Before I start debating on Riba, let us look into a little history of the Riba or Interest Rate Lending in the days of Christ.
Jewish communities are or have been known to be a bit cruel. In Shakespeare's Merchant of Venice, Antonio is told to pay with a Pound of Flesh if he defaulted. In those days, someone who wished to borrow money, have to seek to the Loan Sharks within the Jewish Community which charges interest. If it is not bad enough, rates have been very high, chargeable by the week or even days. At one instance, if someone borrows 10 Coins, he is expected to pay 20 coins by the week end, otherwise, they will be sold as slaves. What about when someone can't pay? 20 coins become 40 coins due the week after and so forth. The interest gets bigger and eventually the borrower is engulfed in debt over a small debt of 10 coins and in those days, if you can't pay, you and your family become slaves. There is no such thing as Bankruptcy Proceedings.
Fast forward to the present day.
Someone is enticed with a credit card, with so little interest. There are hidden charges the potential customer don't know about like membership fees or late fees. He uses it. He pays his minimum payment. Hidden Charges and all adds up, for something he bought in cash, it will take him as much as 5 times the cost to repay over 32 months, taking the minimum to be 5% and the monthly rate of 1.5%. In Effect, he is actually paying just 3% or less of the principal.
What if he can't pay on time on certain period like Christmas? He gets slapped $50 late fee plus other fees. Fees adds to the interest and takes him longer.
That is why Islam prohibited Riba.
Come the Syariah way of Hire Purchase or No Interest Credit Card.
Someone wants to buy a TV from Sony. Costs $1000 in cash. The bank buys from Sony for him and charges the fee and inflation rate to the customer. If he agrees, the bank lends to him on the promise that the customer must pay say $1300 within a year. He must keep to this promise. There is a late fee as per agreed if he does that. Eventually, it cost him less to be on the Syariah method.
It's the same principle as a pawn broker. You want cash, you send something to the uncle for safekeeping as security.It's like a mortgage. When you have the money, you get your goods back plus a certain rate or fee you have to pay as per agreement. Think as it as safe deposit box rental.
It is actually to help business grow faster with their cashflow and not be ridden with bad debts or run away customers. To the customer, it protects their interest by not having run away fees and derail the economics of life.
In Islam, part of the Zakat or Tithes are set aside to assist people to get out of debt. That is like an insurance policy for everyone and helps the fluid movement of money within the community.
In Malaysia, a test case of a fully fledged co-operative bank running on Syariah principles made over ONE BILLION RINGGIT (US Dollars 350 Million) by practicing these methods. Even in the United Kingdom, HSBC Amanah Banking made over 1 billion in Profits and hold more customers than their conventional system due to the protection offered to their customers.
"Perform your Solat (prayers) and Pay your Zakat (Taxes)"..Firman Allah.