteed a fixed return regardless of the success or failure of the borrower’s business or project. This goes against the Islamic principles of entrepreneurship and risk-taking, which are considered essential for economic growth and development.
- Compassion: Islam emphasizes the importance of compassion and kindness towards others, especially those who are in need or facing financial difficulties. Riba can lead to financial burden and hardship for borrowers, which is against the spirit of compassion and generosity in Islam.
Divine prohibition: Riba is explicitly prohibited in the Quran and Hadith, and it is considered a major sin in Islam. Muslims are required to abide by the divine commandments and avoid any actions that are considered haram.