bank interest and usuryUsury means the practice of lending money at excessively high rate, which is banned in Islam. Regarding Usury, it is written in the Quran, “That they took usury, though, they were forbidden; and that they devoured men’s wealth, wrongfully;………..” 4:161.) Usury is prohibited in Islam since it exploits individual borrower. There are two important questions that will be discussed in this article: 1) should usury be considered equivalent to bank interest?; 2) and second, will it affect negatively or positively if it is abolished?

Banks provide two facilities to their customers: (1) people can put their savings in the bank and earn interest on it; and (2) banks provide short and long term loans on interests so that people can meet their needs or fulfill their commitments. Earning and giving interest is a backbone of a banking system. Unlike individual lenders, banks are established under the law and controlled by government agencies. The basic idea of banking system is to look after monetary interests of its customers and its own; and follow the terms and conditions as laid down in the contract.

It is a modern banking system which has saved many people from begging. There are many people in a society, who have money but they are not able to work due to physical and mental illness. A bank not only provides safeguards for their money but also a source of income in the shape of paying interest on their savings. If they do not have opportunity to such a system, they would consume their resources very soon and deprived of from their basic capital. Bank interest is same as renting a house or apartment. Similarly, it provides temporary loans to people for business and domestic purposes. If this institution abolishes, it may not be possible for many people to meet their liabilities in the short span of time, which can ruin their life.

When Mullahs demand abolishing the system of interest, they do not give any alternative system how those people would survive whose sole income is the bank’s interest. Similarly, they do not have answers to a problem that if people need a temporary loan to overcome on the ongoing problem where they should go. Should Mullahs want that giving loan become the responsibility of the society and the needy knocks door to door to borrow money? If this responsibility is left to individuals, it shall lead the society to the old system of Usury. If, today, banks stop paying interest on people’s saving or lending loan, there will be chaos in the system. Moreover, abolishing interest from the banking system, people might not be interested to put their savings in banks.

It is Mullahs narrow-mindedness that they regard the modern banking system of interest as same as usury. The modern banking system, if properly governed, facilitates to the creditors and debtors. We should not ignore the fact that banks write off loans in the case of bankruptcy and insolvency of a person or a business. This very fact makes a great difference between a modern banking system and system of giving loan by individuals. Mullah minded dictator Zia-ul-Haq had also played the drama of interest free banking and introduced a new account system under the title of “profit and loss”. The banks did not pay more interest to the clients than usual. The difference between the said bank account and the other categories of bank accounts is merely a difference in name.

It is not to say that the modern banking system has no room for improvement. Complaints against banking system are growing around the world because of their exploitative policies. Banks exploit customers in various ways, for example, banks in many countries such as Pakistan and Denmark do not pay interest to small depositors though the total amount of deposits goes in billions of dollars. Time to time, they introduce a number of unnecessary charges for services such as withdrawing and depositing money. It is not uncommon to add hidden charges, which people come to know after using the service. The real demand is not to abolish ‘interest’ system but to control and monitor exploitative behavior of banks. If properly monitored, the modern banking system cannot exploit clients in the same sense as it happened in the dark days.

Nadeem Yousaf

Uploaded on 2 July 2012

Bank Interest Vs. Usury