The Truth About Interest: What Islamic Law Is Really Protecting
“O believers! Fear Allah, and give up outstanding interest if you are ˹true˺ believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm. If it is difficult for someone to repay a debt, postpone it until a time of ease. And if you waive it as an act of charity, it will be better for you, if only you knew.”
Quran 2:278 – 2:280
Before any Religious Aspect
Whether you’re religious or not, and before we even dive into Islamic law, I advise you to remember one rule: never live beyond your means. If you want to raise your standard of living, increase your income—not borrow—because borrowing is the quickest way to poverty and modern slavery.
The day every one of us recognizes the financial and social dangers of interest-bearing loans, we will stop debating whether they are permissible or forbidden in any religion. Extreme capitalism (because there is also reasonable capitalism) craves excessive consumption, even when consumers lack the financial means. The solution to this dilemma is to make borrowing, especially consumer loans, accessible to everyone and to normalize the idea of living luxuriously beyond one’s income through lending, even when our income can’t support it.
For decades, minds have also been manipulated, creating a false sense of living standards that leads individuals to believe they are the only ones lacking something, making them feel like outsiders in society. To fix this, they are daily reminded to acquire that thing and display it to society so they can experience a form of self-satisfaction that signifies belonging, until the next missing thing comes up.
Here, I’ve only discussed individual borrowing; corporate and national borrowing are separate topic that deserves their own articles.
The day every one of us recognizes the financial and social dangers of interest-bearing loans, we will stop debating whether they are permissible or forbidden in any religion. Extreme capitalism (because there is also reasonable capitalism) craves excessive consumption, even when consumers lack the financial means. The solution to this dilemma is to make borrowing, especially consumer loans, accessible to everyone and to normalize the idea of living luxuriously beyond one’s income through lending, even when our income can’t support it.
For decades, minds have also been manipulated, creating a false sense of living standards that leads individuals to believe they are the only ones lacking something, making them feel like outsiders in society. To fix this, they are daily reminded to acquire that thing and display it to society so they can experience a form of self-satisfaction that signifies belonging, until the next missing thing comes up.
Here, I’ve only discussed individual borrowing; corporate and national borrowing are separate topic that deserves their own articles.
Terminology and History
The term used in Islam for interest, “Riba, ربا” is derived from the Arabic root verb “Raba,” meaning to increase, grow, or rise.
According to Islamic law, usury, or interest, is defined as any additional amount a debtor is required to pay to a creditor, in addition to the loan principal, as a condition of the lending agreement.
A hadith narrated that the Prophet (peace and blessings be upon him) said: “Every loan that brings a benefit is interest”.
In ancient economic thought, dating back to the Greeks, Plato prohibited usury in his book *The Laws*, and Aristotle condemned usury and usurers, asserting that money does not beget money. Plutarch believed that usurers were more unjust than foreign invaders. Similarly, in the Middle Ages, Thomas Aquinas warned against usury, as did Origen (an early Christian theologian) and Nicole Oresme (a medieval economist-bishop). The Church placed usurers in the same category as prostitutes and was strict in its decrees prohibiting usury.
This stance persisted until 1917, when the Vatican officially recognized the legitimacy of interest. (Unofficially, though, by the late 1800s, Catholic theologians widely accepted charging interest.)
The aversion to usury and usurers continued even after the French Revolution and the rise of liberal movements. Theories justifying usury began to emerge, referring to it as the interest rate.
In pre-Islamic Arabia (6th century), pagan Arabs practiced usury, as mentioned in Al-Tabari’s commentary: “In pre-Islamic times, a man would have a debt owed to him. When the due date arrived, he would ask the debtor: ‘Will you repay or increase the debt?’ If the debtor repaid, the man would take the money; otherwise, he would add an amount and extend the repayment period”.
Economic thought distinguishes between usury and interest. While ancient economic thought was replete with aversion to and combat against usury, modern economic thought welcomes interest and cannot conceive of an economy without it.
According to Islamic law, usury, or interest, is defined as any additional amount a debtor is required to pay to a creditor, in addition to the loan principal, as a condition of the lending agreement.
A hadith narrated that the Prophet (peace and blessings be upon him) said: “Every loan that brings a benefit is interest”.
In ancient economic thought, dating back to the Greeks, Plato prohibited usury in his book *The Laws*, and Aristotle condemned usury and usurers, asserting that money does not beget money. Plutarch believed that usurers were more unjust than foreign invaders. Similarly, in the Middle Ages, Thomas Aquinas warned against usury, as did Origen (an early Christian theologian) and Nicole Oresme (a medieval economist-bishop). The Church placed usurers in the same category as prostitutes and was strict in its decrees prohibiting usury.
This stance persisted until 1917, when the Vatican officially recognized the legitimacy of interest. (Unofficially, though, by the late 1800s, Catholic theologians widely accepted charging interest.)
The aversion to usury and usurers continued even after the French Revolution and the rise of liberal movements. Theories justifying usury began to emerge, referring to it as the interest rate.
In pre-Islamic Arabia (6th century), pagan Arabs practiced usury, as mentioned in Al-Tabari’s commentary: “In pre-Islamic times, a man would have a debt owed to him. When the due date arrived, he would ask the debtor: ‘Will you repay or increase the debt?’ If the debtor repaid, the man would take the money; otherwise, he would add an amount and extend the repayment period”.
Economic thought distinguishes between usury and interest. While ancient economic thought was replete with aversion to and combat against usury, modern economic thought welcomes interest and cannot conceive of an economy without it.
Types of Interest in Islam
Interest in Islam is divided into two types:
1-Interest arising from debt, also known as usury of delay or pre-Islamic usury
This is the most common form of usury in traditional financial and banking transactions, represented by the interest paid over the loan’s duration. It’s the standard banking system in which someone borrows money for a set period at a fixed or variable interest rate, which they must pay in addition to the principal, either periodically or at the end of the term.
2-Interest arising from debt, also known as usury of delay or pre-Islamic usury
The origin of this type of usury goes back to the hadith of The Messenger of God (peace and blessings be upon him) who said: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt, like for like, equal for equal, hand to hand. If these commodities differ, then sell as you wish, provided it is hand-to-hand.”
This hadith shows that usury can also happen in some sales transactions if the exchange isn’t of equal value. For example, it is not allowed to trade one kilogram of gold for three kilograms of gold because the extra amount counts as usury. This is called usury of excess.
This hadith shows that usury can also happen in some sales transactions if the exchange isn’t of equal value. For example, it is not allowed to trade one kilogram of gold for three kilograms of gold because the extra amount counts as usury. This is called usury of excess.
Interest, Usury and the Great Purposes of Their Prohibition in Islam
Islam does not ban interest simply for its own sake, but because of the genuine harm it inflicts on individuals and communities.
Here are the primary reasons:
Here are the primary reasons:
1-It Creates Inequality among individuals
Interest naturally moves money from those who have less to those with more. The wealthy lend and grow richer without effort, while borrowers work harder just to keep up. Over time, this creates a society where a few accumulate wealth while the many struggle to survive, and the gap between the two grows wider, a society where the only skill you need is capital.
2. It Fuels Inflation and increases Prices
When businesses take interest-based loans, the interest becomes part of their costs. To survive, they raise prices on goods and services. As prices rise, lenders raise interest rates again to protect their profits. This creates a vicious cycle where only ordinary people like you and me pay more. And history has shown that unchecked interest rates have played a role in major financial crises in the last decade, as rates rose to levels where many borrowers defaulted on their payments, and not only factories and companies, but entire cities and countries collapsed.
3. It creates a cornered, desperate middle class.
When someone cannot repay a loan, interest continues to grow, the debt continues to accrue, even though the person’s situation has not improved, and instead of relief, they feel trapped, lost, and hopeless or forced to take extreme measures, making them either an outcast or a danger to society. Islam stands with the weak and commands mercy, not exploitation.
4. Interest Diverts Wealth from Genuine Work
Interest allows a person to earn money without producing anything—no service, no skill, no risk, no contribution to society. Money itself becomes the product. Once this mindset takes hold, wealth no longer becomes connected to effort, creativity, or usefulness; it’s not about producing anymore, it’s about owning.
The Quran’s Powerful Warning Against Interest
“Those who consume interest will stand ˹on Judgment Day˺ like those driven to madness by Satan’s touch. That is because they say, “Trade is no different than interest.” But Allah has permitted trading and forbidden interest. Whoever refrains—after having received warning from their Lord—may keep their previous gains, and their case is left to Allah. As for those who persist, it is they who will be the residents of the Fire. They will be there forever.”
Quran 2:275
This image is frightening because it portrays the moral and psychological damage of usury as demonic possession, leaving a person spiritually unbalanced and chasing profit without conscience.
While many scholars say this describes the state in the Hereafter, the next verse shows the worldly punishment as the most frightening promise of a war from Allah:
While many scholars say this describes the state in the Hereafter, the next verse shows the worldly punishment as the most frightening promise of a war from Allah:
“O believers! Fear Allah, and give up outstanding interest if you are ˹true˺ believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm. If it is difficult for someone to repay a debt, postpone it until a time of ease. And if you waive it as an act of charity, it will be better for you, if only you knew.”
Quran 2:278
“Interest Is Just A Form Of Trade ” — The False Comparison
People once argued, and still argue today: “Interest is just like Trade.”
While trade involves risk, effort, and shared benefits, interest guarantees profit for a part of the trade without responsibility or compassion, placing all the risk and effort on one side.
The difference is not slight—it is fundamental.
Allah responds clearly to that claim:
While trade involves risk, effort, and shared benefits, interest guarantees profit for a part of the trade without responsibility or compassion, placing all the risk and effort on one side.
The difference is not slight—it is fundamental.Allah responds clearly to that claim:
” That is because they say, “Trade is no different than interest.” But Allah has permitted trading and forbidden interest..”
Quran 2:275
The Bigger Picture
Interest systems allow wealth to circulate among a small elite. The rest of society remains dependent and vulnerable, slaves to the 1%, the new masters who provide you with money so you can provide them with more money.
Because of this harm, even some secular economists have called for eliminating interest and promoting fair wealth circulation, recognizing that moral economics leads to social stability.
Islam insists that money must serve people—not rule them.
While interest-based systems grow wealth upward, toward the few, creating dependency and imbalance, Islamic economics spreads wealth outward across society and fosters resilience and equality.
This is not just economic law—it is divine social justice in action to protect all of us.
Because of this harm, even some secular economists have called for eliminating interest and promoting fair wealth circulation, recognizing that moral economics leads to social stability.
Islam insists that money must serve people—not rule them.
While interest-based systems grow wealth upward, toward the few, creating dependency and imbalance, Islamic economics spreads wealth outward across society and fosters resilience and equality.
This is not just economic law—it is divine social justice in action to protect all of us.
