Why is interest/riba prohibited 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).

  • Riba Al Nasee' (Usury of Deferrance) Extending the period for a loan by charging more than the principal value.
  • Riba Al Fadhl (Usury of Increase) Lending money for it to be returned with an added portion.

Interest today falls under both definitions.Why is riba prohibited?Apart from the clear Quranic injunction on the prohibition of riba, there are other issues with riba which cause it to be prohibited.It is considered a form of injustice, and exploitation. Moreover, conventional economy today is debt-based, and only does risk transfer. Islamic economy in contrast is asset-based, and does risk sharing. It is all about fairness to all parties.Dr. Mahmoud Amin El-Gamal of Rice University has wrote several papers that explain this issue in detail.

For a list of verses in the Quran concerning the prohibition of usury, you can find the English translation here.You can also read an article on Islamic Halal Finance site on Interest.