Ideally, as Muslims, we should not be engaging in interest-based activities. However, living in a Western country like Australia, this may not always be possible.
Many of us can end up accumulating interest, even if we don’t want it. Since we cannot use interest due to our principles, one way of getting rid of it is to donate our interest money to charity.
Although there are no rewards for donating interest, it gets rid of the haram funds in a Shariah-compliant way.
In Islam, “Riba” refers to usury or interest. Interest is the excess amount you pay or gain on the money you borrow, lend or earn. Usury, specifically, refers to unreasonably high rates of interest.
The literal meaning of the word in Arabic is “to exceed”, referencing the additional money that is added to an amount that has been borrowed. This is because the most common form of Riba is the interest charged on borrowed money, whether it be loans or deposits.
Islam forbids Riba, both receiving and paying it. However, living in the West, where usury is very common, many of us can end up accumulating interest through our bank accounts even if we don’t want it.
Since it is not permissible to use riba for our own benefit, many scholars recommend donating interest money to charity. Although there may be no religious reward for doing so, it disposes of the haram funds in a Shariah-compliant way (or for halal purposes).
"Sell gold for equal [amounts of] gold, sell silver for equal silver, sell dates for equal dates, sell wheat for equal wheat, sell salt for equal salt, sell barley for equal barley. Should one transact in excess, it is riba (interest). Yet sell gold for silver as you like hand-to-hand, sell barley for dates as you like hand-to-hand."
Riba is generally considered one of the major sins in Islam and explicitly discouraged in the Qur’an. In Surah Al-Baqarah, Allah (SWT) tells us to not engage in interest-based transactions or investments:
"O you who believe! Fear Allah and give up what remains [due to you] of interest, if you are true believers."
From a practical standpoint, high levels of interest can lead to debts and financial insecurity. This model exploits people on low incomes, who often don’t have a financial safety net.
Thus, Islam instead encourages non-interest based giving. This includes giving charity and making long-term investments for the benefit of others, such as Sadaqah Jariyah and Waqf projects. Zakat also ensures a social security net for people in need.
Most types of interest today can be divided into two main categories. These categories of Riba, as outlined by the Holy Qur’an and the teachings of the Prophet Muhammad (ﷺ), are as follows:
This translates to ‘the interest of delay’ and is the most common form of interest. It is time-specific interest, referring to the addition of money on loans in which there is a delay in returning the money.
This translates to ‘the interest of excess’ and is a less common form of interest. It refers to the buying and selling of goods, in which transactions are unfair and exploitative. It is where two items are exchanged in a particular deal of the same type but the quantity of one of them is more than the other.
Some scholars disagree on whether interest is permissible in certain situations, such as getting a mortgage to buy a house.
Some scholars also believe that Riba may only refer to excessive interest. However, to the majority of scholars, the whole concept of interest is forbidden in Islam.
If you have committed Riba in the past, it is essential to seek forgiveness Allah (SWT) for forgiveness.
Allah extends his Divine Mercy to all those who turn to Him with sincerity and supplicate for forgiveness.
The following is a Dua for forgiveness from the Qur’an, in Surah Ali ‘Imran:
“Rabbanaaa innanaaa aamannaa faghfir lanaazunoobanaa wa qinaa ‘azaaban Naar"
رَبَّنَآ إِنَّنَآ ءَامَنَّافَٱغْفِرْ لَنَا ذُنُوبَنَا وَقِنَا عَذَابَ ٱلنَّارِ
"Our Lord! We have believed, so forgive our sins and protect us from the torment of the Fire.”
In a society where usury is common, it can be difficult to avoid Riba completely. The majority of banks, mortgages and financing systems involve some level of interest.
There are differences in opinion among scholars on whether Riba is permissible in certain situations, in which there is no alternative. It’s important to consult your local Imam if you have any questions related to Riba.
Scholars recommend for us to keep note of any interest earned and donate the money to charity in a Shariah-compliant way.
Here at Islamic Relief, your donations help us save lives and are implemented in Shariah-compliant projects.
