Islamic Thought on Interest and Usury

There is an absolute and categorical ban of interest (ribā) in the basic sources of Islamic philosophy. It is for this reason that a complete banking system known as interest-free banking or banking without interest has evolved into the present age. Because of the prohibition of interest it has been irrelevant for Muslim philosophers to discuss why interest is paid and how its rates are determined. Instead, they tried to visualize its ill effects and exploitative nature. Besides the prohibition of the conventional form of interest, the Prophet of Islam, peace be upon him (PBUH), also forbade two types of barter exchange and termed them interest, viz. ribā al-faḍl (interest due to extra payment) and ribā al-nasī’ah (interest due to late payment or delivery). Muslim scholars have different opinions regarding the reason why these kinds of exchange are banned.