Introduction to Islamic Banking & Finance and Rationale of Prohibition of Riba in Islam

This article provides an introduction to Islamic Banking & Finance and explains the rationale of the underlying principle of the exclusion of riba in the Islamic financial system. It discusses the various branches of Islamic Banking & Finance, the impact of the Islamic banking and finance sector on the global economy, and the prohibition of riba in Islam. The article also describes the negative impacts of Riba on society, the improper utilization of resources, and the exploitation of human values.

Commercial and Corporation law

TABLE OF CONTENTS
Commercial and Corporation law..............................................................................................1
Table of Contents.......................................................................................................................2
Introduction to Islamic Banking & Finance...............................................................................3
Introduction to Riba...................................................................................................................4
Rationale of prohibition of Riba in Islam..................................................................................5
Conclusion................................................................................................................................17
Bibliography.............................................................................................................................20

INTRODUCTION TO ISLAMIC BANKING & FINANCE
Islamic Banking & Finance is a system of raising capital and performing other banking and
financing activities, driven by the laws of Sharia, or Islam. It is mostly practised in the
Muslim countries, which strictly abide by the Islamic Law1. There are many branches of this
system, the most popular being Wadiah or safekeeping, Ijara or leasing, Mudarabah or
profit/loss sharing, and Musharaka or joint venture. Though initiated with the beginning of
Islam in the seventh century, Islamic finance came into prominence only in the 1960s when
the Gulf dominance demanded compliance with Sharia, worldwide.
The banking and financing sector significantly impacted by the current and strong desire of
the compliance of Shari’ah in many Islamic countries. The undertaking of the Islamic
banking and finance sector did not only impact the Islamic countries, but the effect of this can
be seen across the universe. The economic globalization requires coordination among the
world. Therefore, it is essential for the non-Islamic countries to absorb the commercial
transaction with the Islamic countries, otherwise, they have to face the economic
separateness. In the present era, Islamic countries achieved the economic reputation, and it
assists in to influence the economy of the other countries of the world, that were earlier not in
their control. The capitalist countries face difficulty because of the interest-free banking
system promoted by a regularly rising Islamic banking movement. Specifically, interest-free
banking and finance system is in the contrast of the principle of the normal banking system2.
Nevertheless, it is yet tremendously important for the feasibility of their specific economies
and the global economy, that the west understand how to integrate with their Islamic
complements economically.
1 MasudulAlam Choudhury, AB Rahman Asmak, and HasanAbul."Trade versus riba in
the Qurʾān with a critique of the role of bank-saving." (International Journal of Law and
Management 60.2 2018) Pp 701-716.
2 Zamir Iqbal, and Mirakhor Abbas."Ethical Dimensions of Islamic Economics and
Finance." Ethical Dimensions of Islamic Finance. (Palgrave Macmillan, Cham, 2017) Pp
103-134.

The goal can be gained only by considering the issue objectively and free from the
misunderstanding at the time of building the observation regarding the opinion of Islam3. The
essential viewpoint can be obtained by an actual understanding of Islam and its prevention
against the interest. Further, the history of the Islam, basis of the law that regulates the
prevention of interest, the basic objective of Islam, the different method of banking and
finance made by the Islamic banking movement assists in understanding this concept.
Moreover, the comparison of the objective between the Islamic countries and capitalist
countries also help to acquire a clear understanding.
This article describes the rationale of the underlying principle of the exclusion of riba in the
Islamic financial system.
INTRODUCTION TO RIBA
Any dealing in Islamic monetary system is dependent on justice and eliminates all
appearance of utilization throughout inequitable exchange for example riba. Riba can be
explained as add to (fall) capital rather in loans or in a replace of a product, accumulate to
the proprietor (lender) in lack of giving in return some equal counter value or reward (‘iwad)
to the other party.
Riba is a banned practice in Islam, which refers to charging interest on the amount lent. It has
been discussed at various places in the Qur’an, which condemns this concept. It is also
compared with “usury”, which means illegal exploitation by charging abnormal rates of
interest on the amount lent4.
3 Simona Franzoni and AsmaAitAllali. "Principles of Islamic Finance and Principles of
Corporate Social Responsibility: What Convergence?." (Sustainability 10.3 (2018) Pp
637.
4 Munawwaruzzaman Mahmud, Hisyam Hassan Muhammad, and
NurFathinKhairulAnuar."Bayʿwasalaf in Islamic banking current practices." (ISRA
International Journal of Islamic Finance 10.2 2018) Pp 206-224.

While there’s a clear condemnation of Riba in Islam, the exact scope remains controversial.
Though Muslims disagree to follow it in their lives, they are still unsure of what exactly it
means – whether it should be seen as a serious crime in Sharia, and hence stated haraam or
forbidden, or it should be simply looked upon as Makruh or a disgrace.
Though the common meaning of Riba is often referred to as unjust or undue advantage made
by lending sums of money, referred to as Riba-an-Nasiya, many Islamic scholars believe that
there’s more to it than what is normally believed. Hence, they have introduced a new
meaning to Riba – termed as Riba-al-Fadi – which refers to the simultaneous trading of
uneven quantities or qualities of a particular article or thing.
While there might be many forms in which Riba is understood, agreed, taught and spoken
about, there are a few common meanings dwelled by this concept, which are: -
 Illegal or unlawful increase in the amount to be repaid, whether in kind or
otherwise.
 A forceful attempt to extract a particular item.
 Inequality in the exchange process, where less amount is given for the article
obtained, or vice versa.
 Any excess charged over and above the amount originally lent.
RATIONALE OF PROHIBITION OF RIBA IN ISLAM
The concept of Riba has been condemned for many centuries. Some of the earliest warnings
against this concept can be found in Vedic Texts of India that date back to 1400 B.C. Besides
being rebuked in Islam, many other religions like Christianity and Judaism have agreed upon
the prohibition of the practice of charging interest. This practice is often looked upon as the
catalyst of the world’s destruction. It is considered to be an open invitation to Shaitan or the
devil, who draws his energy from the ill practices followed around the world.
While there is a strict prohibition on interest related practices in many religions including
Islam, there are still some communities within the religion that openly accept the concept of
Riba. They are usually cited as the enemies of the Prophet and are seen a parallel with those
who were the abusers of his hierarchy. In the modern-day culture, the various Islamic
preachers consider Riba as a destructor of one’s life, detaching one from all his glorious
possessions and rendering him “unfit to be lined up for heaven.”

The Dawoodi Bohra community – one of the most influential sects in Shia Islam – has been a
strong protestor of Riba5. The community largely resides in India and has been active in other
parts of the world primarily dwelling in Pakistan, Yemen and East Africa. The opposition
against Riba caught heat when the 52nd Da’i al-Mutlaq or the spiritual leader, Dr Sydena
Muhammad Burhanuddin, directed his preaching more and more towards the condemnation
and boycott of Riba. He sparked the “Total Riba Boycott Movement” in the late 1960s, after
His coronation to head the community. His preaching disapproved any form of interest and
related practices, opposing even the borrower, financer, arranger and distributor from the
channel. His gospels were heavily inspired by the teaching and beliefs of Prophet
Muhammad, who had always been against Riba, or interest-driven practices.
As Prophet Muhammad preached its disciples, “For every penny of Riba that a person earns,
he is committing adultery thirty-six times”, there are many such strong reasons for the
boycott of Riba in Islam. Some of them are presented here: -
Negatively Impacts the Society
Riba-based money lending has a history of exploitation. It has been cited as one of the major
reasons for the increasing poverty and is often considered as a catalyst of mayhem and
inhuman actions. One of the most prominent examples of Riba is payday loans, where the
poor are charged exorbitantly. The interest rates swell up to as big as 400% in a year, and
thrust the poor borrowers in a vicious circle of never-ending debt.
Riba arouses the capital to build up in only some hands pursuing the most important portion
of prosperity in the hands of hardly any that is going to be difficult for all of the others.
Islamic economic system permits to make revenue simply if the subject matter is bare to the
risk of loss. Furthermore in the conventional banking system for the most part of the plan is
borrowed by banks are not of their own6. However, the money of another person is lent to
5 Nafis Alam, Gupta Lokesh, and Shanmugam Bala. "Prohibition of Riba and Gharar in
Islamic banking." (Islamic Finance. Palgrave Macmillan, Cham, 2017) Pp 35-53.
6 Abul,Hassan and Mollah Sabur. "Just and Balanced: The Importance of Accounting in
Islamic Finance." (Islamic Finance. Palgrave Macmillan, Cham, 2018) Pp 275-283.

enhance the existing legal responsibility at a huge price, and it does not comprise funds
mobilization.
According to the grounding principle of Islamic economics that endorse sharing of capital
with accepted procedure, not like conventional ones that endorse to earn in case they have
capital simply. DrEjaad, PhD in Islamic Finance gives an explanation of the utilization of
wealth throughout interest back scheme. He describes that price of money doubles and
redoubles after all exact period of time and consequently this computation and scheme of
increase continue. Suppose, in a country named as A, through the bank a business invested
Rs100mn at the rate of 10% then with no rollover alternative the available funds to the
country is Rs110mn. What if, the bank who lends the funds to the person has made the
default? Therefore the bank that provides the finance to the general public is close to the
liquidation. On the other hand, it has been observed that it assist in making money over the
money in the country, since the possess Rs10mn extra because of interest and it can finance
this amount to another person at the interest rate. Therefore, the bank generates the interest
income on the interest income, which is not a fair system.
Riba not only gave the real monetary effect, the ethics and morals of the community also
significantly impacted by this and it is because of the collection of the money with the few
people7. It assists in generating the risk of the free holding of capital, by which the
unemployment, unequal distribution of the income, failure of business and many other areas
adversely impacted. Islam is regarded as the religion of harmony, maintain the justice in
every activity whereas such process adversely affects the mental state of the individual.
Improper Utilisation of Resources
Businesses powered by Riba-based financing suffer excess systematic risk and failures of
their business models8. This is because unlike normal business sponsorships, where the
7 Abdul Ghafar Ismail, BayuTaufiqPossumah, and Ali MohdAkilMuhamed. "What you
sell is what you lend? Revealing complexity of riba in loan contract." (European Journal
of Law and Economics 45.3 2018) Pp 591-609.
8 Matthew Clarke and Tittensor David. Islam and development: Exploring the invisible
aid economy. (Routledge, 2016).

lenders are concerned with the progress and growth of the business, the Riba-based lenders
are always in the eagerness to get their money back wrapped in interest. This way, the entire
purpose of business gets defeated. The most productive business operations get neglected,
and the focus is switched to the repayment of interest.
One of the major concerns of Riba based financing is that it helps slow down the business
expansions, rendering deep cracks in the system. It often leads to the creation of a heavy debt
on the promoters of the business, thus dragging them into bankruptcy and indebtedness. It has
been often argued by many business experts across the globe that organic funding – which
involves deploying pure profits into the business – is the best way to nourish and grow the
business. It is further stated that self-funded businesses have about 27% more chances of
coming up as a successful venture, rather than those powered by charged debt.
It is one of the common beliefs amongst the protestors of Riba, as supported by many
international monetary agencies that the amount paid in the form of interest could otherwise
be used to more profitable avenues9. The funds blocked in the interest cycle do not get much
room to expand, hence are rendered underemployed or unutilised. This way, many potential
businesses are left unattended that could have otherwise been used to promote the global
economy10.
It cannot be predicted that the how much return will be generated from the money given on
the investment and commercial purpose and even there is a possibility that it may suffer from
the losses. Therefore it is not fair to impose the rate of interest on the investment on which
the rate of return cannot be ascertained, which is ethically not justified. The financer should
share the risk of loss and profit if he/she wants to generate the profit.
Exploitation of Human Values
9 Muhammad Hanif. "Economic substance or legal form: An evaluation of Islamic
finance practice." (International Journal of Islamic and Middle Eastern Finance and
Management 9.2 2016) Pp 277-295.
10 Eu Chye Tan. "Book Review-Islamic Finance Principles and Practice." (Institutions
and Economies 2017) Pp 239-241.

Many Islamic jurists believe that Riba assassinates the foundation of humanity. They
consider this concept as interference with natural human values, which bears the extracts of
gluttony, selfishness, and insensitivity. The lender is described as a disciple of Shaitan or
Satan, as his only motive is to torment and disembowel the borrower, without having any
concern for his situation.
A common example of such situations is when the banks offer interest-driven loans to people,
say for buying houses. If the borrower defaults in paying the interest, though he has paid the
full principal amount, he’ll have to relinquish his possession of the house even if he has to
live at rock-bottom.
The condemnation of Riba can be further understood by scanning how the banks operate.
Banks earn the majority of their income by lending money on interest. While the terms are
paved in such a way that there’s regular repayment of the debt along with interest, seeing the
payment go dishonoured is a common phenomenon. This is because the interest rates
imposed tend to be very high, which makes it almost impossible for the borrower to honour
his debt. Hence, the banks’ debtors keep on piling up without a steady inflow of income back
to them. This creates a humungous debt pool, and thus renders the economy crippled and
dented. It further partakes in increasing the unemployment, as Riba eats up a major chunk of
the businesses’ profits which render them incapable of paying for new jobs.
Considered to be a Slow Suicide
Besides the Islamic scholars and jurists, it is a common belief amongst the spiritual Gurus
that Riba or interest is a synonym to suicide. It has been termed as a sure path to self-
destruction, where one loses consciousness and the intellect to judge situations. In some
cases, Riba has even been referred to as “eating the flesh of one’s own brother’s body”. In
view of these strong statements, many people find it baneful to charge or give any sum in
pursuit of money.
It is further observed that dealing in Riba or interest creates a cobweb of problems, which
becomes impossible to get through11. It has been often a case where people who had some
11 Ehsanullah Agha Syed and Omar. Mustafa "Hiyal in Islamic finance: a recognition of
genuine economic need or circumvention of Riba?." (Qualitative Research in Financial
Markets 9.4 2017) Pp 382-390.

sort of interest oriented debt responsibilities were more prone to hit an economic depression
than those who didn’t have any pending repayments.
Provokes a Doomed Economy
Riba-oriented activities are often looked upon as the catalyst of an economic depression.
They are cited as one of the primary reasons for increasing debt traps and are blamed for poor
chances of debt repayments. One of the common examples of such a situation is that of a
mortgaged house. While it is often a debatable topic where the interest cost is taken on par
with rent, there are some strong alibis that disapprove Riba-based financing.
A simple way to understand why rent is better than the mortgage that involves Riba is to
analyse the overall cost of housing till maturity. Under mortgage, the borrower has to pay
interest for a considerable period of time which adds to his cost. Once relieved of the debt, he
has to look for a buyer that could pay him at least what he spent over the years. If the buyer
initiates a mortgage plan, then he contributes in aggravating the prices since he too would be
paying interest. This circle continues, and the price for the same house keeps climbing.
Hence, finding accommodation becomes more and more expensive with time, leaving the
economy to struggle to level up.
The bankruptcy of the Lehman Brother is a classic case of a doomed economic situation,
triggered by deep involvement in mortgaged activities. Cited as the “largest bankruptcy on
the American soil”, it was a catalyst in bringing the one-day halt in the Dow Jones Industrial
Average – a United States stock market index that depicts the value of 30 giant, established
and publically trading company, and how they are dealt with on the stock market. This index
experienced a massive drop of 4.5%, which is the greatest and most devastating decline since
the attacks of September 200112. The Lehman Brothers lost a whopping $600 billion worth of
assets, the effects of which can still be seen today. As a result of this depression, many
countries were thrown into a debt pit, and are yet unable to recover from the downfall.
It is precisely evidenced by the known economist including Weitzman about inflation and
unemployment with aspect to the impact of the interest rates. Cost of production directly
12 Matthew Clarke and Tittensor David. "Riba-Free Finance and Zakat-Induced
Economic Aid: The Political Economy of Two Developmental Initiatives in the Muslim
World." (Islam and Development. Routledge, 2016) Pp 96-116.

impacted by the rate of interest as if the interest rate high and consequently there is an
increase in the cost of production and vice versa. Therefore for the reduction of the cost of
labour, workers cut dawn thus, unemployment increases. On the other hand, the investor
increases the price of the product because of the high-interest rate by which the marginal cost
of the product can be recovered, by which the cost-push inflation happen.
As against this, if the interest rate decreased then, investors go for the capital intensive
technique, which replaces the labour with the great machinery items. At present, it is
evidenced that inflation does occur as earlier it was not delivered. Further, inflation and
unemployment can coincide, and economist has advocated that only by the profit sharing
technique the problem of inflation can be addressed.
Encourages Negative Impact on Growth
While Riba is cited hideous for the borrowers, it is equally devastating for the lenders. It
might appear a little odd, as this theory runs in contradiction with the common belief of
becoming rich by unlocking the compounding effect13. Though with time the interest amount
keeps on increasing, it shall be noted that there’s a surge on paper and not in reality. There’s
no hard cash that gets accumulated in a pile. Instead, the piling up of interest might render the
economy unstable, as there’s an unequal distribution of wealth due to the continuous decrease
in the repayments.
Popular Belief in Islam
It is against the wish of Prophet Muhammad to exercise the practice of Riba. According to
Him, every person, whether he is the receiver or payer of the interest, whether he is the one
who keeps track of such transactions or even a man who witnesses such dealings shall be
cursed and will be punished by Allah. He added that those who deal in interest (Riba), will
not have the same stature on the judgement day. They’ll be looked upon as the defaulters, and
will be punished by the rain of fire.
Further, the prohibition of Riba is discussed at four different revelations in the Qur’an. In the
first revelation, it has been stated that Riba deprives a man from Allah’s blessings. It kills his
13 Jean-Yves Moisseron, Moschetto Bruno-Laurent and Teulon Frederic. "Islamic
finance: a review of the literature." (The International Business & Economics Research
Journal (Online) 14.5 2015) Pp 745.

spiritual being and renders him soulless. The second revelation censures interest, placing it at
par with bluffing and unlawful acquisition of other’s property. It has been cited as an example
of stealing and is grouped with haraam or banned practices in Islam, like consuming alcohol
and pork.
The next two revelations discuss the direct impact of Riba on the personal life of a man. In
the third revelation, Muslims have been cautioned to give up interest for their own health and
prosperity. It warns them that dealing in interest is inviting illness and maladies, which may
continue for generations till the lasting of the wrongful income14. The fourth revelation tell-
tales the difference between interest and trading, convincing Muslims only to take the
principal and relinquish what is earned in interest.
It is even narrated in the Qur’an that those who disobey the rules of Riba are at direct war
with Allah and His Prophet. They will not be borne by Allah in their afterlife and will be
punished till eternity for their disapproving behaviour15.
The Contribution of Riba in Negative Growth
It has been a long debated topic whether Riba or interest has any contribution in decelerating
the growth of the global economy. While there have been lots of ifs and buts in the argument,
there are some strong alibis that distil the confusion and present an argument inclined more
on the negative end. Here are some of the most commonly believed side effects of Riba –
 Impact on the Cost and Returns of Bonds
The price and returns of a bond are both inversely proportional to market interest rates or
yield cycles. As the interest rates start climbing, the cost and the rewards of the bond
plummet down16. The degree to which the price and the results of a bond may be
impacted is dependent on the intensity with which the yields change. Besides, the
14 M. Kabir Hassan. "The Global Financial Crisis and Islamic Finance." (Available at
SSRN 3263920 2018).
15 Dennis Olson, and Zoubi Taisier. "Convergence in bank performance for commercial
and Islamic banks during and after the Global Financial Crisis." (The Quarterly Review
of Economics and Finance 65 2017) Pp 71-87.

individual features of a bond, such as the maturity period, also dwell an important bearing
on the bond price and its likely outcome17. Since the opportunity cost of the investments
tends to be more than what might be yielded from the bonds, it is a loss-making venture
that negatively impacts the productivity of money18.
 Higher Borrowing Cost
Riba drove borrowing, though in popular use, is often placed at the end of the list of
possible funding options19. This is done in the honour of a very basic reason – the
increased cost of borrowing. When in its initial stage, a business is in high demand of
capital from the market to run its preliminary operations and achieve breakeven20. Though
the capital can be borrowed easily, the aftermath is what makes the process dreadful. It
forces the borrower to pay much higher than what he initially applied for his business,
16 Md Akther Uddin. "Principles of Islamic Finance: Prohibition of Riba, Gharar and
Maysir." (2015).
17 Daromir Rudnyckyj. "7 Assembling Islam and Liberalism: Market Freedom and the
Moral Project of Islamic Finance." (Religion and the Morality of the Market 2017) Pp
160.
18 Buerhan Saiti, Ismath Bacha Obiyathulla and Masih Mansur. "Testing the conventional
and Islamic financial market contagion: evidence from wavelet analysis." (Emerging
Markets Finance and Trade 52.8 2016) Pp 1832-1849.
19 M. S Shabbir, Ghazi M. S. and Akhtar T. "The Relationship between Traditional as
well as Modern Modes of Financial Instruments for International Market through Islamic
Finance." (The Journal of Internet Banking and Commerce 21.1 2016).
20 Nafis Alam, Gupta Lokesh and Shanmugam Bala. "Islamic Capital Market." (Islamic
Finance. Palgrave Macmillan, Cham, 2017) Pp 397-429.

thus pushing him hard to compromise on many important business operations that could
have otherwise garnered a huge wealth21.
An example of such borrowings is that funded by financial intuitions or investment
companies. Suppose, a person takes a loan of $1 million for 10 years at an interest rate of
say 7% Then by maturity he would have to pay $1 million in addition to the annual
interest charges, which are going to be significantly high22. This ultimately pushes the
borrowing cost upwards, rendering many top entrepreneurship ventures in a bottleneck
situation in the initial stage itself23.
 Enhances Business Risks
As seen earlier, Riba driven finances push the businesses into a debt trap. However, the
predicament doesn’t end here. Besides inflating the cost of borrowing, it also leads to an
aggravated risk situation24. The businesses that are funded by mortgaged debt often find it
difficult to balance their income with the fixed charge, which they have to pay
periodically25. As a result, there is a continuous scarcity of capital that leads to serious
21 Syammon Jaffar, Abdullah Adam and Kameel Mydin Meera Ahamed. "Fiat money:
from the current Islamic finance scholars’ perspective." (Humanomics 33.3 2017) Pp
274-299.
22 Abul Hassan and Mollah Sabur. "Bigger Than the Bottom Line: Islamic Principles of
Accounting." (Islamic Finance. Palgrave Macmillan, Cham, 2018) Pp 285-293.
23 Mahadi Ahmad. "Cash waqf: Historical evolution, nature and role as an alternative to
riba-based financing for the grass root." (Journal of Islamic Finance 4.1 2015) Pp 63-74.
24 Saïda Daly and Frikha Mohamed. "Islamic Finance: Basic Principles and Contributions
in Financing Economic." (Journal of the Knowledge Economy 7.2 2016) Pp 496-512.
25 Syed M Naqvi, Abbas Kausar and Ahmad Adeel. "Riba Free Loan in Islamic Finance:
Key to Social Development and Welfare." (European Online Journal of Natural and
Social Sciences 5.2 2016) Pp 559.

deprivation of growth. This, in turn, increases the drift towards insolvency and threatens
the closure of the business26. As a result, the domestic, as well as global trade industry, is
hurt, sometimes to the extent of no recovery.
 Encourages Inflation and Hyperinflation
Lending money on interest is often cited as one of the key reasons for the increasing
inflation across the world. In the quest of earning the interest, the lenders keep feeding the
market with huge sums of money to its brim27. This, in turn, leads to a situation of
oversupply, which quakes the economic system from within. Most top economists and
financial experts agree to the fact that there should be a regulated supply of money into
the market, in order to save the economy from slipping into hyperinflation28. The excess
stashing of mortgaged debt mixed with poor governmental control is the perfect recipe for
disaster29. This, in turn, could lead to a financial eclipse, which might stay long enough to
wipe out half the world’s economy in a few years. Since one-third of the world’s
26 Ahmad Fahmi Sheikh Hassan, et al. "REPORTING ASSURANCE FOR RELIGIOUS
COMPLIANCE IN ISLAMIC BANKS: ARE WE THERE YET?." (International
Journal of Applied Business and Economic Research 14.3 2016) Pp 1465-1479.
27 Nafis Alam, Gupta Lokesh, and BalaShanmugam."Prohibition of Riba and Gharar in
Islamic banking." Islamic Finance. (Palgrave Macmillan, Cham, 2017) Pp 35-53.
28 Abbas Said Abubakar and Aduda Josiah. "Islamic Banking and Investment Financing:
A Case of Islamic Banking in Kenya." (International Journal of Finance 2.1 2017) Pp
66-87.
29 Florian Leon, and eillLaurent W."Islamic banking development and access to
credit."( Pacific-Basin Finance Journal 52 2018) Pp 54-69

population is already sitting on the verge of becoming hand-to-mouth, any further
financial crunch may render the case hopeless for all30.
 Chisels a Hole in the Savings
Riba is infamous for its direct attack on a person’s savings. Most people plan a safe
retirement with their savings31. They desire to secure their future with whatever little they
save from their income while they are working. But, allured by the “free” interest
payments on their money, they tend to invest their savings in avenues driven by the
principle of Riba32. Though tempting at first, the results are seldom fruitful and never
carry a firm guarantee. Further, the investment options like mutual funds are at direct
contact with the market risks which heavily impact the value invested. It is a two-way
sword, as when the market gets a hike the cost of fresh investment rises, and when the
market plummets down the invested value gets doomed. As a result, many people lose
their life’s savings and are pushed to the extent of taking desperate measures which may
even threaten their lives33.
30 Sirajo Aliyu, et al. "Islamic banking sustainability: A review of literature and
directions for future research." (Emerging Markets Finance and Trade 53.2 2017) Pp
440-470.
31 Farhat Naz Rahman,. "Theory of Islamic Financial System and Economic
growth." (JOURNAL OF CREATIVE WRITING| ISSN 2410-6259 3.01 2017) Pp 66-82.
32 EtemHakan Ergeç, , and Gülümser Kaytancı Bengül. "Effects of Islamic Banking on
Employment: Turkish Experience." (Handbook of Research on Unemployment and
Labor Market Sustainability in the Era of Globalization.IGI Global, 2017) Pp 235-254.
33 Azura Othman, et al. "Islamic Finance, Risk Sharing, and Macroeconomic
Policies." (Macroeconomic Policy and Islamic Finance in Malaysia. Palgrave
Macmillan, New York, 2017) Pp 53-76.

CONCLUSION
The present study shows that Islamic finance is extremely embedded in religion. The
principle under which it functions is deeply influenced by the Islamic teachings as well as the
religious prohibition of riba. Although, the prohibition of the interest is not specific to Islam
and it is for everyone, as it is also eliminated from the other main religions. It is because;
presently, capitalism is controlling the concept of economy. It is very important to understand
not only the religious reason but also the corporate, social and economic impact, in order for
Islamic finance not to comply in the same manner. From the social viewpoint, application of
debt and subsequently interest as a technique which leads towards the more personal
insolvency, and the addition of the lending practices decrease the social and individual
prosperity34. An individual has not protected from the money lending state laws. On the other
hand, Islam motivates the reorganization of wealth by Zakat. It assists in motivating every
member of the society for participating in the good fairness of the member and mitigating the
requirement to the possibility of the debt, evading its negative impacts.
The main cause why every religion made the cruel wording against the Riba as well as for
interest is that every religion desire to set up an economic system, which leads to the
elimination of all the types of injustice and mistreatment35. All the religion, specifically
Islam, do not permit for the injustice in the arrangement of financer being sure of the
confident return without conducting any work and suffering from risk, on the other hand, the
business person instead of his management and hard work is not sure about the return. The
objective of Islam is implementing the fairness between the financer and businessperson.
34 Paresh Kumar Narayan and Hoang Bach Phan Dinh. "A survey of Islamic banking and
finance literature: Issues, challenges and future directions."( Pacific-Basin Finance
Journal 2017).
35 M. Kabir Hassan, SirajoAliyu and Brodmann Jennifer."An introduction to Islamic
banking and finance." The Most Important Concepts in Finance.(Edward Elgar
Publishing, 2017).

The intention of the Quranic prohibition of Riba at mitigating misuse, harassment and
disparity36. On the basis of this, it has been concluded that there are sufficient evidence and
justification for the prohibition of interest, which uniform the mind of human and gazes at
impartial mind after relieving from the already established system. The truth, however,
residue viewpoint strictly that the prohibition of Riba, does not depend on the economic
viewpoint only; it has been designed by the immense inventor in all his understanding as a
performance of fairness37. In prohibiting Riba, and authorizing profit and loss, Sharia has
established many kinds of financing. After considering the above analysis, it is challenging to
to support the concept of interest in the community, particularly in the Islamic community.
36 Husam-AldinNizar Al-Malkawi, and RekhaPillai."Analyzing financial performance by
integrating conventional governance mechanisms into the GCC Islamic banking
framework."( Managerial Finance 44.5 2018) Pp 604-623.
37 Allen N Berger, et al. "Liquidity Creation and Financial Stability Implications of
Islamic Banking: Evidence from a Multinational Study." (KFUPM Islamic Banking and
Finance Research Conference, Dhahran. 2017).

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