The question on why riba is prohibited is often raised by some who wonder how something that is now so prevalent in the world's economy can be prohibited.For some, the answer to your question can be as simple as "because God said so in the Quran", but for others, an analysis of why it is prohibited needs to be done.What is riba anyway?First, we have to define what riba is. See in the following diagram - the borrowers intake loan and repayment liabilities at the end of the first year:It is very simple and clear that at the end of the first year, a combined sum of Dirhams 110,000 is due on all borrowers to repay to the loaning bank.But the money available in the economy is only Dirhams 100,000 as the bank is only supplier of money, so from where the rest 10,000 would come that is the difference in the borrowers intake and total repayment amount...... from NOWHERE. Resources on Islamic Investment, Banking, Finance and InsuranceInterest today falls under both definitions.Why is riba prohibited?Apart from the clear Quranic injunction on the prohibition of riba, there are other issues with riba which cause it to be prohibited.It is considered a form of injustice, and exploitation.
Since the Qur’an is the undisputed source of guidance in Islam, there is unanimous agreement on the fact that Islam has forbidden the practice of riba. This artificial scarcity of money is the root cause of people's problems from hard struggle for surviving to the loss of happiness from their lives.In a Riba (interest) based system, people are not aware of this foul play - borrowers think that they will manage to repay the principal plus Riba (interest) as they think it would be coming from some where else, but the fact is - every borrower would be in battle with others where some borrowers have to lose in order for others to win, some would fail to pay their loans in order for others to get the sum they need to pay off the Riba (Interest).
As regards the effect of Riba (interest) on the national economy, it has dangerous effects and bad consequences on the economy. We will limit ourselves here to two disastrous effects of Riba on the national economies both …
Why Riba Islamic Finance is Prohibited? The facts are:As all the banks are creating money and supplying in to the economy on interest and without any doubt all of them are practicing the same technique, so let us consider there is only one bank in our example that creates some money and supply in to the people's economy.Suppose Bank XYZ creates Dirhams 100,000 and supplies it at an interest rate of 10% per annum to several entrepreneurs and governmental units active in the economy, remember there is no money available in the economy from any other source. It is worth to present an example to start with the subject, a factual example from existing interest based banking methodology that is valid and current, which can be well understood by a common person. Islamic economy in contrast is asset-based, and does risk sharing.
This is unfair and against the nature, so ALLAH (SWT) banned Riba (interest, usury) very strictly to stop this criminal action.Nature is the Limit in Islam; any thing not natural is prohibited, stopped, and declared illegal. The bank has taken substantial collateral or guarantee as security of its money from each borrower. One should consider the following facts before going through the example. Riba is a concept in Islam that refers broadly to the concept of, growth, increasing or exceeding. Moreover, conventional economy today is debt-based, and only does risk transfer. The above economic reasons are the only base for the prohibition of Riba, ALLAH (SWT) has allowed everything that is natural but given its strict judgment to stop any behavior, agreement, and practice that is not natural. Prohibited in Many Ahadith (sayings). There is complete unanimity among all Islamic schools of thought regarding the prohibition of riba.
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