Why an Interest-Free Economy was Instituted from Early Religious Zeal?

Abstract

At the end of 19^th century, the Muslim scholars realized that the current banking system and economy was interest-based (riba) in all forms of transactions whether commercial or non-commercial. After the 20^th century, proponents of Islamic economics put forward the establishment of a modern banking system that adhered to sharia principles and banned all forms of riba. It is important to note that the restriction on interest (riba) was also prevailed even among the non-Muslims and the origins of interest prohibition can be traced back to the Jewish and Christian faiths. However, the issue of prohibiting interest in modern financial system is still a matter of debate among Islamic jurists and this often cause confusion and inconsistency as to which the case of riba can be applied.  This article argues that, whereas riba is expressly prohibited in all aspects of religion in the classical religious context, the modern practice of the interest system in Islamic finance is still debated in the context of contemporary society.