The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.
Question:: (South America) While I understand that the shariah is strongly opposed to riba inall its forms, I was condering what the rationale for this is. The Quranic text and prophetictradition are clear in prohibiting it but I haven't yet seen a clear explanation of why it isproblematic. I also fail to see WHY asset-backed ownership is the only permissible type in Islamand exactly what the problem is with other purely financial instruments. Are there any other readingsyou could recommend to help answer these questions?
Answer: Please keep in mind that the prohibition is very much a moral issue, and that it is closelyrelated to the concept of khilafah or stewardship. The Islamic concept of monotheismviews the Almighty as the Fashioner and Possessor of all creation.
His is all that is in the heavens and on earth. Everything submits to Him (2:116).
When the earth and everything in it belong to the Almighty, the role of humankind is no more thanthat of caretakers. Even so, humankind has been granted an awesome responsibility, one which,in the poetic language of the Qur'an, even the mountains dared not accept. The terms of thisstewardship are that the Almighty allows humankind the use of the physical universe,hopefully for good (though possibly for evil? because humans have the ability to choose),and in return humankind agrees to be accountable for how the physical universe is used.This agreement is the foundation of all worldly justice, and this leads to the Shariah orreligious law which includes guidelines for using the Almighty's property for profit and acceptablegain. Unjust enrichment, according to the Shariah, may take many forms; but the most iniquitousof all is enrichment at the expense of others, and this includes lending for profit. Money lendingand financing belong to two entirely different spheres; one is charity, pure and simple, andthe other is business. The repercussions of this bifurcation range far and wide, and shape much ofwhat is unique about Islamic notions concerning economy and society. Equity investing offersMuslims the opportunity to profit, not by lending at a guaranteed rate of return, but bysharing in ownership, and thus commiting to share in the risks associated with ownership. Sucha commitment is clearly in consonance with the concept of stewardship, and this, morethan anything else, explains how the Islamic prohibition against interest is as much a moralmatter as it is a legal one.