First of all, we would like to stress that the true worship of Almighty Allah requires complete submission to His teachings and instructions, whether we get the wisdom behind this or not. Allah Almighty has not forbidden a thing unless this is good for people. As for riba, it is one of the gravest sins and is severely punishable by Almighty Allah in this world and in the Hereafter. Contemplating the wisdom of prohibiting riba, we find that it brings about harm on many levels; it negatively affects one’s faith and has also harmful effects on moral, economic, political,, and social levels.
In this regard, we would like to cite for you the following by Dr. Husain Shihatah, professor of economics at Al-Azhar University, in which he states the following: Muslim jurists throughout the ages are unanimous that societies whose economies depend on taking riba and setting interest rates incur multiple harmful effects because Almighty Allah has prohibited riba. It will take much to explain all harm in this regard in detail, so we will sum up the most important points in this respect as follows:
The Effect of Riba on One’s Faith
One who takes riba declares disobedience to Almighty Allah. By so doing, one challenges Almighty Allah and His Messenger and thus will be expelled from Allah’s mercy and admitted to the Hellfire, unless one repents. Such people become slaves of money; they worship it instead of Almighty Allah. In fact, this is a sign that these people do not love Almighty Allah, Who has created and provided them with sustenance. Such people are, furthermore, described by the Qur’an as “ungrateful and wicked” (Al-Baqarah 2:276). These people, moreover, fall under the category of those about whom Almighty Allah says, “Whoso is rebellious to Allah and His messenger, he verily goeth astray in error manifest” (Al-Ahzab 33:36).
Besides, those benefiting from riba care for this worldly life and neglect the Hereafter altogether, always harboring a fear of death. Mind what Almighty Allah warns those who deal in riba of if they do not give it up: “And if ye do not, then be warned of war (against you) from Allah and His Messenger” (Al-Baqarah 2:279).
The Effect of Riba on One’s Morals
Those who take riba are deprived of human values and noble ethics; they are greedy, wicked, and miserly; their hearts are harder than stone. They are willing to sacrifice everything of noble value in return for extra amounts of money. That is why Almighty Allah describes such people as mad, greedy, and always restless, as indicated from the verse, “Those who swallow usury [riba] cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to usury) Such are rightful owners of the Fire. They will abide therein.” (Al-Baqarah 2:275).
Besides, those involved with riba are self-centered, liars, and deceitful. According to psychologists, an analysis of such people’s’ psyche shows that they are greedy to collect money and keep it by all possible means, even despicable ones. Such voracity for money and miserliness make them dwellers in the darkness of materialism until the very end of their lives.
Greed for money is also shown in these people’s’ daily lives; they always speak about money, follow the news of the indebted, and think of ways to keep their capital and the interest they get from people, without thinking a bit about the unlawfulness of their taking riba from the viewpoint of Shari`ah and Allah’s warning of waging war against them if they do not give up riba.
The Harmful Effect of Riba on the Economy
Secular economists agree that an economy that is based on taking interest impedes development, causes backwardness, and makes the poor poore
r. In this regard, the International Monetary Fund (IMF) has recommended the developing countries avoid financing development projects by means of borrowing money at interest, for this increases their underdevelopment. The IMF has also recommended that finance of development projects in these countries be achieved by means of (business) partnerships with the rich countries, which dictates a fair sharing in both profit and loss.
Furthermore, according to John Maynard Keynes, a prominent economist, effective treatment of unemployment and stagnation will not be achieved unless interest on loans becomes a zero rate. Countries now vie to reduce their interest rate, to the extent that it has fallen to only 1.5 percent per year in some countries. But let’s imagine what would happen if interest rates really become zero. This would lead people to follow the business partnership system, which is the method of investment in Islam.
Economists recommend giving up interest rates for the following reasons
1. Imposing interest rates on the principal sum of money or the net cost of goods leads to price rises, which, in turn, lead to inflation. In this regard, it has been said that “interest rate is the fuel of inflation,” for the higher the interest rate becomes, the higher the inflation rate becomes, too
2. Borrowing with interest also leads to many companies facing financial problems or suspending their activities or even being liquidated. This is because of the businessmen’s inability to pay the interest on the loans they have taken out. Many a time, we hear of companies facing this fate. This may also bring in its wake a series of repercussions ending in banks and companies declaring bankruptcy, as well as instability in the
monetary systems of the indebted countries.
3. The interest system also causes instability in stock markets. It is the root of the economic crisis that faced East Asia countries when the bankers and borrowers of these countries sought to finance their speculations on the stock markets by gambling on the real estate bubble.
4. The interest system also leads to instability in capital flow if the interest rate is higher than the profit expected from investing the money borrowed. This may, in turn, lead to non-finance of necessary projects whose expected returns are less than the interest rates imposed on the money invested therein.
5. The interest system, furthermore, causes recession and economic crises because investors are unable to pay the debts back to the banks and the banks, in turn, decide to stop financing these projects.
Hence, Muslim economists are of the opinion that there is no financial system that is more harmful than the interest system. And thus, they propose as an effective alternative, an investment system that is based on partnership, leasing, manufacturing, paying in advance, [and other dealings that are fair and lawful].
The Harmful Effect of Riba on Political Systems
Riba-based systems have harmful effects on national as well as international policies. In this regard, let’s consider the following points:
1. High interest rates lead to the borrowing (poor) countries falling under the mercy of the lending (rich) ones; the latter try to dominate the former and impose unjust conditions on them, use up their resources and, in the end, occupy them. This is exactly what happened when Khedive Isma`il (1830-1895) borrowed great amounts of money from Britain at high interest rates and was unable to pay them back, which led to the British occupation of Egyptian 1880. Likewise, President Abdul Nasser (1918-1970) borrowed great amounts of money from Russia at interest, which led to the latter’s domination of Egyptian affairs for a long time.
2. Creditors (bankers and influential people who lend at high interests) play far-reaching roles in the domestic as well as the foreign affairs of many countries. For example, Jewish creditors dominate the financial institutions in the United States, enabling them, in turn, to manipulate some elements for their personal and political interests. This is clearly apparent in the role they play in the American elections, the Palestinian issue, and aid given to the poor countries.
3. Wealthy creditors try, moreover, to control the resources of raw materials in many of the poorer and smaller countries as a preliminary step towards dominating these countries.
4. In addition, (unbelieving) creditors plan to invade the Muslim countries intellectually, by casting doubts into the Muslim minds concerning the Islamic teachings on acts of worship and business dealings.
Based on the above, it has become clear how what harmful effects interest and riba have on faith, morals, social life, economy, and political systems. These are only some of many examples in these respects. That is why Almighty Allah has forbidden riba.