It should be given away to public welfare causes without the intention of earning reward.
Interest Donations
What is Interest (Riba)?
Riba is an Arabic term meaning "excess" or "increase," primarily referring to interest or unjustified gain in financial transactions, strictly prohibited in Islam as exploitative and unfair.
It involves any predetermined, guaranteed excess on a loan or debt, like interest on a bank loan or credit card, without real economic activity or shared risk. Islamic finance avoids riba through profit-sharing and risk-taking models instead of lending with interest.
Interest (Riba) donations are accepted to help dispose of impermissible income in a Shariah-compliant manner by supporting welfare and public benefit projects.
Why riba is prohibited in Islam?
Allah (SWT) tells us in the holy Qur’an to not engage in interest-based transactions/investments:
“O you who believe! Fear Allah and give up what remains [due to you] of interest, if you are true believers.” (2:278)
High levels of interest can lead to debt and financial insecurity, exploiting people on low incomes and without a financial safety net. Islam instead encourages non-interest based giving, charity and long-term investments for the benefit of others such as sadaqah jariyah and waqf projects. Zakat also ensures a social security net for people in need.
The harmful consequences of riba, and why it's forbidden
In Islam, riba is a grave sin, with perpetrators of riba warned of war with Allah (SWT) and His Messenger (PBUH).
“O believers! Fear Allah, and give up outstanding interest if you are ˹true˺ believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm.” (Quran 2:278-279)
However, despite this extraordinary warning of war, some still argue that charging interest isn’t immoral.
Riba fosters inequality
Interest is an exploitative practice that helps the rich and harms the poor. It allows rich people to make a guaranteed return simply because they are already wealthy. It penalizes the poor whose efforts are exploited. It’s inequitable as the poor take on all the risk. Paying interest also makes it more difficult for the poor to build wealth. Instead, it can trap them in a never-ending cycle of debt. This is compounded by the penalties imposed by most interest-based products, such as late repayment fees and overdraft charges. These penalties disproportionately punish the poor and exacerbate inequality
So how can we avoid Riba?
If you have received interest, you should spend it in the way of charity without expecting reward.
- Having tawakkul that Allah will provide for you and your family
- Not taking out loans which incur interest
- Choosing halal investments (for example gold rather than the stock market)
- Renting and saving the cash for a home instead of a mortgage
- Being wary of contracts you sign and having a student of knowledge/imam/shaykh check them
- Opening up bank accounts without interest (in other words, chequing accounts)
- Making bill payments on time so as not to incur a late penalty (set your account to automatic payment so the bank will automatically withdraw and you will be sure to not pay late)
- Borrowing money from family or friends where possible
- Not buying what you simply don’t have the money for – live within your means
- Dealing with Islamically compliant banks
- Accepting/Organizing a “Goodly Loan” (al Qard al Hasanah), which is a loan by means of which one intends to show kindness to another, which does not involve taking Riba
- Taking a gap year before university to save up and avoid interest loans or bad credit payday loans at vivapaydayloans.com, and/or doing a co-op/working during university
FAQs about Riba
How should interest money be disposed of?
Can interest money be mixed with halal income?
No, it should be separated and disposed of as soon as possible.