The Almighty says: "They say, 'Trade is [just] like usury.' But Allah has permitted trade and has forbidden usury."
What is Riba (Usury)? Is dealing with banks forbidden?
Defining Riba in the Quran:
Riba, as defined in the Book of Allah, is a profit-based financial increase on the principal capital.
Allah has permitted this increase in only one case: when it results from a sale (trade), provided it does not turn into "doubled and multiplied" profits.
The Almighty says: "O you who have believed, do not consume usury, doubled and multiplied."
This means you should not make your profits grow at compounding rates continuously. If that happens, the profit becomes forbidden Riba.
Contexts of Riba in the Quran:
The concept of Riba appears in three basic contexts:
- 1. In commercial transactions (Trade).
- 2. In dealing with those entitled to charity.
- 3. In loans (people's money).
First: Riba in Commercial Transactions (Trade):
In trade, an agreement is made between all parties by mutual consent. Capital may achieve a profit or suffer a loss.
Profit resulting from the sale of a specific commodity is natural profit because it does not increase in a compounded manner. Hence, God's response to those who compared trade to Riba:
- The increase resulting from sale is Halal (permitted).
- However, the continuous doubling of profits is forbidden Riba, as it is not trade but financial exploitation.
Second: Riba with those Entitled to Charity:
God warned strictly here, saying: "Allah destroys interest and gives increase for charities."
This means any Riba taken from a person eligible for charity will be destroyed by God.
- A charity recipient is a poor person with no source of income.
- God has mandated a right for them in our wealth through individual charity or Zakat collected by the state.
How can we lend to a person who already has a right to our money, yet we haven't even paid them their due charity? God reminds us that the sustenance we possess is a trust with us.
The Almighty says: "So give the relative his right, as well as the needy and the traveler. That is best for those who desire the countenance of Allah, and it is they who will be the successful."
Third: Riba in Loans (People's Money):
The Almighty says: "And whatever you give in usury to increase within the wealth of people will not increase with Allah. But what you give in Zakat, desiring the countenance of Allah—those are the multipliers."
- Any loan given to a person (even if they are capable of repayment) with a condition of financial increase is forbidden Riba.
- God will not bless this increase; rather, it will be destroyed as mentioned in the previous verse.
As for Charity and Zakat: They are the "Good Loan" (Qard Hasan) that God promised to multiply for us.
How to Abandon Riba:
The Almighty says: "But if you repent, you may have your principal—thus you do no wrong, nor are you wronged."
- You have the right to your principal capital only, without any increase.
- If the debtor is in hardship, they must be given a grace period until their circumstances improve.
- And whoever gives charity to the debtor by waiving the debt, that is better for them.
Is Dealing with Banks Forbidden?
Banks are financial institutions that manage money through lending and investment for the benefit of society. There are two cases of dealing with them:
1- Depositing Money with Fixed Interest
- When depositing money in a bank, you are appointing them to invest your money safely.
- Fixed interest on principal capital is not Riba, as long as it does not turn into "doubled and multiplied" compounding rates.
- Bank interest is usually not compounding in this forbidden sense; therefore, it is Halal according to the analysis of the verses.
2- Borrowing from the Bank
- If you borrow to finance a well-studied project, it is considered a commercial agreement, not Riba, as long as the bank does not impose compounding rates.
- If the project fails and the borrower faces hardship, the bank must stop calculating interest and wait until the borrower's circumstances improve, or agree on a fair settlement.
Summary:
- Any increase on loans (people's money) is forbidden Riba.
- Any lending to a person eligible for charity with an added increase is forbidden Riba.
- Any increase on capital from a sale (trade) is Halal, as long as it does not turn into continuous compounding profits.