Why Interest Is Haram in Islam: Riba as the Driving Force of Capitalism
How riba maps to modern banking and what this means for power and halal investing.
Plenty of average Muslims ask if interest — and, in particular, bank interest — is haram in Islam. The short answer is yes, but the reasoning matters. Knowing what riba is, its basis in Islamic scripture and manifestation in modern banking is essential for understanding why interest is forbidden in Islam. Equally important for the ummah is recognising how this prohibition intersects with capitalist power structures.
Definition of riba
Riba is the unjustified increase in a loan or similar exchanges. Classical scholars identified:
Riba al-nasi’ah: an increment for time in a loan;
Riba al-fadl: an excess in a barter of ribawi items (like gold).
The Qur’an condemns consuming riba and contrasts it with trade, directing finance to real activity and shared risk, not guaranteed gains from money-for-money lending.
Mapping riba to modern bank interest
Most conventional deposit accounts are technically loans from the customer to the bank that earn a fixed, predetermined return. That in essence is riba al-nasi’ah. Some argue that bank interest is not riba, citing inflation adjustments or administrative fees or even the nature of modern money. But these are unsupported minority views; mainstream scholars treat standard interest as prohibited riba.
Risk-sharing vs. fixed claims
Islamic finance ties lawful profit to bearing risk and owning/trading real assets. Partnership modes (mudarabah, musharakah) share profit and loss. Trade and leasing modes (murabahah, ijarah) link returns to asset ownership and usufruct (right to use another’s property). Riba screens in Islamic banking arise from this principle: profit should be earned through value creation and risk, instead of a guaranteed premium.
Power, capitalism and concentrated control
Modern capitalism has set the basis for centralisation of power in banks and corporations. When debt is the primary engine of money creation, the capitalist entities are able to:
Lock in gains through fixed claims, while forcing business risk in its entirety onto borrowers.
Consolidate wealth through debt cycles and collateral demands that put households and smaller firms at a disadvantage.
Shape markets and policy, effectively rendering society captive to systemic debt obligations and periodic crises.
Seen from this angle, riba prohibition is not only devotional but also a structural safeguard against exploitative finance and the accumulation of power without corresponding responsibility.
Defenders of interest-based systems counter that interest coordinates time preferences and prices risk for efficient capital allocation. Islamic ethics reframes the debate: align returns with real activity and shared risk in order to temper power imbalances.
FAQ
Is paying interest haram? In theory, it is forbidden to both accept and pay riba. Jurists do take into account some hardship scenarios but under strict conditions.
Is a savings account haram? If it is a deposit with guaranteed returns, scholars classify the increment as riba. Products without fixed interest are different.
Do Islamic banks charge interest? Islamic financial institutions avoid interest by structuring profit via trade, leasing or partnership contracts.
Takeaway
Predetermined, guaranteed returns on loans are riba al-nasi’ah; therefore, interest is forbidden in Islam. Beyond personal ethics, the framework challenges power concentration in debt-driven capitalist systems by rooting profit in real assets and shared risk.
Interested in discovering how these principles inform halal investing? Explore Tayyib Finance:
