Riba — can be roughly translated as “Usury”, or unjust, exploitative gains made in trade or business. Riba is mentioned and condemned in several different verses in the Qur’an (3:130, 4:161, 30:39 and perhaps most commonly in 2:275-280). It is also mentioned in many hadith.
For those devotees of Islam that dream of receiving a higher education or plan to own a home one day…. just forget about it. In a society where tasks are hard to accomplish without the act of borrowing money, committing the sin of riba is quite the difficult task to avoid. According to the sacred Qur’anic texts and the backing of many scholars today, it is absolutely compulsory to avoid any sort of interest as it is punishable of hellfire. This very principle brings about a huge problem to both devout Islamists and the financial systems in Islamic regions.
From the individual perspective:
Although the sin of riba is rarely heeded by many practicing Muslims today, the repercussions are extreme. A very outspoken Youtuber by the name of Naseeha Sessions provides a closer look as to what scholars have determined about university loans.
The act of borrowing money with a preset interest rate forbids students to take loans and pursue higher education. This has been combated by devotees who argue that loans are not necessary and other means of financing may be taken including borrowing from family and friends. This argument is invalid as it does not provide a robust solution for the many aspiring individuals who may not have a strong financial backing from their extended family. As one can see this brings about a big problem as it voids the abilities of many to pursue a higher form of life and a means of providing for themselves. Unfortunately, in the society we live in today, education is most valued and proves itself to be true when examining the income brackets of the labor market today.
This principle also spills over to families who have outgrown their homes and are looking to settle in a more reasonable accomodation. Since mortgages are backed by an interest rate, it is also completely forbidden to buy a home unless straight cash is used. This proves to be problematic in many Muslim dominated societies where homelessness is rampant. It is simply unreasonable to be able to pay cash upfront for such a large asset class.
Societal Impact :
In order to be in accordance to Shariah Law, a different form of financial institution erupted in the Muslim world, this is known as Islamic Banking. This form of banking, heavily regulated by Shariah Law condemns banks to provide loans to any unlawful forms of businesses including establishment that involve alcohol, gambling, pork, etc. Permissible loans include those that engage in lawful business activity and is a form of partnership in nature. This combats the issue of interest profiteering as it makes the banks a capital partners of their clients. Although this concept seems great by definition it provides a major incentive problem for banks and loan officers. In order for an Islamic bank to be profitable it must invest in profitable ventures.
The probability of businesses failing is always present in any landscape and just one failed partnership can prove to be detrimental for Islamic banks. Common banking practices involve banks providing loans with a set principal amount and interest along with other forms of risk mitigating practices. These policies are set in place to protect bank assets but more importantly, the assets of the many clients. The infrastructure of Islamic Banking is simply unsustainable and is very evident in many Islamic nations today which are experiencing slow economic growth and minimal opportunities.
So why does Allah hate interest so much? Riba is brought up many times in both Quranic verses and hadiths. Did Allah foresee the creation of man’s currency and just knew he would hate the concept of interest? If we examine the history, we may get a better understanding of this. During the Prophet’s time, the Quraysh, a strong Jewish Mercantile tribe held much of the financial power in the Meccan region. The concept of banking had began to take widespread in many parts of Arabia due to the strong financial position of some Jews. Although interest was condemned in both Christian and Jewish faith, Jews were permissible to take loans from non-Jews. The Prophet had a major conflict with the idea of interest as he was always caught on the borrowing side. Can it be that Riba became a topic of extreme taboo in Islamic faith due to historical outcomes or does it indeed infuriate Allah? There is much research to do in this topic of discussion but it certainly brings food for thought… if the idea of interest did not come about in human society, would it be such a major sin?