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The Prohibition of Interest and its Effect on the Distribution of Wealth

As the foregoing discussion has made clear, one of the basic differences between the Islâmic system and the Capitalist system with regard to the distribution of wealth is that Capitalism allows interest, while Islâm forbids it. Now, it would be proper to have a cursory glance at another aspect of the problem too - what are the consequences that follow from the interdiction placed upon interest?

In fact, the prohibition of interest has very far-reaching, beneficial, and pro­found effects on the whole system of the production of wealth itself. But this discussion would lead us far beyond the subject of this article. So, for the moment, we shall only summarily indicate the effects which Islâmic injunctions do have on the system of the distribution of wealth. A very simple consequence of the prohibition of interest is that it produces a balance and uniformity in the distribution of wealth. The necessary characteristic of the economy based on interest is that the profit of one of the parties (i.e., Capital) is assured in a fixed form under all circumstances, but, contrarily, the profit of the other party (i.e. Labor) remains uncertain and doubtful. Big commercial enterprises, no matter how profitable they become, can never be considered immune from risk. In fact, while the “risks” of big business have been decreased because the means of production are available in an adequate measure, they have at the same time been increased by certain external factors. The bigger is the enterprise, the greater these risks are. So, under the Capitalist economy, the balance of the distribution of wealth becomes very unsteady. Sometimes the debtor has to bear severe loss, while the creditor goes on minting money. Sometimes, on the other hand, the entrepreneur earns a huge profit, while the man who has provided the capital gets only an insignificant share from it.

Contrary to it, since Islâm prohibits interest, it would in practice allow only two forms of investing capital in the modern world- “Partnership” ( ) and “Cooperation” ( ). Both these forms are completely free from this injustice and imbalance in the distribution of wealth. Under these two forms of investment, if there is a loss, it has to be borne by both the parties, and if there is a profit, both have a proportionate share in it. This mode of investment to a great extent serves as an effective check on the concentration of wealth, which is the greatest evil of the Capitalist economy. Wealth, instead of becoming accumulated in the hands of a few, is so distributed over a very large number of individuals in the society that no injustice is done to anyone. Under the Capitalist system, economy being based on interest, Capitalists come not only to own the greater part of national wealth, but also to control the whole market and to run it in their own selfish interest. As a result of this, the system of “the supply of commodities” and that of “prices” can no longer function in a natural manner, but becomes artificial in so nefarious a way that no sphere of life, from economy, manners and morals to politics, can escape its evil influences.

By prohibiting interest, Islâm has struck at the very root of these evils. Under the Islâmic system, every one who invests his money has a share in the enterprise and its policy, bears the responsibility of profit and loss both, and thus he is no longer allowed to have his own way in business.


A Doubt and its Clarification

It is necessary to clarify a doubt that may arise here. In discussing the evils of the economy based on interest, we have said that it produces an imbalance in the distribution of wealth, and that one of the two parties in a business enterprise is necessarily affected by it. Some people are quite likely to raise the objection that the man who suffers a loss in a transaction based on interest, suffers it through his own choice - if he deliberately exposes himself to such risk, why should the law of the Shari’ah interfere with his right to do so?

Even a little reflection would easily solve this problem. A slight acquaintance with the Islâmic way of life should be sufficient to bring out the principle that, according to Islâm, the mutual consent of two parties does not always justify a certain transaction. If a man is willing to get murdered by another man, this fact would not absolve the murderer of his crime. Even in the case of fornication, which the West in its shortsightedness considers to be a private affair of the individual, mutual consent of the two parties cannot absolve the criminals. The question of the distribution of wealth and economic welfare goes much beyond this. We have already explained, with due quotations from the Holy Qur’ân, that wealth is in principle the property of Allâh Himself, and that the ownership He has bestowed upon man is, far from being unconditional and unbridled, subject to certain principles laid down by Allâh Himself. That is the reason Islâm does not allow the mutual consent of the parties concerned to be treated as a justification for a transaction which Islâm regards as intrinsically unjust or which can prove to be detrimental to the collective welfare of society. This is the raison d’ętre behind the strong prohibition, in the tradition of the Holy Prophet ( ), of  (buying grain from the caravans coming from the country-side before they reach a town), of  (buying goods brought from the country-side through a middle man in the days of famine), of  (exchanging grain that is yet in the ears for grain that has already been harvested), of  (exchanging fruits on a tree for plucked fruits), and of   (taking a fixed amount of grain from the harvest of a land given on lease), inspite of their being based on the mutual agreement of the parties involved. Hence, the mere fact that the parties involved have agreed upon it, cannot serve as a valid justification for a transaction based on interest.

In the early days of Islâm, the objection which people bred in the pre-Islâmic ways generally raised against the prohibition of interest was this:


“Trade is exactly like interest.”


The Holy Qur’ân refutes this argument in a concise phrase:


“And Allâh has permitted trade, and forbidden interest.”


It is worth noticing here that, in refuting this objection, Allâh the Exalted has not enunciated any principle or purpose of the prohibition of interest, but has, so to say, simply indicated that since Allâh has declared trade lawful and interest unlawful, one shall have to abide by this commandment, whether one understands its raison d’ętre or not. Instead of elucidating the justifying principles in this place, the Holy Qur’ân has adopted the mode of authority, which cuts off the very root of all objections to the prohibition of interest.

In short, the prohibition of interest by Islâm is the wisest solution of the problem which, on the one hand, eliminates many evils of the Capitalist economy, and, on the other, leaves no need for the adoption of the tyrannical and unnatural economic system of Socialism. This is the middle way which alone can save the modern world from the two extremes of license and servitude, and lead it towards a balanced and equitable economic system. The French orientalist Louis Massignon has said something very pertinent on this point: -

“In the conflict between Capitalism and Socialism, only that culture can be assured of a secure and bright future which not only prohibits interest but also makes people abide by this prohibition.”[1]


[1] .


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Last modified 08/12/05 09:25 AM - Iqra - ISSN #1062-2756