Principles

A blog post by Zafirah on Riba/Interest and is it permissible in Islam.

The question on why riba is prohibited is often raised by some who wonder how something that is now so prevalent in the world's economy can be prohibited.

For some, the answer to your question can be as simple as "because God said so in the Quran", but for others, an analysis of why it is prohibited needs to be done.

What is riba anyway?

First, we have to define what riba is. Prohibited riba in Islam falls in two categories (both termed Riba, the Arabic term for Usury).

As a Muslim, there are many responsibilites the one should undertake in thislife. One of these responsibilities is management of wealth.

Although Islamic Banking, Finance and Investment has been rising steadilyin the second half of the twentieth century, there has been some setbacksand pitfalls, that every Muslim should be aware of.

Whether you are an individual looking to invest in an Islamically-Correct®way or an enterpreneur willing to provide Muslims with an investment opportunity, you have to watch for several things.

Since most bank accounts, Mutual Funds, and other financial instrumentsoperate under non-Islamic Financial systems, they have some income frominterest despite the invetor (or the fund managers) being keen on notto get any interest.

The reason for interest creeping all over the place is that financialinstitutions will give interest on cash balances, often mandated bylocal law. A Mutual Fund will keep up to 15% of holdings in the formof cash, so as to respond to people requesting liquidation of theirshare in the fund.

Commercial Insurance has been deemed unacceptable under IslamicSharia law by many scholars. This includes property insurance (house,car), life insurance, and health insurance.

However, many scholars have allowed car and home insurance wheneverthere is no Islamically accepted alternative available, and more sowhen the local law requires one to be insured.

Here are some Fatwas on the ruling on Insurance under Islamic Law:

The following is an analysis of the Industries classificationfor the USA. Certain industries are clearly prohibited from theIslamic point of view. Others are questionable.

Following is an analysis of the 30 companies forming the Dow Jones IndustrialAverage (DJIA), form the Muslim point of view.

In Western societies, Financing has become a way of life. The basic form of financing is to buy a certian product or service (e.g. TV set,Car, clothings, ...etc.) and pay in installments and interest.

Loans in the prevalent economic system involves interest, which is prohibited in Islam.

Aside from that, loans often encourage consumerism, where people buy things they don't need with money they do not have!