Why is interest considered haram? Are there any other financial practices that are considered haram as well?


In Islam interest as well as usury are both words that have been conveyed by the word riba.

In the Quran, it is clearly stated that Riba is haram. In surat al Bakara the verse says “…Allah has permitted trade and has forbidden riba.” - 2:275. Another verses say “O you who believe, fear Allah and give up what remains of your demand for riba if you are indeed believers. If you do it not, take notice of war from Allah and His Messenger.”- Quran 2:278-279

According to Islamic Scholars, they have suggested other reasons to why Riba is Haram:-

  • Most countries weather be big or small have foreign debts so large that their riba payments on these debts are a crushing burden on the entire country. Around 11 million children die each year due to poverty and debt. Nigeria is one of those countries that shows how the effect of interest rate (Riba) affected to country. In 1985 or 1986 Nigeria borrowed around $5 billion while they had to pay around $16 billion and yet they are told to pay another $26 billion for interest.
  • Riba is based on selfishness, greed, and hard-heartedness and disagrees with sympathy and brotherhood.
  • The major contributors to inflation are riba.
  • Riba is a sure gain for no possibility of loss which means all the risk will be taken by the borrower rather it being shared between both parties.
  • Riba causes depression and trauma due to increasing debt
  • Riba creates a gap in a society where the rich get richer while the poor get poorer.

Other practices that are haram include investments related to unethical or moral behaviors are forbidden in Islam. Islam prohibits investments in the following areas:

  • Financial services that feature transactions based on gambling, speculation and/or interest. Examples would include conventional banks, investment companies offering investments in the aforementioned industries, and insurance companies.
  • Certain food and beverages industries, most scholars agree that investing in tobacco, illegal drugs, alcohol, and other non-halal foods/beverages are prohibited.
  • Gambling; this means Islamic funds can not invest in online lotteries, casinos, lotto draws and betting transactions.
  • Some sectors in the Entertainment industry; those shariah prohibitions apply to adult entertainment products including videos, audio recordings, websites, magazines, etc. The same goes for certain types of non-Islamic music and cinema products.

sources: dummies and Islamic pamphlets