Effects of Interest based Loans on Society

Interest/Riba based Conventional Loans have a deeper impact on the community, below are a few negative impacts directly caused by such loans which Islamic Financial System seeks to provide a remedy.

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1. Riba based loans have a fixed guarantee of return and therefore gives no consideration whether the underlying economic activity is beneficial or productive or halal. Nor care about the economic hardships endured by the borrower in repayment. +

2. Riba based lenders, share no risk, absolute risk is completely transferred to the borrower making the transaction a sure gain without any loss. This gives rise to predatory lending that keeps the borrowers in a never ending cycles of debt. +

3. Riba based loans create lender/borrower relationship and regardless of the economic situation of the borrower, the lender can leverage borrower into repayment at any point in time, (sometimes) leading to bankruptcy and liquidations. +

4. Riba based loans contribute towards creating a monopoly, where wealth is consolidated in the hands of a few and the rich are indefinitely rewarded just for being wealthy. +

5. Riba loans causes a form of injustice and exploitation killing the spirit of cooperation, sympathy and brotherhood. It paves way for a creation of a society devoid of morality and ethics through sole focus on materialism. +

6. Riba loans encourages one to live beyond his means resulting in accentuation of macro economics, inflation and squeezing the resources available for development, leading to over exploitation of resources and destruction of the ecological system.

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