Usury (riba) is forbidden

Muslims affirm that riba, usury, and in the dominant view any guaranteed increase on a loan of money, is forbidden. The Quran condemns it in escalating terms, contrasting lawful trade with riba and warning of divine war against those who persist (2:275-279), and instructs creditors to remit hardship. The prohibition is treated as one of the gravest of the major sins and underlies the whole edifice of Islamic finance, which seeks profit through shared risk and real assets rather than interest.

Classical jurisprudence built its detailed law of riba on a hadith, transmitted through Ubada ibn al-Samit, listing six commodities, gold, silver, wheat, barley, dates, and salt, that may be exchanged for their own kind only in equal quantity and hand to hand; from this text jurists derived two distinct categories, riba al-fadl, a forbidden excess in a same-kind barter exchange, and riba al-nasiah, the delay-based increase most people mean by interest on a loan. The schools differed over how far to extend the six-commodity ruling by analogy to other goods, especially modern currency, a question that remains central to how contemporary Islamic finance decides which transactions are permissible.

While the prohibition itself is unanimous, Muslims have long debated its precise scope, whether it forbids all bank interest or only exploitative excess, and the modern Islamic banking movement grew from the stricter reading. The rule expresses a broader ethic that wealth should arise from productive effort and shared venture rather than from money lent at a fixed return. It parallels historic prohibitions of usury in Jewish and Christian law, though Islam has retained and institutionalised the ban more comprehensively into contemporary economic practice.

The modern Islamic banking movement has a fairly precise institutional starting point: the Mit Ghamr Savings Bank, founded in Egypt in 1963 by the economist Ahmad al-Najjar, is generally credited as the first modern experiment in interest-free banking, operating on profit-and-loss sharing rather than fixed interest before political pressures closed it within a few years. The theoretical groundwork was laid alongside it by writers such as the Iraqi scholar Muhammad Baqir al-Sadr, whose 1961 work Iqtisaduna (Our Economics) argued for a distinctively Islamic economic system, and their combined efforts fed into the much larger Islamic banking industry that developed across the Gulf and South and Southeast Asia from the 1970s onward.