INTEREST ON MONEY LENDING

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Probably every religion has prohibited usury. However, only Islam provides remedies to undermine the causes leading to this evil institution: Nobody willingly pays interest on borrowed money. He or she pays interest because the money is needed and there is no other choice.

Islam has made a very clear distinction between commercial gain and interest on money-lending: God permits trading and forbids interest (2:275) and

If you do not give up (interest), be warned of war against God and His Messenger. If you repent, you shall have your principal, (without interest); neither you wrong nor be wronged. (2:279)

The basis of this prohibition is also unilateral risk, for one who borrows money on interest earns money for the rich. In games of chance and lotteries, where there is a great temptation for quick and easy gain, circumstances may not have been propitious enough for the borrower to earn enough money to pay back the promised interest, and the lender assumes none of the risk involved.

People do not deprive themselves of their money in order to make interestfree loans to others. Since Islam tells the state to help those who are in financial difficulty, the public treasury organized interestfree loans in addition to, and to supplement, the loans offered by charitable people or organizations to help the poor and the needy. The principle here is mutual aid and cooperation.

In the case of commercial loans, there is the system of mudaraba, in which one lends money and participates equally in any potential gain or risk. For example, if two people form a company, each one furnishing half of the capital and labor, the resulting profit distribution is quite easy. However, if the capital comes from one party and the labor from the other, if both furnish the capital though only one of them works, or their shares are not proportionally equal, in such cases a reasonable remuneration for labor, based upon previously agreed conditions, is taken into consideration before distributing any gains and profit. Although all precautions are taken to prevent risk, Islam demands that both contracting parties to any contractual negotiation must share the profit as well as the loss.

To sum up, the principle of mutual participation in profits and risks must be observed in all commercial contracts.

 

Senturk, Omer Faruk. “Charity in Islam” Tughra Books Press. January 2007.