One of the most common assumptions in contemporary Muslim discourse is that all forms of modern interest are unquestionably identical to ribā and therefore prohibited in every circumstance. Yet the Islamic legal tradition is more complex than this simplified formulation suggests. A striking example comes from a famous position attributed to Imam Abu Hanifa, the founder of the Hanafi school.

Imam Abu Hanifa held the view that “lā ribā fī dār al-ḥarb” — that ribā does not apply in the same way in dār al-ḥarb, a territory outside Muslim political rule. His great student, Imam Muhammad al-Shaybani, agreed with him on this position, while Imam Abu Yusuf is often reported to have disagreed. Since Imam Abu Hanifa and Imam Muhammad were two of the central authorities of the Hanafi school, this position became an important and relied-upon view within the madhhab, even if later scholars debated its scope and application.

To understand this opinion, it is important to clarify what dār al-ḥarb means in this legal discussion. In classical fiqh, the term functioned as a technical legal category for lands outside the effective jurisdiction of Islamic law. It was not based only on whether a population was Muslim or non-Muslim. Rather, it involved broader questions of legal sovereignty, public law, courts, security, and enforceability. For the purpose of this essay, the term should be understood in that technical sense: as a category about jurisdiction and legal authority.

The significance of this opinion is that it reveals something important about how early jurists understood ribā. If ribā were simply an absolute prohibition on any numerical increase in every possible financial situation, then one would expect the rule to apply identically everywhere, regardless of political, legal, or commercial context. Yet Imam Abu Hanifa’s position suggests that context mattered. Modern financial regulators and legal systems also recognize that the same outward transaction can have different legal and ethical meanings depending on its structure, purpose, risk, and surrounding economic conditions.

This makes sense when we remember that Imam Abu Hanifa was not only a jurist; he was also a businessman before becoming one of the most influential legal minds in Islamic history. He understood commercial transactions from the inside. He knew that business dealings are not always identical, and that financial rules must be applied with attention to context, purpose, risk, custom, and legal environment. In other words, the question is not: “Is there an increase?” The deeper question is: “What kind of transaction is this, and what financial reality does it represent?”

This is why Imam Abu Hanifa’s opinion becomes especially relevant when discussing the modern debate over interest. If one has read the first three parts of this series, Is Modern Interest the Same as Ribā?, then his legal position becomes much easier to understand. The argument of this series has not been that exploitation is acceptable. Rather, the argument has been that the financial context determines whether the business regulations of ribā apply or do not apply.

Classical Islamic law itself recognized different types of ribā. There is ribā al-jāhiliyyah, often associated with the pre-Islamic practice of increasing a debt when the borrower could not repay on time. This was a debt-based practice that could easily become oppressive, trapping vulnerable borrowers in a cycle of growing obligation.

There is also ribā al-nasāʾ, which concerns deferment or delay in certain exchange transactions. This type of ribā is connected to the rules governing exchanges of specific commodities, especially where delay could create an unfair or improper gain.

Then there is ribā al-faḍl, which concerns excess in the direct exchange of certain goods of the same type, such as gold for gold or dates for dates. The concern here is not a modern bank loan, but fairness and equivalence in specific barter-like exchanges.

Once these categories are understood, Imam Abu Hanifa’s position becomes more intelligible. He was not dismissing the Qur’anic prohibition of ribā nor was he saying that exploitation is permissible. Rather, his position suggests that the application of ribā depends on the nature of the transaction and the legal-commercial setting in which it occurs.

This is precisely the point that is often lost in modern religious discussions. Many Muslims today are taught to think of ribā as a single, simple category: any increase on money lent. But classical fiqh was more detailed than that. It distinguished between different kinds of exchange, different kinds of delay, different types of commodities, and different legal contexts.

Therefore, Imam Abu Hanifa’s view can be used to reexamine the claim that all modern interest must automatically be treated as Qur’anic ribā. His opinion shows that one of the greatest jurists of Islam did not treat ribā as a context-free rule that applies identically in every financial environment.

That opens the door to a more nuanced position: modern interest should not be judged merely by the existence of an increase, but by the nature of the transaction, the economic context, the presence or absence of exploitation, and the function that interest serves in the modern financial system.

This is especially important because the modern economy is very different from the economy of the classical jurists. Today, interest is not limited to desperate personal debt. It is connected to central banking, inflation, savings, mortgages, business financing, government bonds, pension funds, and the creation of money itself. A company borrowing capital to expand production is not the same as a poor debtor being crushed by an ever-growing pre-Islamic debt.

Imam Abu Hanifa’s position reminds us that Islamic law was never meant to be intellectually shallow. It was developed by jurists who understood language, society, commerce, custom, and legal context. His view on ribā in dār al-ḥarb is one example of how classical jurists could recognize that financial rulings depend on more than surface form.

For modern Muslims, this should encourage more than humility. It should encourage intellectual confidence. The question of modern interest cannot be settled by repeating that every increase is automatically ribā. The Hanafi tradition itself contains the tools for a more contextual, legally serious, and economically aware discussion.

This does not mean that every modern financial product is automatically permissible. Predatory loans, deceptive contracts, and exploitative debt remain morally unacceptable. But readers should also feel assured that modern financial products such as savings accounts, mortgages, business loans, government bonds, pension funds, and inflation-adjusted lending cannot be responsibly judged by slogans alone. Each must be evaluated according to its structure, purpose, risk, social effect, and financial reality.

In the end, Imam Abu Hanifa’s opinion does more than raise a technical exception. It establishes a classical precedent for the very argument this series has been making: ribā is not understood properly when it is reduced to a mere numerical increase. It must be understood through context, commerce, justice, and legal reasoning. And once that is admitted, the door is open for Muslims to reconsider whether modern interest truly belongs to the same category as the ribā condemned in the Qur’an.

About the author: A graduate of NYU Stern and a former financial analyst, the author brings sustained study of Arabic and Islamic intellectual traditions to his writing.

References and Further Reading

Classical Hanafi Sources

Al-Marghinani, al-Hidayah, Kitab al-Buyu‘, Bab al-Riba.
A major Hanafi legal manual that discusses the rule concerning ribā between a Muslim and a ḥarbī in dār al-ḥarb, along with disagreement from other jurists.

Ibn al-Humam, Fath al-Qadir, Kitab al-Buyu‘, Bab al-Riba.
An important Hanafi commentary on al-Hidayah that elaborates the reasoning behind the position of Imam Abu Hanifa and Imam Muhammad, while noting the disagreement of Abu Yusuf and other imams.

Al-Sarakhsi, al-Mabsut.
A foundational Hanafi legal work useful for understanding Hanafi commercial law, territorial jurisdiction, and the broader logic of transactions in dār al-ḥarb.

Al-Kasani, Bada’i al-Sana’i fi Tartib al-Shara’i‘.
A major Hanafi legal encyclopedia that is useful for the fiqh of transactions, ribā, and the classification of legal rulings.

Ibn ‘Abidin, Radd al-Muhtar ‘ala al-Durr al-Mukhtar.
A later authoritative Hanafi reference that is useful for tracing how earlier Hanafi rulings were preserved, qualified, and applied in later legal discussions.

Qur’an and Hadith

Qur’an 2:275–279.
The central Qur’anic passage on ribā, trade, debt, and the command to remit what remains of ribā.

Qur’an 3:130.
The verse warning against consuming ribā multiplied and compounded.

Qur’an 4:161.
A passage condemning the taking of ribā among earlier communities.

Qur’an 30:39.
A verse contrasting ribā with giving for the sake of God.

The hadith of the six commodities: gold, silver, wheat, barley, dates, and salt.
This hadith is central to the classical discussion of ribā al-faḍl and ribā al-nasāʾ, especially in exchange transactions.

Modern Scholarship

Fazlur Rahman, “Riba and Interest,” Islamic Studies, 3, no. 1, 1964.
A major modern argument distinguishing Qur’anic ribā from modern regulated interest, with emphasis on historical context and economic justice.

Abdullah Saeed, Islamic Banking and Interest: A Study of the Prohibition of Riba and Its Contemporary Interpretation. Leiden: Brill, 1996.
One of the most important academic studies on the modern interpretation of ribā, Islamic banking, and the debate over whether modern bank interest is identical to classical ribā.

Mahmoud A. El-Gamal, Islamic Finance: Law, Economics, and Practice. Cambridge: Cambridge University Press, 2006.
A critical modern study of Islamic finance, especially useful for understanding how many Islamic finance products often reproduce the economic substance of conventional interest-based finance through different legal forms.

Muhammad Rashid Rida, al-Riba wa al-Mu‘amalat fi al-Islam.
A modern reformist discussion of ribā, commerce, and financial transactions in Islamic law.

Abdullah Saeed, “The Moral Context of the Prohibition of Riba in Islam Revisited.”
Useful for readers interested in the ethical and historical reasoning behind the prohibition of ribā.

The popular interpretation of the Qur’anic story of Prophet Abraham (ʿalayhi al-salām) and his son can feel morally difficult to many readers because it appears to bring a father and child to the edge of human sacrifice. For a modern reader, this can be deeply unsettling. It raises the question: would God ever want a father to take the life of his own son as an act of religious obedience?

If it is read too simplistically, one might think the highest form of devotion is to suspend ordinary moral feeling completely. This is what troubles many people. The life of an innocent person is sacred, and the idea of sacrificing one’s own child appears to contradict the justice and compassion that religion itself teaches.

One way to understand the Qur’anic story of Abraham and his son is to place it against the background of an ancient world in which human sacrifice was known and, in some cultures, treated as religiously acceptable. Abraham lived in a world very different from ours, a world where people could imagine that the gods demanded the most extreme offerings. In that context, it is possible to read Abraham’s dream not as God literally commanding him to kill his son, but as Abraham seeing, through the symbols and assumptions of his culture, the ultimate form of sacrifice that his world could imagine.

The key detail is that the Qur’an presents the event through the language of a dream. Abraham sees himself performing a sacrifice. But a dream is not the same as a direct statement from God. Abraham, coming from a world where such an act could be imagined as religious devotion, may have understood the dream through the cultural categories available to him.

The Qur’an says that Abraham told his son, “O my son, indeed I have seen in a dream that I sacrifice you, so see what you think” (Qur’an 37:102). The wording is important: the story begins with a dream and Abraham consults his son rather than simply announcing a direct divine command.

This makes the story morally powerful. Abraham is not portrayed as evil; he is portrayed as sincere, devoted, and willing to give everything for God. But sincerity alone does not mean that every inherited religious assumption is correct. At the decisive moment, God intervenes. The Qur’an says, “O Abraham, you have fulfilled the vision” (37:104–105), and then, “We ransomed him with a great sacrifice” (37:107). The son is not killed. Human sacrifice is stopped and replaced.

So the moral of the story is not that God wanted Abraham to kill his son. The moral is that God taught Abraham otherwise. God took Abraham’s sincere but culturally-shaped understanding of sacrifice and purified it with His mercy and guidance.

Seen this way, the story becomes a dramatic rejection of human sacrifice. Abraham reaches the boundary of an ancient religious idea, and God draws the line. The son’s life is spared. The story teaches people that God does not require innocent life to be taken in His name; He calls human beings toward compassion and justice.

The idea of human life being “sacrificed” for some higher social or religious purpose has not disappeared from the world. Even today, in some communities, girls and women are killed in the name of family honor, shame, purity, or communal reputation. This is not human sacrifice in the formal ritual sense, but morally it reflects a similar logic: a human life is treated as expendable for the sake of something supposedly greater. The Qur’an moves in the opposite direction. The story of Abraham stops the sacrifice of one’s child, and the Qur’an also condemns the pre-Islamic Arabian practice of killing daughters, asking with devastating moral force: “And when the girl buried alive is asked for what sin she was killed” (Qur’an 81:8–9). Read together, these passages show a consistent Qur’anic ethic: human life cannot be offered up to satisfy inherited custom or social pressure.

Any interpretation that treats the near-sacrifice as the main lesson, rather than God’s intervention against it, risks drawing a deeply troubling conclusion: that God may demand the suspension of the most basic moral truths, including the sanctity of an innocent person’s life. Such a reading creates more problems than it solves. It can make divine obedience appear disconnected from mercy, justice, and moral conscience, as though faith requires a person to silence the very compassion that God Himself placed within the human heart.

This matters especially today because many younger Muslims are no longer satisfied with explanations that avoid the moral difficulty of the popular retelling of Abraham’s story. If religious teaching presents the story only as a lesson in unquestioning obedience then it should not surprise us when morally sensitive people struggle with that interpretation. A faith tradition that is taught without mercy and moral reflection can appear harsh or even dangerous. But the Qur’an itself gives us the resources for a better reading: people are taught the son is spared, the sacrifice is stopped, and innocent life is protected. The task is not to turn away from religion, but to teach it in a way that reflects the moral depth already present in the Qur’an.

In the first two essays, we examined ribā from linguistic and economic perspectives, demonstrating that equating it categorically with modern interest-bearing loans oversimplifies both the Qur’anic language and economic reality.

The Islamic Banking Experiment

A useful way to advance this discussion is to examine the modern Islamic banking experiment itself. Prior to the 1970s, there was no large-scale financial system operating under the banner of “Islamic banking.” The movement emerged during the oil boom of the 1970s, particularly in Gulf countries whose legal and social environments were generally more conservative than those of many other Muslim-majority societies. In this context, newly established institutions sought to construct banking models that avoided interest. Early efforts attempted to replace interest-based lending with profit-sharing and trade-based contracts.

Yet as the industry developed through the 1980s and 1990s, it became increasingly clear that modern financial systems still required mechanisms to compensate capital for time, risk, and opportunity cost. Islamic banks therefore turned heavily to instruments such as murābaḥah and ijārah, which reproduced the economic outcomes of conventional lending while preserving formally shariah-compliant contractual structures.

Reflecting on this development, scholars such as Professor Abdullah Saeed have argued that the Islamic banking experiment revealed an important lesson: despite the effort to eliminate interest in form, modern finance inevitably prices time, risk, and opportunity cost. What began as an attempt to construct a system entirely separate from interest-based finance instead demonstrated how deeply these economic functions are embedded in modern financial life.

From Experiment to Explanation

Building on this insight, we now turn to contemporary Islamic finance to examine how these instruments operate in practice. As Professor Mahmoud El-Gamal has observed, many of these products replicate, in economic effect, the functions of conventional interest. While their form adheres to shariah principles, their substance often mirrors the mechanisms by which capital is priced and allocated in modern economies. Understanding this functional equivalence is essential: it suggests that the moral concern underlying the prohibition of ribā—the prevention of exploitation and injustice—can remain intact even when financial structures resemble conventional interest in practice.

Murābaḥah and the Pricing of Capital

One of the most widely used Islamic contracts is murābaḥah, a cost-plus sale agreement. In contemporary practice, a financial institution purchases an asset on behalf of a client and resells it to them at a marked-up price payable over time. The markup reflects the deferred payment period, compensating the institution for time and risk; although the contract is structured as a sale rather than a loan, its economic effect closely parallels the function of interest in conventional lending.

A simple example helps illustrate this parallel. Suppose a customer wishes to purchase a car worth $20,000.

• In a conventional loan, a bank lends the customer $20,000 at, say, 5% annual interest over 5 years. The customer repays the principal plus interest over time, resulting in total payments of approximately $23,000.

• In a murābaḥah transaction, the bank first purchases the car for $20,000 and then sells it to the customer for a deferred price of $23,000, payable in installments over the same 5-year period.

In both cases, the customer ultimately pays an additional $3,000 in exchange for deferred payment. The legal form differs—one is framed as a loan with interest, the other as a sale with markup—but the economic outcome is substantially similar: the financier is compensated for time, risk, and the opportunity cost of capital.

This similarity is reinforced by the fact that both conventional and Islamic financial institutions operate within the same global financial system. Even where Islamic banks structure their transactions differently at the contractual level, they still rely on the same underlying monetary environment: central bank policy rates, interbank markets, and liquidity management frameworks. In practice, this means that the cost of funds for Islamic institutions is often linked—directly or indirectly—to the same benchmark rates that determine pricing in conventional finance.

In practice, the pricing of murābaḥah contracts is often benchmarked against prevailing market interest rates, such as interbank lending rates or central bank policy rates, to remain competitive and economically viable. Although the contract avoids the formal designation of “interest,” its pricing mechanism remains closely tied to the same benchmarks used in conventional finance.

Moreover, Islamic financing products frequently involve additional administrative, compliance, and structuring layers, which can make them more expensive than comparable conventional loans. While these features ensure formal adherence to shariah requirements, they do not fundamentally alter the underlying economic function of the transaction. When the result is a higher financial burden on consumers, the issue is no longer merely formal. If a less costly alternative reduces hardship and financial strain, it may better serve the Qur’anic commitment to fairness and social welfare, even if it is structured differently.

Profit-Sharing and Financial Engineering

Another common category is profit-and-loss sharing, including mushārakah (partnership) and mudarabah (investment with delegated management). These contracts are intended to distribute risk and reward according to shariah principles. In practice, however, many institutions structure them to produce predictable and stable returns, thereby minimizing risk for investors and approximating the economic function of conventional interest. Returns are often calibrated with reference to prevailing market rates to ensure competitiveness and capital adequacy. While the legal structure emphasizes risk sharing, the financial design frequently aims to achieve the certainty expected in modern credit markets.

Rethinking Ribā: Form vs Substance

From a legal and moral perspective, this functional convergence highlights a central point: the Qur’anic prohibition of ribā is directed at exploitative or unjust enrichment, not at the legitimate pricing of capital within a regulated financial system. Modern Islamic finance operates within global markets, referencing benchmark rates and responding to the same monetary conditions that shape conventional products.

The resemblance in pricing mechanisms does not render such contracts suspect; rather, it reflects a sound and necessary principle of economic organization. Compensating capital for time and risk is not merely an unavoidable feature of modern systems—it is a rational and beneficial mechanism that enables investment, allocates resources efficiently, and sustains economic growth. Referencing benchmark rates is therefore not a moral concession but a practical means of ensuring transparency, competitiveness, and stability within an interconnected global market. The moral inquiry is not whether time-based compensation exists, but whether the transaction involves injustice. Where injustice is absent, structured compensation for capital is not only permissible but serves legitimate and socially constructive purposes consistent with the ethical principles of the Qur’an.

The historical development of Islamic banking reinforces this conclusion. The attempt to construct a financial system free of interest ultimately produced instruments that replicate the outcomes of conventional finance. Rather than demonstrating the incompatibility of modern finance with Islamic ethics, this experience suggests that the core concern of the prohibition of ribā lies elsewhere—not in the existence of financial returns themselves, but in the prevention of exploitation.

Conclusion: The Ethical Core of the Prohibition

When understood in this light, the ethical principle becomes clearer. Financial systems—whether labeled conventional or Islamic—should be evaluated according to whether they promote fairness, transparency, and mutual benefit. Where financial arrangements operate within regulated systems that protect participants and avoid exploitation, structured compensation for capital can serve legitimate and socially beneficial purposes.

The broader lesson is therefore not that modern economics and finance must be rejected, but that it must be guided by ethical principles that safeguard justice and human welfare. The Qur’anic prohibition of ribā is best understood as a moral warning against exploitation, not as a categorical rejection of the economic mechanisms through which modern societies allocate capital and manage financial risk.

Reader Reassurance

For readers seeking practical guidance, this analysis suggests that participation in modern financial systems—whether conventional or shariah-compliant—does not in itself constitute engagement in ribā. The central ethical principle emphasized throughout the Qur’anic discourse is the avoidance of injustice and harm. When financial transactions operate within transparent, regulated systems that uphold these principles, they can align with the broader moral aims of Islamic teaching while supporting economic stability and opportunity.

About the author: A graduate of NYU Stern and a former financial analyst, the author brings sustained study of Arabic and Islamic intellectual traditions to his writing.

The following works provide both supportive and critical perspectives on modern Islamic finance, particularly on whether contemporary financial structures differ meaningfully from conventional interest-based systems.

References and Further Reading

Core Academic Works on Islamic Finance

Mahmoud A. El-Gamal, Islamic Finance: Law, Economics, and Practice (Cambridge University Press, 2006)
→ One of the most important critiques of modern Islamic finance; argues that many products replicate conventional interest in substance.

Abdullah Saeed, Islamic Banking and Interest: A Study of the Prohibition of Riba and Its Contemporary Interpretation (Brill, 1996)
→ Explores how modern scholars reinterpret ribā and discusses the evolution of Islamic banking.

Muhammad Saleem, Islamic Banking: A $300 Billion Deception: Observations and Arguments on Riba (Xlibris, 2005)

→ An easy-to-read booklet from a Muslim banker to get an overview of the Islamic finance products and their history

Muhammad Taqi Usmani, An Introduction to Islamic Finance (Kluwer Law International, 1998)
→ A leading traditional defense of Islamic finance structures such as murābaḥah and mushārakah.

Critical Perspectives on Islamic Financial Practice

Timur Kuran, Islam and Mammon: The Economic Predicaments of Islamism (Princeton University Press, 2004)
→ Critiques Islamic economics and argues that Islamic finance often mirrors conventional systems.

Frank Vogel and Samuel Hayes, Islamic Law and Finance: Religion, Risk, and Return (Kluwer Law International, 1998)
→ A foundational legal and financial analysis of Islamic contracts and their modern application.

Industry and Institutional Reports

Islamic Financial Services Board (IFSB)
→ Publishes standards and reports on risk management and capital adequacy in Islamic finance.

Accounting and Auditing Organization for Islamic Financial Institutions
→ Issues widely used Shariah standards governing Islamic financial products.

World Bank & Islamic Development Bank,
Global Report on Islamic Finance
→ Provides data and analysis on the growth and structure of Islamic finance globally.

On Interest, Finance, and Economic Function

Irving Fisher, The Theory of Interest (1930)
→ Classic explanation of time value of money and capital pricing.

John Maynard Keynes, The General Theory of Employment, Interest and Money (1936)
→ Foundational work on interest rates and macroeconomic policy.

In Part Two of this series, we continue to examine whether the Qur’anic prohibition of ribā can be equated with modern-day interest as used in contemporary financial products. This essay approaches the question from a financial and economic perspective, focusing on how “interest” is defined by subject-matter experts and the functions it serves in modern economies.

The term interest is often treated in religious discourse as though it carries a single, self-evident meaning. In reality, its definition varies significantly across distinct and highly specialized disciplines. In economic theory, interest describes the time value of money; in finance, it functions as a pricing mechanism for capital and risk; in central banking, interest rates are used as policy tools to manage economic cycles and control inflation; and in law, interest is defined as a contractual entitlement subject to regulation. Conflating these distinct meanings has contributed substantially to confusion in contemporary discussions of ribā. Put differently, interest is a technical term embedded within the subject matters of economics, finance, banking, and law—along with their respective subfields. These highly developed disciplines, their nomenclatures, and the institutional structures they describe did not exist in early Islamic history.

A simple illustration of how economics has diverged radically from the pre-modern world is the fact that modern states print, issue, and circulate national currencies—both physical and digital—through institutional monetary and fiscal policy frameworks. Even more striking is that these currencies possess no intrinsic value, being backed neither by gold nor silver but by legal tender laws, state authority, and monetary mechanisms such as interest-rate policy.

This transformation in the nature of money is matched by an equally profound transformation in the nature of credit. In contemporary financial systems, lending is not a riskless extraction of guaranteed gain as ribā has at times been defined in classical discussions. Modern lenders face measurable exposure to default, bankruptcy, and legal uncertainty. Borrowers may fail to repay due to business collapse, unemployment, or economic downturns, and bankruptcy law in many jurisdictions permits partial or even full discharge of debt. The abolition of debtor’s prison and debt-bondage—once common enforcement mechanisms in pre-modern societies—fundamentally altered the moral and economic structure of lending. Repayment today depends not on personal coercion, but on contractual enforcement within regulated legal systems. Interest, in this context, compensates not only for the time value of money, but also for credit risk, inflation uncertainty, administrative costs, regulatory capital requirements, and the possibility of total loss. To characterize such returns as being guaranteed and risk-free obscures the realities of modern finance.

Confronted with monetary systems in which money is fiat, credit is risk-priced, and enforcement is court-mediated rather than coercive, even a mujtahid imam of earlier centuries would have paused to reassess how this compares to the conceptual framework within which financial rulings were originally formulated.

Accordingly, when ribā is equated with interest as an economic or legal construct, an additional assumption is necessarily being made: that modern interest-bearing systems are materially equivalent to the transactional practices addressed by the Qur’an and described in early legal texts and hadith. If that underlying similarity cannot be clearly demonstrated, then the analogical reasoning (qiyās) that identifies ribā with modern interest lacks a firm foundation in economic history.

This gap in technical knowledge was candidly acknowledged by Shaykh Muḥammad Sayyid Tantāwī, former Grand Mufti of Egypt and Shaykh of al-Azhar, who cited the Qur’anic directive: “Ask the people of remembrance if you do not know” (Qur’an 16:43). He argued that jurists must consult economists on economic matters just as they consult physicians on medical questions before issuing legal judgments. Classical jurisprudence itself recognizes this principle: if a qualified physician determines that fasting would endanger a person’s health, that person is exempted from the obligation. Economics, finance, and banking are similarly complex fields, with profound implications for the material well-being of societies, and warrant comparable deference to expertise.

From the perspective of economists, contemporary financial arrangements are not inherently immoral; rather, they are understood as necessary for the functioning of modern economies and often serve recognized objectives of public welfare (darurah and maṣlaḥah).

For example, interest rates play a central role in maintaining currency stability. If lending and borrowing at interest were categorically prohibited within a modern nation-state, credit markets would contract, currencies would depreciate, and inflation could rapidly erode wages, savings, and pensions. Firms would struggle to operate under such instability, leading to widespread unemployment. Central banks use interest-rate policy precisely to prevent such outcomes.

Recent monetary experience provides a concrete illustration of this dynamic. In the early 2020s, Turkey pursued a sustained policy of suppressing interest rates despite rising inflation, contrary to prevailing macroeconomic consensus. The result was rapid currency depreciation, elevated inflation, and significant erosion of household purchasing power, particularly among wage earners and retirees. This episode illustrates that interest-rate mechanisms are not merely optional financial conventions but serve a stabilizing function in modern monetary economies. When such mechanisms are constrained or ignored, the resulting economic harm can be widespread and difficult to reverse. It would therefore be contrary to reason and to the Qur’anic commitment to justice (ʿadl) and human welfare (maṣlaḥah) to claim that God categorically prohibits a mechanism that has become essential to the proper functioning of contemporary human societies.

More broadly, economists observe that individuals and institutions are generally unwilling to lend capital without appropriate compensation for time and risk—a reality captured in the concept of the time value of money. Consider a simple example: a bank that lends funds today for a business expansion or a home purchase forgoes the opportunity to deploy that capital elsewhere, while also assuming the risk of default and inflation over time. Without a mechanism to price these factors, lending becomes irrational and unsustainable. If this principle is not addressed institutionally, credit markets fail to emerge.

Sustained economic growth in modern economies depends fundamentally on credit markets; without them, investment collapses, employment opportunities shrink, and meaningful poverty reduction becomes unattainable. The practical effects of economic growth—job creation, rising wages, and improved living standards—help explain why many people, including Muslims, migrate to economies where such systems are robustly developed. In contemporary financial systems, interest remains the primary mechanism through which the time value of money is recognized and operationalized.

A common response is to point to Islamic finance as evidence that modern economies can function without interest. Yet in practice, Islamic financial instruments do not eliminate the economic realities described above; they repackage them through alternative contractual forms. Whether through deferred markups, profit-sharing ratios, lease payments, or benchmarked returns, the same underlying factors—time, risk, and opportunity cost—are priced and compensated.

A simple illustration makes this clear: when central banks raise interest rates, the cost of conventional loans increases, and the pricing of Islamic financial products rises in tandem. Murābaḥah markups, ijārah lease rates, and other shariah-compliant financing terms are routinely adjusted upward because they are benchmarked to prevailing market rates, which themselves are shaped by interest-rate policy. The difference, therefore, lies primarily in legal structure and terminology rather than in the economic function being performed. This convergence suggests that the moral concern of Islamic law lies not in the presence of compensation itself, but in preventing exploitation, deception, and unjust enrichment.

In this essay, we approached the question of ribā from a financial and economic perspective, examining how the term “interest” functions within modern systems of money, credit, and monetary policy. Building on the linguistic analysis of Part 1, this inquiry has shown that modern interest is not merely an increase on a loan, but a technical and multifaceted concept embedded within economic structures that did not exist in pre-modern societies. Far from being an arbitrary or exploitative practice, interest serves as a necessary mechanism for pricing time, allocating capital, stabilizing currencies, and preventing inflationary harm within contemporary economies. Taken seriously, these realities render the blanket identification of Qur’anic ribā with modern interest intellectually indefensible, as it depends on assumptions that disregard the fundamentally different architecture of contemporary monetary systems.

Taken together, the linguistic and financial analyses suggest that the Qur’anic prohibition of ribā is best understood as a moral condemnation of exploitation and injustice, rather than a blanket rejection of lawful, regulated financial instruments. On this basis, the use of contemporary interest-based financial products cannot be presumed to constitute engagement in ribā, leaving principled room for Muslims to participate in modern economic life without assuming religious fault.

A brief word of reassurance is warranted. For many Muslims, modern finance has been a source of persistent moral anxiety. This essay does not invite heedlessness, but it does invite relief from unwarranted guilt. When financial participation is lawful, regulated, non-exploitative, and undertaken in good faith, there is no compelling basis to presume engagement in ribā. Islam does not require believers to withdraw from economic life or bear unnecessary hardship; rather, it calls them to act justly, responsibly, and with awareness of God in the realities they inhabit.

About the author: A graduate of NYU Stern and a former financial analyst, the author brings sustained study of Arabic and Islamic intellectual traditions to his writing.

References and Further Reading

Modern economics and finance (interest, money, and credit)

Mankiw, N. Gregory. Principles of Economics.
Multiple editions.
—Standard exposition of interest as the time value of money; discussion of inflation, monetary policy, and capital allocation.

Mishkin, Frederic S. The Economics of Money, Banking, and Financial Markets.
Boston: Pearson, multiple editions.
—Authoritative treatment of interest rates as tools of monetary policy and financial stability.

Keynes, John Maynard. The General Theory of Employment, Interest, and Money.
London: Macmillan, 1936.
—Classic theoretical account of interest within modern macroeconomic systems.

Central banking and monetary policy

Federal Reserve System (United States). Educational and policy publications.
—On interest-rate policy, inflation control, and economic stabilization in fiat-currency systems.

International Monetary Fund (IMF). Country reports and monetary policy analyses.
—Illustrative discussions of interest-rate policy, inflation, and currency stability in modern economies.

World Bank. Macroeconomic and development reports.
—On credit markets, growth, employment, and financial inclusion.

Contemporary monetary experience

Selected economic analyses of Turkey’s monetary policy (early 2020s).
—Widely discussed case of sustained interest-rate suppression amid high inflation, resulting in currency depreciation and loss of purchasing power.

Islamic legal reasoning and expertise

The Qur’an, 16:43.
—“Ask the people of remembrance if you do not know,” cited in discussions of consulting subject-matter experts.

Tantāwī, Muḥammad Sayyid. Selected legal opinions and public statements.
—On the necessity of consulting economists when issuing rulings on modern financial matters.

Classical jurisprudential principle regarding expert testimony.
—Analogies drawn from medical exemptions to fasting, illustrating deference to professional expertise in law.

Islamic finance: form and function

El-Gamal, Mahmoud A. Islamic Finance: Law, Economics, and Practice.
Cambridge: Cambridge University Press, 2006.
—Analysis of Islamic financial instruments and their economic equivalence to conventional finance.

Islamic Financial Services Board (IFSB). Technical and policy publications.
—On Islamic banking benchmarks, risk pricing, and market integration.

Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI). Shariah standards.
—Illustrating contractual structures (murābaḥah, ijārah, etc.) and contemporary benchmarking practices.

In this series of essays, I examine the issue of interest-bearing financial products in Islamic law and argue that their permissibility deserves serious and careful consideration. While ribā is unequivocally prohibited in the Qur’an, equating ribā with modern interest involves interpretive assumptions that do not withstand linguistic, financial, and legal scrutiny.

The first argument, and the focus of this essay, comes from analyzing the Quranic word ribā from a linguistic point of view. Classical Arabic lexicons describe ribā in terms of increase or excess, particularly in transactional contexts. Lane’s Arabic–English Lexicon emphasizes the notion of an increase taken beyond what is just or equivalent, while modern dictionaries such as Hans Wehr list both “interest” and “usury” among possible English renderings. Translating ribā simply as “interest” therefore reflects an interpretive choice rather than a linguistically-compelled conclusion.

This linguistic openness is reflected in the work of prominent Qur’an translators. Abdullah Yusuf Ali, a twentieth-century translator and commentator widely respected for his command of Arabic, interpreted the word ribā as “usury” rather than “interest” in his famous work The Holy Qur’an: Text, Translation and Commentary. Usury, therefore, is a type of financial exploitation and oppression (zulm) which God strongly condemns in the Quran and contrasts it with the noble act of charity (sadaqah). This contrast is illustrated in Ali’s rendering of Quran 2:276: “God will deprive usury of all blessing, but will give increase for deeds of charity: for He loveth not creatures ungrateful and wicked.”

In his commentary on this verse, Ali elaborates and states that God contrasts usury to charity because usury is a selfish, greedy grasping of wealth against those in need or distress whereas charity is a beautiful act defined as unselfish giving of one’s self or one’s goods. The verse is thus striking in its moral clarity: it contrasts exploitative lending practices—what would today be described as loan sharking—with their moral opposite, philanthropy.

Crucially, Ali also acknowledges interpretive complexity in defining ribā. He writes, “Usury is condemned and prohibited in the strongest possible terms. There can be no question about the prohibition. When we come to the definition of usury there is room for difference of opinion. Hadhrat ‘Umar, according to Ibn Kathir, felt some difficulty in the matter, as the Apostle left this world before the details of the question were settled. This was one of the three questions on which he wished he had had more light from the Apostle, the other two being Khilafat (the question of political succession after the Prophet) and Kalalat (complex inheritance cases involving no direct heirs)… Our ‘ulama, ancient and modern, have worked out a great body of literature on usury, based mainly on economic conditions as they existed at the rise of Islam.” In other words, the linguistic meaning and scope of the term were recognized—even by the earliest authorities—as requiring interpretation informed by context.

A similar linguistic choice appears in the work of Muhammad Marmaduke Pickthall, the English Muslim scholar noted for his 1930 English translation of the Quran, The Meaning of the Glorious Koran. He used the word “usury” to interpret the word ribā found in the Quranic verses. For example, his interpretation of Quran 2:278 reads, “O ye who believe! Observe your duty to Allah, and give up what remaineth (due to you) from usury, if ye are (in truth) believers,” and 3:130 reads, “O ye who believe! Devour not usury, doubling and quadrupling (the sum lent). Observe your duty to Allah, that ye may be successful.” Notice that this verse itself implies that ribā is an unreasonably high rate of return on a loan since an amount lent doesn’t double or quadruple (100 or 300 percent interest rate) under normal rates of interest every year for modern financial products.

It bears noting that many Western legal systems regulate or cap excessively high interest rates—precisely the practice commonly described as usury. In many jurisdictions, contracts deemed “usurious” may be rendered void, unenforceable, or subject to regulatory penalties. In addition, bankruptcy protections and consumer-protection laws provide further safeguards for borrowers against exploitation and financial ruin. While these legal frameworks do not claim religious authority, they reflect a shared moral concern with preventing injustice (‘adl), imbalance, and abuse in lending. Viewed in this light, modern legal systems often function to restrain the very harms that the Qur’anic prohibition of ribā seeks to prevent.

In this essay, we examined the Qur’anic term ribā from a linguistic perspective, drawing on classical dictionaries and well-known English translations of the Qur’an. This analysis suggests that “usury,” understood as exploitative or excessive increase, may be a more precise rendering than the blanket identification of ribā with all forms of interest. Notably, in many contemporary legal systems, practices considered usurious are already prohibited, reflecting a societal effort to prevent exploitation and injustice. Taken together, these observations challenge the widespread presumption that using lawful, regulated financial products amounts to engaging in ribā. From a linguistic and moral standpoint, there remains substantial room to conclude that participation in such instruments does not, in itself, entail religious blame—an issue that will be examined further through the lens of finance in the next essay.

About the author: A graduate of NYU Stern and a former financial analyst, the author brings sustained study of Arabic and Islamic intellectual traditions to his writing.

References and Further Reading

Primary Qur’an translations and commentaries

Ali, Abdullah Yusuf. The Holy Qur’an: Text, Translation and Commentary.
Lahore: Sh. Muhammad Ashraf, multiple editions.
—Relevant commentary on Qur’an 2:274–279 and notes on ribā/usury.

Pickthall, Muhammad Marmaduke. The Meaning of the Glorious Koran.
London: George Allen & Unwin, 1930.
—See Qur’an 2:278 and 3:130, where ribā is rendered as “usury.”

Classical and modern Arabic lexicons

Lane, Edward William. An Arabic–English Lexicon.
London: Williams & Norgate, 1863–1893.
—Entry for ر ب و (r-b-w), defining ribā as increase beyond equivalence or justice.

Wehr, Hans. A Dictionary of Modern Written Arabic, edited by J. Milton Cowan.
4th ed. Wiesbaden: Harrassowitz, 1979.
—Entry for ر ب و (r-b-w), listing both “interest” and “usury” as possible English renderings.

Classical Islamic Sources

Ibn Kathīr, Ismāʿīl. Tafsīr al-Qur’ān al-ʿAẓīm.
—Cited by Yusuf Ali regarding ʿUmar ibn al-Khaṭṭāb’s hesitation over the precise scope of ribā.

The Qur’an, 2:275–279; 3:130; 16:43.
—Core verses relevant to ribā / usury

Modern legal context (usury and consumer protection)

Oxford Languages. “Usury.”
—Defined as “the illegal action or practice of lending money at unreasonably high rates of interest.”

United States state usury laws (general reference).
—Most U.S. states impose statutory caps on interest rates; contracts exceeding these limits may be void or unenforceable.

Consumer Financial Protection Bureau (CFPB) and comparable EU consumer-protection regimes.
—Illustrative of modern legal mechanisms aimed at preventing predatory lending and financial exploitation.