What Makes Banking Industry Unlawful in Islam

worlds banking industryIslam is a religion which has provided its believers a very clear and justifying path towards all the matters of life. There are lawful (halal) and unlawful (haram) limitations based on the extent and impact of the actions as per told by Islam. As far as the source of earning is concerned, there is a very fine line between haram and halal ways of income. We can not question on any of the directions told by Islam since there is a wide explanation for all these matters.

A very common trait that remains disputed in the limelight is banking and its unlawful in Islam. Lets have a look over what facts and figures say regarding banking in Islam.

World’s Banking Industry

There is a broad emphasis that needs to be put on the world’s banking industry while considering it as Haram in the light of Islam. The factors that make it unacceptable include the usury that is interest taken on every single activity upon which all the banking services are based. Private ownerships and excessive profit making by charging interest is the conventional practice which is not in any case lawful in the light of Islamic teachings.

Perspective of Banking in Islam

 prohibition of interest

There is no denial of market forces or even profit making (to some extent) in Islam. When it comes to the world capitalist economic system and banking, you can say they make you their slaves. Banking in particular involves an unlimited and uncontrollable liberty at making profit out of nothing. Moreover, the main factor that makes banking unlawful according to Islamic jurisprudence is the ‘Interest money’ or more accurately ‘Riba’. If we ponder over the banking activities, there is no trait that takes place without charging interest for lending and accepting of money. Not only this, but for any service that banks provide to its customers, there is a margin of interest for bank itself and the client as well.

That clearly makes Banking which is not based on the principles of Islam unlawful.

Prohibition of Interest

There would be nothing wrong if we say that interest is the chief factor that makes conventional banking haram in Islam. Before getting into details, we must have an idea what interest basically refers to.

‘Interest refers to a charge made for a loan or credit facility, or any excess paid or received on the principal.’

The process of taking interest seems quite fascinating and appealing since it gets you a profit out of nothing that is you have to do nothing and you get your amount of interest. But you should not get indulged with this vice since it has been described unlawful repetitively by Allah and Prophet Muhammad S.A.W.W. Also, this prohibition is bilateral, no borrower or receiver can charge an interest on any kind of activity.

Allah says in Holy Quran:

“And whatever riba you give so that it may increase in the wealth of the people, it does not increase with Allah.” [Ar-Rum 30:39]

From Abu Hurayrah:

The Prophet, peace be on him, said: “On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had received riba.” (Ibn Majah, Kitab al-Tijarat, Bab al-taghlizi fi al-riba)

Islamic Banking


The unlawfulness of banking in Islam does not mean that Islam does not allow its people to be with the world’s market. There are some rules and principles prescribed by Islam which make banking clear and lawful for all the Muslims. Islamic banking system has been set up since a long ago and people can easily invest and secure or lend their money out of this service without any doubt of getting riba or excessive profit.

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