One of the well-known great sins is the taking or paying of riba (interest).336 Indeed, any Muslim familiar with the numerous texts censuring riba would undoubtedly do his best to avoid any trace of riba. For example, Allah has said in the Quran, “Those who devour interest will not stand [on the Day of Judgment] save as he arises whom the devil has deranged by (his) touch. That is because they say, ‘Trade is just like interest,’ whereas Allah has permitted trading and has forbidden interest. He unto whom an admonition from his Lord comes, and (he) refrains (in obedience thereto), shall keep [the money of] that which is past, and his affair (henceforth) is with Allah. As for him who returns (to interest), such are rightful owners of the Fire. They will abide therein forever. Allah destroys interest and gives an increase for charity. Allah loves not every disbelieving, sinner. Truly, [as for] those who believe, perform righteous deeds, establish the prayer and pay the Zakat, their reward is with their Lord. No fear shall come upon them neither shall they grieve. O you who believe! Observe your duty to Allah, and give up what remains (due to you) in interest, if you are (in truth) believers. And if you do not, then be informed of a war from Allah and His messenger. But if you repent, then you have your principal [without interest]. Do not wrong [others] and you shall not be wronged” (al-Baqarah 275-279).
Among the other numerous Quranic and hadith texts concerning interest is the following: Jaabir stated, “The Messenger of Allah (peace and blessings of Allah be upon him) cursed the taker of interest, its giver, its recorder and its two witnesses. They are all alike.”337 In this important hadith of the Prophet (peace and blessings of Allah be upon him) one sees that the giver and the receiver as well as those who assisted in this forbidden contract are all equally sinful and have all been cursed by the Prophet (peace and blessings of Allah be upon him).
Thus, it is forbidden to pay interest or to receive interest, and this includes the interest that one earns on one's checking or savings account. In general, if an individual wishes to loan money to another individual who is in need, this act should be a brotherly and charitable act and there should be no thought of reaping monetary benefits in such a case. If someone wishes to make a “business loan,” hoping to reap profits, then he should be willing to put his risk and not demand a guaranteed return for his money. It is not fair that the borrower is at risk in his business venture while the lender faces no risk at all.
At the same time, Islam opens the door to many avenues by which injustice is avoided while investment still takes place. Hence, profit-sharing agreements on business loans are allowed while fixed interest payments are not.
337 Recorded by Muslim.