The collection of an extra amount by the lender at a fixed
rate on a loan given by him from the debtor is called Interest.
There is a big great deal of difference between business
and interest. In a business the individual invests money
and gains profit in return. But merely investing his capital
is not sufficient.
The person involved in the business venture, be it agriculture
or industry, has to work hard day and night even after investing
huge sums of money in it. Finally, even after all this monetary
risks and hard work there always exists a fear of loss in
Contrary to this, in Interest dealings, the lender lends
his money at a fixed rate of interest and collects a regular
profit from the borrower in the form of interest without
any physical effort or fear of loss and also irrespective
of the economical condition of the borrower.
In a business transaction the entrepreneur gets a profit
only once out of a particular deal, whereas in interest dealing,
the lender goes on receiving profit for the money that he
had once lent, with an increase in it as time goes by. Islam
very strictly prohibits all kinds of interest dealings. The
impact of interest on the lender as well as the debtor is
highly disastrous. The lender becomes extremely materialistic
and wild after his greed for money.
He does not bother about the consequences of the system
of interest on the society. He forgets human relationships
and kindness. He becomes wealthy by pushing innumerable people
into the darkness of poverty. That is why the Holy Qur'an
has compared them to mad and foolish people in Chapter 2,
Verse 275. The borrower on the other hand loses whatever
goods he possessed with him in the process of repaying the
loan and finally ends up paying an amount that is many times
more than what was actually loaned to him.
It is also observed that often, even after the death of
the borrower many successive generations come to pass but
are still unable to repay the loan taken by their ancestors
due this concept of Interest. Interest Free Banking Countering
the unjust and unharmonious financial systems, Islam laid
down its own economic and financial principals with greater
emphasis on interest free banking.
Islamic banking is not merely a business but also a mission
for attaining economic equity. This system will not allow
concentration of wealth to take root at any cost. The most
prominent feature of the Islamic financial system is that,
it forbids the charging of Riba (Interest) on money lent.
Islamic banking, based on the Qur'anic prohibition of charging
interest, has moved from a theoretical concept to embrace
more than 100 banks operating in 40 countries with multi-billion
dollar deposits worldwide. Islamic banking is widely regarded
as the fastest growing sector in the Middle Eastern financial
Exploding onto the financial scene barely thirty years ago,
an estimated $US 70 billion worth of funds are now managed
according to Shari'ah (Islamic Law). Deposit and Principles
assets held by Islamic banks grew to a whopping 60 billion
dollars in 1994 as compared to a meagre 5 billion dollars