Why “Interest” haram (Prohibited) in islam | Money Iqra

Interest, or “riba” in Arabic, has been a topic of controversy and debate within the Islamic community for centuries. Islamic finance principles strictly forbid any form of interest, and this prohibition is deeply rooted in the Quran and the Hadith. In this article, we will delve into why interest is considered haram (forbidden) in Islam.

The Quranic Prohibition

The primary source of the prohibition of interest in Islam comes from the Quran, which is considered the word of God as revealed to the Prophet Muhammad. The Quran contains several verses that explicitly condemn the practice of charging, paying, or benefiting from interest. For instance, in Surah Al-Baqara (2:275-279), it is stated that those who consume interest will not stand except as one stands who is being beaten by Satan into insanity.

The Hadith

In addition to the Quran, the Hadith, which are the sayings and actions of the Prophet Muhammad, further emphasize the prohibition of interest. The Prophet Muhammad is reported to have said, “There is no riba except in nasi’ah and nasi’ah means an increase of amount (paid in the same kind) on the spot, and there is no riba except in fadl (excess).”

Rationale behind the Prohibition

  1. Social Justice: One of the fundamental reasons for the prohibition of interest in Islam is the promotion of social justice. Charging and paying interest can lead to wealth accumulation among the wealthy while burdening the poor with debt. This creates an unjust economic divide, which is incompatible with the principles of equality and fairness in Islam.
  2. Risk Sharing: Islamic finance promotes risk-sharing among parties involved in financial transactions. When interest is involved, it places the entire financial burden on the borrower, while the lender is assured of a fixed return. This, in turn, encourages speculative and unethical behavior, which is against Islamic ethics.
  3. Ethical Concerns: Interest often leads to unethical financial practices that exploit the vulnerable. Islamic finance aims to promote ethical and responsible financial dealings, avoiding practices that harm individuals or society.
  4. Economic Stability: The prohibition of interest helps in maintaining economic stability by preventing financial bubbles and crises that can result from excessive speculation and risky lending practices.

why interest haram in islam

Islamic Alternatives

To comply with Islamic principles, Muslims have developed alternative financial systems that avoid interest-based transactions. Some of the most popular alternatives include:

  1. Islamic Banking: Islamic banks operate on a profit-and-loss-sharing model. They provide financing through modes like Mudarabah and Musharakah, where the bank and the customer share profits and losses.
  2. Islamic Investment Funds: These funds invest in Sharia-compliant businesses and assets, allowing investors to earn returns without interest.
  3. Takaful Insurance: Takaful is a form of cooperative insurance based on the principles of mutual assistance and shared responsibility.


The prohibition of interest in Islam is rooted in the Quran and the Hadith and is driven by principles of social justice, ethical concerns, and economic stability. While the modern financial system relies heavily on interest, Muslims have developed alternative financial mechanisms that adhere to Islamic principles. Understanding the rationale behind this prohibition can help Muslims make informed financial choices that align with their faith while promoting fairness and equity in society.

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