Why is interest such a bad thing? And is this forbiddance still relevant in the modern age? [duplicate]

Question

I know this has been asked a LOT of times, but mine is slightly different (I believe). First of all, a little background about myself: Not a Muslim, probably somewhere between agnosticism, Christianity, and atheism. I live in a multiracial society though, and a recently-made Muslim friend has piqued my interest in religion.

1. Why is interest such a bad thing? I tried searching this on Google, most explanations simply state "because it is forbidden in the Quran" which in my opinion (no offense intended) is not really much of an explanation. From my understanding, it's because it allows wealth to accrue in the minority rich elite while exploiting the majority. So simply put, it's forbidden on the basis of equality.

   a. In this case, shouldn't it be beneficial for the majority to receive interest from savings accounts and the like? Wouldn't the interest promote equality by awarding wealth to the majority?

   b. Furthermore, banks and customers have a mutually-beneficial relationship. Banks safe-keep the money of individuals and provide convenience (ATMs, online banking, etc.), while they invest or provide loans using the funds deposited by individuals. On the basis of equality, shouldn't interest be encouraged so as to share the profits of the bank with the people who made it possible in the first place?

2. Isn't interest an effective mechanism in allocating resources in an economy? Corporations issue bonds to raise funds for activities like research and development. At any point, it's a fair assumption that the demand for money is higher than its supply.

   a. Without interest, why would anyone want to lend money to corporations who may well generate large profits subsequently without receiving anything in return? Yet they take on the risk of loan default should the corporation fail or go bankrupt. From a mathematical standpoint, expected value is negative. And if there is no investment in an economy, progress and development will be stunted. Think about modern innovations like the mobile phone, personal computer, self-driving cars, etc. They all require extensive research and development that is only possible with investments.

   b. Even assuming that people are generally willing to provide loans out of goodwill, what would decide where funds are allocated to? Interest is generally an effective mechanism in resource allocation - ventures that are expected to be more productive will pay out higher interest and thus attract more funding. As a whole, interest can be said to maximize the productivity of an economy by allocating resources (funds) to their most productive uses. In such a case, having interest can produce a win-win - the lender receives interest (a compensation for the "renting" of his money), while the borrowing company generates value for society at large (e.g. through technological innovations that increase the efficiency of a process such that the same amount of raw materials can produce more goods and services).

3. Without interest, wouldn't inflation be a silent killer?

   a. On a basis of equality, if I lend you a sum of money (e.g. $10,000) out of goodwill without any for-profit motivations, I should be returned the same sum in real value. With inflation, however, I'd receive the same nominal amount but less in real terms. So, equality-wise, shouldn't all loans carry an interest rate that matches inflation? This will ensure that in every loan transaction, there is no "winner" or "loser". Otherwise, the loan-taker would be "profiting" at the expense of the lender. I tried searching this on Google; again, hardly any decent answers.

   b. Why is interest forbidden if it helps to protect against inflation? I'm referring to interest on savings account. In fact, they are generally much lower than inflation (I invest my money in stocks to protect against inflation), which means that without interest, the average individual will have the value of his savings halved in 24 years (assuming a very modest 3% annual inflation).

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Overall, I agree that the basis for forbidding interest may be sound in the past when economies aren't quite as developed. However, considering the context of today's modern economies, is the forbiddance of interest still justified and relevant, and if so, why?

Answer 1

It takes away love/kindness from people.

People should be lending money to others because they love/like/want to help that other person, not because they want to gain something in return or that they don't want to lose anything in the process of helping!

We should do well because

Because reward is to be given by Allah, and not by the interest I get from Ribha I should do well, because I like that person, not because I want something in return. See what Banks do in the west... the moment that you can't pay back the interest, you lose everything! A similar example for Ribha of money is Ribha of Akhlaq: say I help my friend for his exams, and I expect to hear him say 'thank you' or that I expect him to 'treat me different' from now on i.e. I have done the good thing for him to do something in exchange!

Also: we should go after money, but not that when people need money, then we try to step on them and try to make some more. Have faith in Allah, he will return the money with its reward, either in this world or the world after

Answer 2

Interest in unethically. In-terms of its relevance in modern times, the modern economic system is now more unethical than it has ever been before.

It's a lot to explain, so please watch this six part video to understand why interest and the modern day economic system is so unethical

https://www.youtube.com/watch?v=bE8i-4HpKlM&list=PLyl80QTKi0gPBcb32paMvXxcq7UUeJskV

In simple terms:

1. The modern day economic system is designed to keep the majority in debt to benefit a few
2. The modern day system will collapse if the majority of people try to come out of debt
3. Keeping the majority of people in debt is what makes the modern day economic system work
4. Any system which works best when the majority of people are in debt, is ethically wrong.

Answer 3

1a - no, because who has more money, will get much more money. if all people will have 100$ and only one people will have 101$, probably he will become much-much richer then the all other people, after some time.

1b - 1) "ATMs, online banking, etc" - that could be paid as paying for job. 2) you are asking about interest wich are already taken from debtors, but you was going to ask about taking interest at all, also by bank from debtors.

2 - probably there are many more other effective mechanisms.

2a - investments are allowed. it is possible to buy stocks of companies and it is named investment.

2b - 1) people should decide by themselves where to put their money, to earn reward from god. 2) giving money (temporarily) without riba (interest) is also win-win, because people should not keep their money without usage, it is said in quran in sura 104: " Woe to every scorner and mocker Who collects wealth and [continuously] counts it. ". > 2016-apr-14 : maybe, the reason, why wealth should not be collected, is that it was material objects in past, and it is better if they do not lay without usage. but nowadays wealth can be "virtual" - paper and electronic memory, so, maybe, they are more allowed to be collected. <

3a - if there would be no interest used in the world maybe inflation would become much smaller. and maybe equivalent value loan is allowed, see Is making an "equivalent value" loan in accord with Islam? .

3b - see 3a.

3b, 1b - and you should not expect that your money grows, or stays at same level just without work by you. if you would have something like sheep, they would require some work from you, and if you would have gold, more gold is mined after time and it can become cheaper, and also even if it is not so, but people become more and gold relatively less and more expensive, you have to do some work to keep your gold safe from robbers. and muslims should pay zakat from their gold and silver, 1/40 of their gold every year, if its amount is not too small, as i rememeber. (but i do not know, whether zakat should be paid from loan). and so, even if you just get what you loaned, back, after some time, it is a "win"/useful for you, if you could not other way manage/handle that money/wealth by yourself, i.e. , it is a way of saving your money.