Why Is Interest (Riba) Prohibited in Islam? Understanding the Wisdom Behind the Rule
The prohibition of Riba (interest) is one of the most misunderstood aspects of Islamic finance. Many people ask: Why does Islam forbid interest when it is so common in today’s financial system?
In Islam, money itself is not considered a commodity that should generate profit on its own. Instead, money is a medium of exchange. When interest is charged, wealth is created without effort, risk, or productivity—often at the expense of the borrower.
The Qur’an clearly states:
“Allah has permitted trade and forbidden interest.” (Qur’an 2:275)
Interest-based systems tend to widen economic inequality. The lender earns a guaranteed return, while the borrower bears all the risk. This can lead to debt traps, financial stress, and social injustice—especially for vulnerable individuals and developing economies.
Islamic finance replaces interest with trade-based and partnership-based models. In these models:
- Profit is earned only when value is created
- Risk is shared between parties
- Transactions are backed by real assets
- Both sides benefit from success and share loss fairly
This approach encourages responsible lending, ethical investment, and long-term economic stability.
Far from being restrictive, the prohibition of Riba opens the door to innovation, fairness, and sustainable growth. It aligns finance with real economic activity and human well-being.
Understanding this principle is key to understanding the entire philosophy of Islamic finance.
