Chapter 11
In the Name of God, Most Gracious, Most Merciful
USURY & INTEREST
[Quran 2:275] Those who charge usury are in the same position as those
controlled by the devil's influence. This is because they claim that usury is
the same as commerce. However, God permits commerce, and prohibits usury. Thus,
whoever heeds this commandment from his Lord, and refrains from usury, he may
keep his past earnings, and his judgment rests with God. As for those who
persist in usury, they incur Hell, wherein they abide forever
The Quran forbids usury, not interest. Quite a few states in USA have laws
against usury. Usury is defined as excessive interest. A Dictionary defines
usury as "an excessive or inordinate premium for the use of money
borrowed", "extortionate interest", or "the practice of
taking exorbitant or excessive interest." The Arabic language also makes
distinction between interest (Fa'eda) and usury (Reba). The Quran forbids Reba
or usury.
Earning interest and paying interest is perfectly acceptable, as the Quran
has not prohibited interest. Interest is an essential component of the
financial aspect of an individual or an organization. Individuals may need to
save money in a bank, may carry a credit card for convenience, or may borrow
and pay interest for an automobile or to own a house. Borrowing money and thus
paying interest for business loans is an essential component for business and
organizations. Thus paying interest, as long as it is not considered excessive
by the standard of the day and community, to a credit card company, to a
financial institution for a loan of any kind (business, car, house mortgage) is
allowed and perfectly legal from a Quranic point of view. Also earning interest
from a financial institution like a bank or bonds or mutual fund is also fine.
As defined above usury is excessive interest. Unlicensed or illegal
moneylenders (mafia as a well known example) charge usury, excessive interest.
Such unlicensed or illegal moneylenders are all over the world and can easily
be accessed by a few inquiries. For those who live in USA, any individual can
find out about these moneylenders by asking about them within their ethnic
business community. These illegal moneylenders have entirely separate standards
for making loans - they charge excessive interest (usury) and usually rely on
someone's life (guarantor) as collateral. The Quran forbids in dealing with
usury - borrowing money and paying usury or earning money by charging usury.
The Quran specifically states that 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.
In practical terms as long as we are dealing with any state-licensed
institution like a bank, Mortgage Company, Credit Card Company, etc., 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. However, if we deal with the illegal moneylenders who practice
usury, we are in violation of clear Quranic commandments. This is not to say
that one may not borrow or lend money to a friend or relative and even charge
interest. Such transaction must be in writing as the Quran cleary commands in
verse 2:282 and may involve interest, 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.
[Quran 2:282] O you who believe, when you transact a loan for any period,
you shall write it down. An impartial scribe shall do the writing. No scribe
shall refuse to perform this service, according to God's teachings. He shall
write, while the debtor dictates the terms. He shall observe God his Lord and
never cheat. If the debtor is mentally incapable, or helpless, or cannot
dictate, his guardian shall dictate equitably. Two men shall serve as
witnesses; if not two men, then a man and two women whose testimony is acceptable
to all. Thus, if one woman becomes biased, the other will remind her. It is the
obligation of the witnesses to testify when called upon to do so. Do not tire
of writing the details, no matter how long, including the time of repayment.
This is equitable in the sight of God, assures better witnessing, and
eliminates any doubts you may have. Business transactions that you execute on
the spot need not be recorded, but have them witnessed. No scribe or witness
shall be harmed on account of his services. If you harm them, it would be
wickedness on your part. You shall observe God, and God will teach you. God is
Omniscient.
A note should be made that the Quran, which spells out religious laws for
our great religion, removes the shackles and burdens imposed on us by the
ignorant scholars and religious leaders. Most of the "Muslim"
countries have various laws against interest and have sham "interest-free
banking" reflecting their ignorance of this simple Quranic truth.
Unfortunately, quite a few of those who call themselves Muslims fall victims to
the falsehood spread by these religious leaders.
[Quran 2:276-280] God condemns usury, and blesses charities. God dislikes
every disbeliever, guilty. O you who believe, you shall observe God and refrain
from all kinds of usury, if you are believers. If you do not, then expect a war
from God and His messenger. But if you repent, you may keep your capitals,
without inflicting injustice, or incurring injustice. If the debtor is unable
to pay, wait for a better time. If you give up the loan as a charity, it would
be better for you, if you only knew.
[Quran 3:130] O you who believe, you shall not take usury, compounded over
and over. Observe God, that you may succeed.
[Quran 4:161] And for practicing usury, which was forbidden, and for
consuming the people's money illicitly. We have prepared for the disbelievers
among them painful retribution.
[Quran 30:39] The usury that is practiced to increase some people's wealth,
does not gain anything at God. But if you give to charity, seeking God's
pleasure, these are the ones who receive their reward manifold.
[Quran 7:157] "(4) follow the messenger, the gentile prophet
(Muhammad), whom they find written in their Torah and Gospel. He exhorts them
to be righteous, enjoins them from evil, allows for them all good food, and
prohibits that which is bad, and unloads the burdens and the shackles imposed
upon them. Those who believe in him, respect him, support him, and follow
the light that came with him are the successful ones."
