Surah Al-Baqara (2) — Ayah 275

275. (In contrast) those who consume usury will not stand except as one stands whom Satan has driven to madness by his touch. That is because they say, "Trade is just like usury." [392] But Allah has permitted trade and forbidden usury [393]. So whoever receives admonition from his Lord and refrains (from usury), then what has passed is for him, and his affair is with Allah. But whoever returns (to usury), such are the people of the Fire; they will abide therein forever.

[392]
Commercial Interest is Also Prohibited:

This is actually the statement of the usurious Jews, and nowadays many Muslims also represent this viewpoint. Usurious loans are actually of two types:
(1) Personal loans or moneylender loans, i.e., those loans which a person takes from a moneylender or bank for his personal needs, and (2) commercial loans, which traders or industrialists take from banks on interest for their business purposes. Now, those Muslims who advocate the permissibility of interest say that the interest which the Quran has prohibited is that of personal or moneylender loans, whose interest rates are very oppressive, and that commercial interest is not prohibited, because in that era, such commercial usurious loans were not prevalent. Moreover, such loans are given and taken with mutual consent, their interest rates are tolerable and reasonable, and neither party is wronged, therefore this commercial interest is exempt from the interest which the Quran has declared unlawful. Here, we are unable to present all the arguments of the proponents of commercial interest and their answers. (Whoever needs details can refer to my book: “Business and Transaction Issues and Rulings,” in which two chapters are devoted to interest.) Therefore, we will suffice with a few brief arguments:
1. In the Prophetic era ﷺ, commercial interest did exist, and before the prohibition of interest, among the Companions ؓ, Hazrat Abbas and Khalid bin Walid ؓ used to engage in such commercial interest transactions. In that era, there used to be trade worth millions in Arabia, especially in Makkah and Madinah. Moreover, in neighboring countries, commercial interest was common.
2. In the Quran, the word “riba” is used in an absolute sense, which encompasses both personal and commercial loans. Therefore, commercial interest cannot be excluded from this absolute prohibition.
3. The Quran presents this verse in comparison to commercial loans:
﴿وَاَحَلَّ اللّٰهُ الْبَيْعَ وَحَرَّمَ الرِّبٰوا﴾ [2: 275]
Allah has permitted trade and forbidden interest, and in comparison to personal loans, it says:
﴿ يَمْحَقُ اللّٰهُ الرِّبٰوا وَيُرْبِي الصَّدَقٰتِ﴾ [2: 276]
Allah destroys interest and gives increase for charities. Thus, Allah Almighty has suggested “charity” as the solution for personal loans, and for commercial loans, He has shown the way of partnership and mudarabah, which are lawful and permissible.
4. As for the matter of low or reasonable interest rates, this has never been settled as to what constitutes a reasonable interest rate. Sometimes even 2 percent is considered unreasonable, as was the case around the time of the Second World War when the Reserve Bank of India set the discount rate, and sometimes a 29 percent interest rate is considered reasonable and appropriate [ديكهئے: اشتهار انوسٹمنٹ بنك مشتهره نوائے وقت مورخه 1977-8-11]. The probable reason for the inability to determine a reasonable interest rate is that its very foundation is shaky and weak. The determination of a reasonable and appropriate interest rate can only be made if it is known how much definite benefit the borrower will gain from it, and what should be the lender’s reasonable share from that. But we have no means to know how much benefit the borrower will get in the specified period, or whether he will get any benefit at all. In fact, he may even incur a loss. Secondly, in the same country and at the same time, there is extreme variation in the interest rates of different banks, and if everything is reasonable, then what is unreasonable? Thirdly, even if the interest rate is extremely low, it cannot make interest lawful, because the principle of Shariah is that even a small amount of a prohibited thing remains prohibited. A small amount of alcohol is just as prohibited as a large amount [ترمذي، ابواب الأشربة، باب ما سكر كثيرة فقليله حرام].
5.
The Condition of Mutual Consent is Only for Lawful Transactions:

As for mutual consent, this condition is only for lawful transactions, which means that even in lawful and permissible transactions, if either party is not satisfied, the transaction will be unlawful and impermissible. For example, in trade, the consent of both the seller and the buyer is necessary, otherwise the sale will be invalid and impermissible. Similarly, in marriage, the consent of both parties is necessary. But this consent cannot make unlawful acts lawful. If a man and a woman commit adultery with mutual consent, it cannot become permissible, nor can gambling become permissible by mutual consent. Similarly, interest cannot become lawful and permissible by mutual consent. Moreover, the one who pays interest is never truly willing to do so, no matter how low the interest rate is. Rather, it is his compulsion, and the proof is that if he could get an interest-free loan from somewhere, he would never be willing to take money on interest.
6. As for the claim that in commercial interest neither party is wronged, these people consider the cause or fundamental reason for the prohibition of interest to be injustice. However, this concept is itself incorrect. From the context of the verse, it is clear that these words present a good way to end usurious transactions and contracts, i.e., neither should the debtor oppress the creditor by withholding the principal amount, nor should the creditor burden the debtor with interest in addition to the principal. The application of these words will be in our society when we want to completely purify our society from interest, or when the parties to a loan individually are willing to save themselves from the curse of interest. The fundamental reason for the prohibition of interest is not injustice, but the greed for increasing one’s wealth without effort, by which a capitalist seeks a guaranteed increase in his surplus wealth through a fixed profit, and from which vile morals such as greed for wealth, hard-heartedness, and miserliness arise.
[393] Now, the duty of a Muslim is that when Allah has prohibited interest, he should submit to His command, whether he understands the difference between trade and interest and their wisdom or not. However, those who present the view that trade is just like interest, Allah has declared them extremely foolish and deranged, as if possessed by a jinn, and in their selfishness and greed for wealth, they have become so obsessed that they cannot see the difference between trade and interest. Since they are deranged in this life, they will be raised from their graves in the same state on the Day of Resurrection. Now, to explain to such people, we present the difference between interest and trade:
1.
The Difference Between Interest and Trade:

Interest is a guaranteed profit at a fixed rate, whereas in trade, along with profit, there is also the possibility of loss, whether a person trades with his own capital or in the form of mudarabah or partnership.
2.
The Destruction of National Economy by Interest:

In the form of mudarabah, an atmosphere of sympathy, kindness, and cooperation is created between the parties, because their interests are mutual, and this has a pleasant effect on national production. Whereas in the case of commercial interest, the usurer is only concerned with his own interest. Sometimes, at a critical time, he demands the return of his capital and withholds further provision, while the business is in dire need of capital. In this way, the usurer takes out his capital along with interest, but the debtor suffers great loss, and the national economy is also severely affected.
3. The third difference between mudarabah and interest is that mudarabah nurtures good morals, which creates brotherhood, goodness, and blessings in society, and eliminates class division. Whereas interest breeds evil morals such as selfishness, self-interest, miserliness, and hard-heartedness. The cause of the prohibition of interest is these evil morals and the greed for wealth. The usurious economic system has not produced only one Shylock (the exemplary character of a hard-hearted Jew who, due to non-payment on time, ruthlessly cut a piece of flesh from his debtor’s thigh), but in every era, thousands of Shylocks have been produced and will continue to be produced in the future.
[394] Allah Almighty has not said that whoever has consumed interest is forgiven, but rather has said that his matter is left to Allah, He may forgive him or punish him. Therefore, the cautious course is that he should not use the unlawful earnings of interest himself, but rather return it to the one from whom he took the interest, as this is the best course; otherwise, he should give it to the needy or spend it on public welfare works. In this way, he may be saved from the sin of interest, but there will be no reward, because Allah Almighty does not accept charity from unlawful wealth.