Islamic Economics and Interest

QUESTION: Islamic Economics – Interest

ANSWER:

A distinctive feature of Islamic economics regards disallowing interest on loans (2:274–276; 3:130–131; 30:39; 2:278–279; 83:1–6). This is commonly understood to mean that when loaning money to fellow Muslims, interest on that loan is forbidden. But some Muslims wonder whether the prohibition pertains to any interest at all or to excessive or unfair interest. “Nearly all English translations of the Quran translate riba as usury,”¹

Islamic Economics – No Usury
Naqvi observes, which suggests that excessive interest (usury), not simple interest, is what is prohibited. Nevertheless, Naqvi records that some Muslims are seeking to replace all forms of interest with something they refer to as Profit-and-Loss Sharing (PLS). These financial instruments would be commercial bank transactions offering customers an opportunity to invest in stocks and bonds and also take the risk that goes with such financial instruments. Naqvi also observes, though, that these PLS bank transactions are not doing well and perhaps the state will have to step in and make sure customer losses are not too severe.²

Notes:

Rendered with permission from the book,Understanding the Times: The Collision of Today’s Competing Worldviews(Rev. 2^nd ed), David Noebel, Summit Press, 2006. Compliments of John Stonestreet, David Noebel, and the Christian Worldview Ministry at Summit Ministries. All rights reserved in the original.

¹ Syed Nawab Haider Naqvi, Islam, Economics, and Society (London, UK: Kegan Paul International, 1994), 117.
² Ibid., 141–3