Thursday, December 14

The Rationale For Prohibition of Interest

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The Rationale for Prohibition of interest


 S j tubrazy

The rationale for prohibition of charging of interest on loans taken for consumption purposes is obvious. Such loans are usually taken by people of small means to meet urgent personal requirements as they have hardly any cushion of savings with which to meet such requirements, so far as loans of this type are concerned rests mainly on humane consideration. The main rationale for prohibition of interest in the case of loans for production purposes stems from the concept of justice between man and man which is the cornerstone of the Islamic philosophy of social life. Uncertainty is inherent in a business enterprise irrespective of the time and space dimensions. The opening results of the enterprise cannot be foreseen and the occurrence of profit or loss and their magnitudes cannot be fully determined in advance. It is, therefore, a sheer injustice if the party providing money capital is guaranteed a fixed and predetermined return while the party providing enterprise is made to bear the uncertainty all alone. On the other hand, a fixed interest rate can also be unjust to the lender of money in case the entrepreneur using this money earns it profit quite out of proportion to what he pays by way of interest.

(Report of the Council of Islamic Ideology on the Elimination of Interest from the Economy, Government of Pakistan, Islamabad)


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