What is So Bad About Charging Interest on a Loan?

08 November, 2017
Q Is there a difference between bank interest and riba? And why is riba such a huge sin in Islam?


Short Answer: The Quran says God declares war on the one who charges interest. Why? Because interest is often used as a tool of oppression against poor people, forcing them into servitude and robbing them of dignity. Though there is a hadith that condemns paying interest, the Quranic spirit stands primarily against charging it. If you must pay interest just to own a home in the west, this is an exception to the traditional rulings on riba

Asalamu Alaikum,

Thank you for contacting About Islam with your question.

Dr. Shabir Ally of Let the Quran Speak addresses this question in the video below.


Aisha Khaja: Dr. Shabir, the question is: is there a difference between bank interest and riba?

Dr. Shabir Ally: Well, let me explain what riba is.

Riba is an Arabic word, and it refers to some kind of increase.

That’s the technical meaning, the etymological meaning of the linguistic meaning. But, in the Islamic context, riba is used to refer to interest on loans.

The Quran speaks about interest and condemns taking it in several passages. In fact, three different passages come to mind immediately.

All of these passages are condemning the taking, or the eating of interest. And we should ask -why?

Well, why is the Quran coming down so heavily about this to the extent of saying that if you do not stop this practice, then God declares war on you—which, you know, could come in the form of pestilence, and, you know, so many natural disasters, and so on, if we take that literally that God is declaring a war on you.

“So, what’s the point,” one must ask?

Because, you know, God doesn’t say this about too many things in the Quran?

This must be something very serious. What’s so serious about it?

Like when we look at what interest has done in history, we see that interest was often used as a tool of oppression.

The rich loaned money to the poor that the poor could not pay back. They had to pay plus interest, and the interest was compounded.

Eventually, they found themselves penniless.

And they had to sell themselves as part of the payment.

Sometimes they sold their property, their wives, and so on. A horrible situation for the poor people.

So, the Quran is looking at this and saying, “Look, the rich have money. They don’t need the interest on the money. They don’t need the money, actually. They can give it away. If they want to give it away, at least they should loan it, but without any interest.”

And to take interest would be oppressing the poor.

And so, the Quran is coming in to defend the poor people by declaring that interest is forbidden, meaning to charge interest.

And that those people who are taking and eating the interest, God is declaring war on them.

Now a hadith says that there are five persons who are cursed with regards to interest: the one who gives it, the one who takes it, the two who witness it, and the one who writes the contract.

So, based on this, Muslims will want to have nothing to do with interest.

And hence the problem arises–what do we say about buying a house on interest where we don’t seem to have any other means of obtaining a house–let’s say because Muslims live as a minority in Canada, United States, and many parts of Europe.

So, scholars who look at the overall picture, they say that—leaving aside the hadith for the moment, looking at the Quranic spirit—what is very clear is that the taking and the eating of interest that is the absolutely prohibited item and is discouraged for everyone else.

So, the hadith should be taken as a means of discouraging anyone else from participating in any such a transaction.

But the real culprit is the one who is taking the interest.

So, with that in mind, many scholars say that a Muslim can buy a house, using the conventional mortgages, paying interest, because what is condemned is the taking of the interest, not the paying of it.

Aisha Khaja: Okay, the viewer goes on to ask: “In the business world, would it be considered unlawful if both parties accept to terms and agreements of interest which are not forced upon each other and are beneficial to both parties?”

Dr. Shabir Ally: Well, it’s hard to see how charging interest would be beneficial to the one who has to pay it. And the answer would be no.

I hope this helps answer your question. Please keep in touch.

Walaikum Asalam.

(From AboutIslam’s archives)

Read more…

The Problem with Interest: Book Review by Joe Bradford

Are Mortgages on Homes in the West Allowed?

Why Is the Qur’an Silent on Giving Interest?