The word “interest” refers to the fixed increase demanded over and above a sum of loan. At first sight, there does not seem to be any difference between it and rent. However, a deep deliberation reveals the stark difference between the two: rented out items can be used while keeping them intact; however, money cannot be used in this way; it is in fact used up and after expending it, it is needed to be produced again. Therefore, if something in addition is demanded over it, this in fact becomes an oppression. Since this difference between interest and rent is subtle, and human intellect can falter in understanding this difference, the Almighty has delineated the truth in this matter: In the sharī‘ah he has given mankind through his prophets, He has informed them that demanding a fixed increase over the lent amount is unjust and hence not allowed. It is for this very reason that interest has remained prohibited at all times and in all the sharī‘ahs revealed by the Almighty. The Qur’ān has explicitly forbidden it. There is no difference of opinion in this matter.
However, the religious legality of the system of banking which prevails in our societies has recently come under discussion. It is contended that since the bank only receives a portion from the profit of a commercial venture it had financed on the basis of a loan hence the very reason for which interest was regarded as prohibited does not exist in the banking system. This view has been put forth by some scholars of Egypt and Syria. Mawlānā Wahīd al-Dīn Khān (b. 1926 AD), a celebrated scholar and preacher from India too, has corroborated it to some extent in his book Fikr Islāmī. In my opinion, this view of the scholars can be considered intellectually convincing; however, it is essential for this that the following remedial measures be introduced in the banking system.
Firstly, if a commercial venture financed by a bank loan runs into losses or needs to be discontinued for some reason, the demand for profit by the bank should cease that very day. It should only demand the principal amount.
Secondly, if things are being sold on installments, then until these installments are complete, the bank should remain a partner in the ownership of the sold item, fulfill the rights of ownership and receive rent on it.
Thirdly, in a loan given for non-commercial purposes except for inflationary adjustments, no interest should be demanded on it.
An important issue relates to paying interest on loans acquired for personal and commercial needs. In other words, there are people who do not devour interest but are forced to pay it on such loans. It is generally thought that paying interest too is prohibited in the same manner as consuming interest is. Our scholars also hold this view. In reality, there is no basis of this opinion in the Qur’ān and Hadīth.
Not at one place has the Qur’ān condemned people who pay interest; it has, in fact, regarded them to be the oppressed; it has also urged the lenders to give respite to such borrowers if they are facing some financial constraint. No doubt, in a narrative, those who make others devour interest are also regarded to be equal criminals;1 however, people have failed to understand the real meaning of this narrative. It refers to people who are the agents of professional lenders and in this capacity hunt for potential customers for their masters. As such, they are guilty of co-operating with them in this sin. In other words, this narrative does not relate to people who borrow on interest.