Of all the economic proscriptions in the Qur˒an, the most controversial has been the ban on riba, the pre-Islamic lending practice held responsible for pushing destitute Arab borrowers into enslavement. According to some early Muslims, this ban was meant to cover all interest, regardless of form, context, or magnitude; for others, the ban's intended scope was limited to exorbitant interest charges. Although the restrictive definition triumphed, as a matter of practice the giving and taking of interest continued, at times through the use of legal ruses (hiyal), often more or less openly.
The latest chapter of this old controversy was ignited in the 1940s by the emergence of "Islamic economics," a school of thought that aims to purge interest from all economic operations. The accomplishments of this school include the establishment of Islamic banks in over seventy countries and the banning of interest in three of them: Pakistan, Iran, and the Sudan. Islamic banks claim that they avoid giving or taking interest, but they have found it impractical to obey their own charters. Interest is disguised under a variety of charges.
Various critics of Islamic economics, including secular economists and Islamic modernists, believe that the goal of eradicating interest is both misguided and unfeasible. Distinguishing between riba and ordinary interest, these critics hold that interest is indispensable to any complex economy, that competitive financial markets limit interest charges, and that bankruptcy laws now exist to protect borrowers against the horrors once produced by riba.
Chapra, M. Umer. Towards a Just Monetary System. Leicester, U.K.: Islamic Foundation, 1985.
Kuran, Timur. "The Economic Impact of Islamic Fundamentalism." In Fundamentalisms and the State: Remaking Polities, Economies, and Militance. Edited by Martin E. Marty and R. Scott Appleby. Chicago: University of Chicago Press, 1993.