The converse of the same is also unjust, wherein the lender is entitled to only to a small fixed portion of the return even though the borrower would have made huge profits from his funds.
HALAL INVESTMENTOR
Invest the Right Way
WHAT IS INTEREST?
A simple definition of interest would be that, it is the price of money. And the factor that determines the price of money is time. So for the longer period money is lent the higher is the interest to be paid for it.
Sounds reasonable considering that all things have a price, so why should money be any different?
The difference is in the principle behind it. While modern economics considers money as a commodity and attaches a price to it based on the time period. Islamic economics doesn’t consider money as a commodity but only as a means of exchange to pay for goods and services.
But what makes it so bad?
Although the Quran does not explain the reasons for the prohibition of interest but there are some reasons attributed by Islamic scholars and economists, to highlight the ill affects of interest.
Even ancient philosophers like Aristotle and Plato have criticized interest.
The most commonly quoted reason is that interest is exploitative as the lender charges usurious rate of interest from the borrowers.
Another reason given is that since only rich can lend money and are able to charge interest from poor it makes the rich richer and the poor poorer.
Historically the exploitation of peasants and farmers has been well documented. Even today such practices continue in most of the poor and developing countries.
The issues aren’t just individual but when we look at the history of interest-based lending, we find that the imbalances it has created in the society have been widespread and real.
The proponents of interest may however, argue that the present commercial lending on interest is meant to be a mutually beneficial arrangement.
The borrower gets capital to invest in his business, whereas the lender gets a return on his capital. However, this as well is generally skewed in favour of the lender, who assumes almost no risk, whereas the borrower is at risk since he has to return the money with interest even if he has made no profit.
The ill effects of interest do not stop here. It has a cascading affect. The use of interest at every stage of production and delivery, results in an exponential increase in the cost of products of goods and services.
In conclusion , it would be reasonable to say that the reasons behind the prohibition of interest in its entirety are best known to Allah (swt), but as practicing Muslims and the fact that it is forbidden in Islam is reason enough for believers to give up and avoid this vice in its entirety to the greatest possible extent.
May Allah guide us and help us to overcome this hurdle and achieve a halal and prosperous sustenance.