Economics

Interest and its Role in Economy and Life

by

Jamaal al-Din Zarabozo

An Introduction

Interest is defined in the Oxford English Dictionary as, “Money paid for the use of money lent (the principal), or for forbearance of a debt, according to a fixed ratio.” [1]

Actually, individuals and the world as a whole probably know too well the burden of interest, such that no one truly needs the above definition. Interest is something that is known to anyone living in a capitalist country. It has become so completely institutionalized and accepted in modern economies that it is almost impossible to conceive that there are some who completely oppose it and refuse any transactions that involve interest. But there are devout Muslims who refuse to deal in interest.

The actual reason why such Muslims do not deal with interest is that interest has been forbidden by the Islamic religion, as shall be detailed shortly. At the same time, though, Muslims believe that God’s guidance is based on His knowledge, wisdom and justice. In other words, God does not forbid something from humans for no reason whatsoever. Hence, there are definitely sound reasons? Some of which we may be able to clearly recognize? Why God has forbidden this practice.

In today’s world, Muslims are constantly being bombarded with arguments in support of dealing with interest. Many Muslims have succumbed to such pressure and supposedly rational arguments, leading them to accept the concept of interest.

Therefore, this short article is intended to discuss the Islamic stance on interest as based on the basic texts of the faith as well as enter into a rational discussion of interest to determine if the arguments given in favor of interest are truly valid.

God’s Guidance for Mankind

Islam teaches that God has mercifully given guidance to humankind for all aspects of life. This guidance covers not just acts of worship but everything from economics and business ethics to marital relations, international...