What's wrong with interest?
Since the late 1980s, widespread consensus has emerged on one of Islamic banking’s basic contractual and technical principles, the Qurʾanic injunction against ribaʾ, which translates literally as “increase” but is most frequently understood as “interest.” It is frequently interpreted as a universal prohibition against both usurious and non-usurious rates of interest. This is because:
- It exploits the poor – The rich get richer while the poor struggle with growing debt.
- It creates economic inequality – Wealth is concentrated among a few rather than being distributed fairly.
- It encourages laziness and greed – People earn money without effort instead of through hard work or investment.
- It leads to financial crises – Interest-based systems can cause debt cycles, instability, and economic crashes.
By extension, many also believe there to be a prohibition against profit without risk. Islamic banking developers and practitioners define this as interest, which is calculated when there is a guaranteed increase on one’s capital over the passage of time. A prohibition against profit without risk really means that there should be no increase in capital without potential loss. Thus, risk is required as a guarantee against interest. This idea is extended to banks where the notion that lenders can receive increase in the form of interest on their capital loans, without taking on risk, is widely rejected.
Qur'anic Evidence:
1. Riba Is Forbidden and Leads to Punishment
“O you who believe! Do not consume riba, doubled and multiplied. But fear Allah so that you may be successful.”
(Qur’an, 3:130)
This verse warns against taking excessive interest and encourages fairness in financial dealings.
2. Riba Is Unjust and Opposed to Charity
“Those who consume riba will not stand [on the Day of Judgment] except as one who is being beaten by Satan into insanity. That is because they say, ‘Trade is just like riba,’ but Allah has permitted trade and forbidden riba...”
(Qur’an, 2:275)
This verse makes it clear that riba is not the same as trade. Trade benefits both parties, while riba benefits only the lender and harms the borrower.
3. Allah Declares War Against Riba-Takers
“O you who believe! Fear Allah and give up whatever remains of riba, if you are indeed believers. And if you do not, then be informed of a war from Allah and His Messenger. But if you repent, you may have your capital. Do not be unjust, and you shall not be treated unjustly.”
(Qur’an, 2:278-279)
This is one of the strongest warnings in the Qur’an. Allah declares war against those who engage in riba, showing how serious the sin is.
4. Riba Does Not Increase Blessings
“Allah destroys riba and gives increase for charity. And Allah does not like every sinning disbeliever.”
(Qur’an, 2:276)
This verse highlights that interest-based earnings are ultimately harmful, while charity brings true blessings and prosperity.
What's wrong with ambiguity?
Gharar (غرر) refers to excessive uncertainty, deception, or ambiguity in financial transactions. Islam forbids gharar because it leads to unfairness, disputes, and exploitation. Contracts should be clear, transparent, and fair to all parties involved.
1. Gharar Leads to Uncertainty and Injustice
- Islam promotes fair and ethical transactions where all parties know what they are agreeing to.
- Gharar creates risk and unfair advantage, where one party may gain at the expense of another.
"O you who believe! Do not consume one another’s wealth unjustly, but only in lawful trade by mutual consent."
(Qur'an, 4:29)
This verse emphasizes fairness and clear agreements in business.
2. Gharar Causes Disputes and Deception
- When details of a contract are unclear or misleading, it can lead to conflicts and exploitation.
- The Prophet Muhammad ﷺ said:
"The Messenger of Allah forbade gharar transactions."
(Sahih Muslim, 1513)
This shows that uncertain and ambiguous contracts are not allowed in Islam.
3. Gharar Is Linked to Gambling (Maysir) and Speculation
- Many gharar-based transactions resemble gambling, where people take risks without full knowledge.
- Examples include high-risk speculative investments, uncertain business deals, and misleading contracts.
"Intoxicants and gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid them that you may be successful."
(Qur’an, 5:90)
This verse warns against activities that involve risk, deception, and unfair gain.
Examples of Gharar in Business and Finance
- Selling something you do not own – Like selling fish in the sea or crops before they grow.
- Ambiguous contracts – Not specifying the product, price, or terms clearly.
- Excessive speculation – Investing blindly in risky assets without proper knowledge.
- Unethical insurance contracts – Where terms are unclear, and one side may suffer losses unfairly.
What's wrong with gambling?
From an Islamic perspective, maysir (gambling) is prohibited because it is based on chance rather than effort or fair trade. The Qur'an explicitly forbids gambling because it leads to injustice, financial harm, and social problems. Here’s why maysir is not allowed in Islam:
1. It Creates Unfair Wealth Distribution
- Gambling allows some people to gain wealth without effort, while others lose everything.
- Islam encourages earning money through hard work, business, and fair trade, not luck or speculation.
2. It Causes Financial and Social Harm
- Gambling can lead to addiction, debt, and poverty, which harm individuals and families.
- Many gamblers end up losing more than they gain, creating financial instability.
- It can also lead to fraud, dishonesty, and exploitation.
3. It Distracts from Worship and Responsibilities
- The Qur'an (5:90-91) warns that gambling creates enmity and distracts people from prayer and remembering Allah.
- It can lead to laziness, neglecting work, and relying on luck instead of effort.
4. It Involves High Uncertainty (Gharar)
- Islam forbids excessive uncertainty (gharar) in transactions because it leads to unfair advantages.
- Gambling is full of uncertainty, where people take risks without knowing the outcome.
Qur'anic Evidence
"O you who believe! Intoxicants, gambling, idols, and divining arrows are an abomination of Satan’s handiwork. So avoid them so that you may be successful."
(Qur'an, 5:90)
"Satan wants only to cause between you enmity and hatred through intoxicants and gambling and to stop you from remembering Allah and from prayer. So will you not desist?"
(Qur'an, 5:91)
Conclusion
Maysir (gambling) is forbidden in Islam because it is based on luck rather than effort, causes financial and social harm, and leads to addiction and irresponsibility. Instead, Islam promotes fair trade, investment, and ethical financial transactions to ensure justice and economic stability.
Learn More:
Arslan Mohammed (ICC) and Mari Norbakk (CMI) participated in the live radio program “Kompass” at NRK P2. In the hour-long broadcast the topic was moral economy in Islam, and our team members were asked to explain the moral prohibition on riba’ in Islam, how banks might earn from interest free lending, and shared preliminary findings from the Invisible Ceiling project. The broadcast can be found here: https://radio.nrk.no/serie/kompass/DMTL36413922
Reading List:
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Kuran, Timur. 2004. Islam and Mammon: The Economic Predicaments of Islamism. Princeton, NJ: Princeton University Press.
Maurer, Bill. 2005. Mutual Life, Limited: Islamic Banking, Alternative Currencies, Lateral Reason. Princeton, NJ: Princeton University Press.
Tobin, Sarah A. 2016. Everyday Piety: Islam and Economy in Jordan. Cornell University Press.
Tripp, Charles. 2006. Islam and the Moral Economy. Cambridge: Cambridge University Press.
Warde, Ibrahim. 2001. “The Prophet and the Profits: Islamic Finance.” Le Monde. September 9. http://mondediplo.com/2001/09/09islamicbanking.
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——. 2009. “The Relevance of Contemporary Islamic Finance.” Berkeley Journal of Middle Eastern & Islamic Law 2:159.
——. 2010. Islamic Finance in the Global Economy. Edinburgh: Edinburgh University Press.