First of all, what is interest? Interest is more or less a fee charged by a lender to a borrower for the use of borrowed money, usually expressed as an annual percentage of the principal. The rate depends on time, value of currency, the credit, risk of the borrower and the rate of inflation. In fact, the literal meaning of riba (interest) as it is used in the Arabic language means to excess or increase.
Allah says in the Holy Qur’an, ‘‘Allah decreases interest and increases sadaqah’’. From Islamic point of view, interest means effortless profit which is free of exchange. There are a number of verses in Qur’an where Allah warned us about Interest (Riba).
■ Prohibitions In The Qur’an
Allah says in the Holy Qur’an:
Those who devour interest will not stand except as stands one whom the Satan by his touch has driven to madness. That is because they say: ‘‘trade is like interest’’, but Allah has permitted trade and has forbidden interest ½… Allah will deprive interest of all blessing, but will give increase fordeeds of charity: for He does not love any ungrateful sinner (2:275-276).
O you who believe! Fear Allah and give up what remains of your demand for interest if you are indeed believers. If you do not, take notice of war from Allah and his Messenger: but if you repent, you shall have your capital sum: deal not unjustly, and you shall not be dealt with unjustly (2:278-279).
O you who believe! Devour not interest doubled and multiplied; but fear Allah, that you may prosper. Fear the Fire, which is prepared for the disbelievers (3:130-131).
That they took interest, though they were forbidden; and they devoured people’s wealth wrongfully: We have prepared for those among them who reject faith, a grievous punishment (4:161).
That which you lend on interest for increase through the property of people, will have no increase with Allah: but that which you give for charity, seeking the countenance of Allah, it is these who will get a recompense multiplied (30:39).
Muslims believe that Allah’s guidance is based on His knowledge, wisdom and justice. In other words, Allah does not forbid something from humans for no reason whatsoever. Money itself has no intrinsic value, it is simply a medium of exchange, each unit is 100% equal in value to another unit of the same denomination and we are not allowed to make a profit by exchanging cash with another person.