The Quran forbids the usury for consuming people’s wealth being unjust, but not interest being an essential component of the financial aspect of an individual or of an organization or of the country. The usury can be defined as an excessive or inordinate premium for the use of money borrowed. Thus, the usury is an excessive or extortionate interest, and the Arabic language makes distinction between usury, which is riba and interest rate, which is fayida not to confuse between these two practices. The Quran, which spells out religious laws for our great religion has not forbidden interest in any business investments. But it is unfortunate that most of the “Muslim” countries have various laws against interest and have sham “interest-free banking” reflecting their ignorance of this simple Quranic truth. Thus, those who call themselves Muslims fall victims to the falsehood spread by the so called religious leaders or scholars.
Permitted borrowing or lending money
Earning interest and paying interest is not unlawful in Islam as the Quran has not prohibited interest while we know the scripture (Quran) and the religion are two handles to hold fast to God. Individuals may save money in a bank, or may borrow from financial institutions and pay interest for business loans to meet their needs, which is not considered excessive by the standard of the day and community. The Quran clearly teaches us that one may borrow or lend money to a friend or relative. Such transaction must be in writing, which may involve charging interest in the term, to at least pay for the cost of the loan to the lender if any, and compensate for any change in the value of the currency over the time of the loan, but should not involve usury:
[2:282] O you who have believed, when you have transacted of a loan for a certain term, then you shall write it and you should write between you and a scribe with the justice. And a scribe should not refuse that he will write as God has taught him. So he should write and the one on him is the right (debtor) will dictate, and he should fear God, his Lord and will not deviate anything from it. Then if the one on him is the right (debtor) has been limited knowledge or weak nor is able that he can dictate, then his guardian should dictate with the justice. And you shall call for two witnesses from your men, then if there would not be two men, then a man and two women from whom you agree of the witnesses that she errs, then one of the two would remind the other of the two. The witnesses will not refuse when for what they have been called. And you do not tire that you write it, whether small or large for its term. That is just at God and is upright for evidence and nearer that you do not doubt except that it would be an instant transaction you execute among yourselves, then it has been upon you any sin that you do not write it. And you shall take witness when you have made commercial transaction. A scribe cannot be harmed nor witness; and if you do, then indeed, it is evil behavior for you and you shall fear God. And God teaches you and God is Knower of everything.
Forbidden practicing of the usury
The usury has been an old practice to increase money, which has been forbidden in the Quran for charging excessive interest. Even in the present time, there are illegal moneylenders who have entirely separate standards for making loans charging excessive interest. These unlicensed or illegal moneylenders do not follow standard business rules while the usury cannot be equated to commerce or taken as a normal business practice. The practice of usury, unfortunately, is prevalent all over the world with individuals and business engaged in this practice, which has been forbidden in the Quran:
[2:275] Those who consume the usury cannot stand except like whoever stands the Satan confounds him with the touch. That is because of that they say, “The trade is just like the usury.” While God has permitted the trade and has forbidden the usury. So, whoever has come to an admonition from his Lord, then he has refrained that for him what has passed and his matter with God. And whoever has returned (to usury), then those are companions of the Fire, they will be in it are abiding forever.
[2:276] God ends the usury while encourages the charities. God does not love a disbeliever, sinner.
[2:278] O you who have believed, you shall fear God and shall give up what has remained of the usury, if you have been believers.
[2:279] So, if you do not do, then you shall be informed of a war from God and His messenger. And if you have repented, then for you have your capitals – you do not wrong nor will you be wronged.
[2:280] And if the debtor has been in hardship, then postponement until for an ease time. And if you remit as a charity, it is better for you, if you have done to know.
[3:130] O you who have believed, you do not consume the usury multiplied doubles, and shall fear God that you may succeed.
[3:131] And you shall fear the Fire which has been prepared for the disbelievers.
[4:160] Then for their wrongdoing of those who have turned to Jews, we have forbidden for them good things, had been permitted for them; and for their hindering many from God’s path.
[4:161] And for their taking of the usury, while they have been forbidden from it, and for their consuming people’s wealth being the unjust. And we have prepared a painful punishment for the disbelievers among them.
[30:39] And what you have given for usury to increase in people’s wealth, does not increase at God. And what you given for zakah desiring God’s pleasure, then those – they are receivers of manifold.
In practice as long as we are dealing with any state-licensed institution like a bank, Mortgage Company, Credit Card Company and other financial institutions, we are not violating any Quranic commandment as these institutions usually follow the law of the land and do not charge excessive interest. They calculate their interest rate on daily basis considering the status of the economy and the need of the society. On the other hand, if we deal with the illegal moneylenders who practice usury, we are in violation of clear Quranic commandments, while their money will not increase in the sight of God and the violators will be punished.
Thus, earning interest from a financial institution like a bank or bonds or mutual fund or paying interest for borrowing money from any financial institutions including a credit card company are perfectly legal from a Quranic point of view.