Dealing in interest or usury is totally forbidden or haram for Jews, christians, and muslim as they received guidance from one and the same God. Allah knows that interest is extremely destructive for any group of people at any place and time. Jews and christian have openly tviolated this law of Allah. They have also imposed it on the people of other faiths so much so that these people of other faith are deeply buried in it and do not find a way out of this hardship.
An-Nisa #160 - 161
For the wrong doing of the jews, we made unlawful for them certain good foods which had been lawful for them - and for their hindering many from Allah's way; And their taking of riba ( usury ) though they were forbidden from taking it and their devouring of men's substance wrongfully ( bribery ). And we have prepared for the disbelievers among them a painful torment.
Many of the muslims are also caught up in this wave of destruction. They try to find ways to go around the law of Allah. Some times they give lame excuses to justify their involvement in interest bearing activities. It is, therefore, essential to review the guidance provided by Qur'an and hadith pertaining to interest. Very detailed guidance is given in Surah Al-Baqarah 275-276 and #278-280 :
Those who eat usury will not stand ( on the day of resurrection ) except like the standing of a person beaten by satan leading him to insanity. That is because they say: " Trading is only like usury", whereas Allah has permitted trading and forbidden usury. So whosoever receives an admonition from his lord and stops eating usury shall not be punishe for the past; his case is for Allah ( to judge ); but whoever returns to usury, such are dwellers of the fire - they will abide therein. Allah will destroy usury and willgive increase for sadaqat ( deeds of charity, alms,etc ) and Allah likes not the disbelievers, sinners.
O you who believe! Be afraid of Allah and give up what remains ( due to you ) from usury ( from now onward ), if you are ( really ) believers. And if you do not do it, then take a notice of war from Allah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly, and you shall not be dealt with unjustly. And if the debtor is in a hard time ( has no money ), then grant him time till it is easy for him to repay, but if you remit it by way of charity, that is better for you if you did but know.
According to the view of many scholars such person will be raised in his grave as if satan has over powered him and he will be acting crazy. He will, therefore, be easily identified. This is because he made fun of the law of Allah by saying that interest is identical to trade since both involve some amount of profit. On the other hand, Allah who created everything knows best and by His Grand Wisdom made interest haram and the trading halal.
Al- Mulk #14 ;
Should not He Who has created know ? and He is The Most Kind and Courteous ( to His slave ), All - Aware ( of everything ).
Note that by giving charity, a person gives his wealth to others and it somewhat reduces his capital. By charging interest a person receives money from others on top of his capital. Qur'an explains this contradiction. A person who gives charity does so for the sake of Allah and for the reward from Allah on the Day of Judgement. This reward is immense. Hence his capital and benefits have actually grown. The person who charges interest will have no blessing in his wealth and trade and he will be definitely a loser on the Day of Judgement.
One Day Prophet Mohammad slaughtered a lamb. Prophet Mohammad went out of his house for some engagements. His wife Aisha gave away most of the lamb in charity. On his return prophet Mohammad asked his wife, " How much lamb is left ?", she said," All is gone except this one piece". Prophet Mohammad said," what is gone is left and what is left is lost". Hence anything given in charity is preserved and grows in the sight of Allah.
Moreover a rich person involved in interest can go bankrupt anytime but the rewards of charity are permanent and everlasting. Similarly a person involved in interest may buy all the amenities of the life but it does not guarantee his restful sleep and peace of mind. On the other hand a person who gives charity will not only have peace of mind but his reward on the Day of Judgement will be tremendous.
Prophet Mohammad said, " However large interest may be, its end result is always shortage". ( Musnad Ahmad & Ibn Majah ). Allah says in Al Baqarah 279, that if you repent your previous involvement in interest, you will be entitled to your original capital. If you do not repent, you will lose your original capital as well.
Finally, Islam guides towards fellow feeling and an exemplary behavior towards the poor as opposed to exploitation of the poor by the usury system. Allah says that if you find a debtor in hardship and he is unable to return your original capital right away, you should extend his payment time till he is able to do so. If, however, you totally forgive him and remit it, it would be an act of great generosity on your part.
This clearly shows that the usury system is there to exploit the poor and needy. Allah's charity system is to help the poor and needy so that they can survive and perpetuate in the life without much distress. Prophet Mohammad said," if somebody extends the payment period of poor, his reward will be as if he donated this amount in charity everyday of the extension period. This will apply when the period of payment has not expired and the extension was granted. If,however,you give extension after the period of payment has expired, then the reward will be twice of that state above." ( musnad Ahmad ).
Allah also says in Al- Imran #130
O you who believe! Eat not riba, usury, doubled and multiplied, but fear Allah that you may be successful.
The verses of Surah Al Baqarah were, revealed in the eight year of Hijra and in view of the seriousness of this subject the companions of prophet Mohammad were very particular about it. When Prophet Mohammad made his " Farewell Address ", he announced that this islamic law about usury was equally applicable to both muslims and non muslims. Non Muslims owed a large amount of interest to Abbas the uncle of the prophet. Abbas remitted or forgave his debtors a huge amount of the principal and the related interest submitting to the will of Allah.
Prophet Mohammad said to his companions," save yourself rom seven things, since they
are extremely harmful." Companions asked," what are they?" He said," to make partners with Allah, To perform magic. To kill others unjustly. To involve in usury. To devour an orphan's wealth. To run away in a battlefield. To blame a pious woman". ( Bukhari & Muslim ).
Prophet Mohammad also said, " Curse is on the one who takes interest and also on the one who gives interest. Curse is also on those who write and witness these documents as long as they know that it involves interest. All are equal in sin." ( Muslim )
When Prophet Mohammad reached seventh heaven during Miraaj, he passed by the community of people. He saw that the bellies of the residents of this community were blown up and looked like a residential house. Their bellies were filled with snakes which were visible from outside. He asked Jibriel," who are these people?" Jibriel said," these people were involved in usury". ( Musnad Ahmad ).
Definitely Muslim scholars and governments of islamic countries have to come up with a workable banking system to rescue the muslims. The will of scholars, government officials and the will of people have to play an important role.
There are some legal financial institutions in a few countries which do offer interest free investments. For example, there is North American Islamic Trust in America which is legally established and runs its affairs very close to islamic laws. It has an enviable track record of about twenty years. It has a sister institution in Canada which follows Canadian financial laws as well as islamic laws. There could be other such institutions in European and Asian countries. Unfortunately, when muslims are introduced to these institutions, they show their reservations and disinterest simply because they are run by their muslim brothers. This is not a healthy approach. Muslims should at least try to get written details of these institutions and then cool mindedly evaluate them. No project can grow without the support of general public. It is definitely sinful to totally close eyes on these islamic financial institutions with lame excuses and support the interest bearing bodies.
May Allah give us the courage and co-operation to come out of this mess. Ameen
