As for the claim that in the interest dealings of the banks there is benefit for the poor layman since they receive something in return, then understand that this is the deception due to which, under the patronage of the English, this evil trade took on a beautiful form. The greed for a few copper coins has caused the poor and less-wealthy to hand over their wealth to the banks. In this manner the wealth of the entire nation has been drawn into the banks. It is clear that the bank will not give a poor person a loan. The bank will only give reputed rich capitalists a loan, thereby deriving interest. The result is that the wealth of the entire nation now becomes a 'morsel' for a few 'big stomachs'. The person who owns ten thousand, runs a business worth a million. From the huge profit that he accrues, he gives only a few copper coins to the bank. The rest belongs to him. The bank, thereafter, distributes some part of these copper coins amongst its clients in the nation. This is a conjuring evil trick. The capitalists are happy that their capital is only ten thousand, yet their profit turns into millions and the deceptive poor man is overjoyed that he received at least something. Had it laid at home, nothing would have been received! However, if an intelligent person has to study this cursed system of banking, he will realise that these banks are 'blood banks' where the 'blood' of the entire nation is collected. The 'blood' of the entire nation is then transfused into the 'veins' of a few capitalists. In this way the entire nation becomes a target of poverty and want and a few selected capitalists control the entire nation's treasure. When one businessman owns ten thousand but runs a business worth a million, then realise that besides a few copper coins of interest, he gets the rest of the profit. If he goes bankrupt and the business runs at a loss, he has only lost ten thousand, whereas the entire nation's remaining ninety thousand is also lost for which there is no compensation.
Besides this, observe the added craftiness of these 'drowning' capitalists that they have constructed an emergency escape exit in order to sneak out of the loss even after drowning. This is so because if the loss was caused by some calamity, for example, the stock-in-trade or ship was devastated by fire, then these capitalists receive compensation for the loss from an insurance company. However, if careful consideration is given, it will be realised that the insurance money comes mostly from the poor layman and not from those whose ships sink, whose shops are devastated by fire or whose cars meet up in an accident. After all, the poor layman does not own such things. The result is that the poor layman does not benefit from any calamity. Here also they are only allotted, for example, two percent of interest. The people who benefit most from calamities are the monopolising capitalists of the nation. They actually beautify and fill their pockets. Another way in which a business can run at a loss is when market prices drop. These people have found a solution to this problem as well through an engagement to supply grains, etc. for which advanced payments are made. When they speculate a drop in the market, they hurl the harm and misfortune onto the heads of others.
Besides this, another harm caused to the layman is that a 'small' capitalist cannot survive in any business because the competition between the big businessmen causes him to become insolvent very quickly. Consequently, trade which is a means of benefit and progress for the entire nation becomes monopolised by a particular group of people. A grave harm caused to the masses by these interest dealings is that when a particular group of capitalists take control over the economical framework, the prices of the basic commodities of life are inflated daily. This is a fact witnessed everywhere. Every government is concerned with decreasing inflation but alas no control has been gained over it!
Now reflect! The deceived masses received a few copper coins in the name of interest and consequently, the prices of the basic commodities of life have soared to double and triple their amounts - so now these few copper coins of interest (plus others) leave the pockets of the poor masses to return and reach the pockets of the capitalists. In two sentences, the Qur'an has exposed this deception: 'Allah has made sale permissible and interest (usury) forbidden.' The permissibility of trade has been mentioned before the prohibition of interest to indicate that it is not a crime to invest one's wealth and effort in trade thereby gaining profit. Yes, it is a crime to oppress the other partners by not giving them their right when the money (capital) belongs to them and the effort is yours. Effort and capital are the two wings of trade by which it progresses and flourishes. It is meaningless to put off the investors by giving them a few coins of copper and the rest of profits called trade and the unjust and unfair distribution of profits is called interest or usury. The fair distribution of the total profit of trade into two shares so that the investor receives half, a third or a fourth of the profit and the remaining profit is received by the active partners or vice versa is called trade or business. In Islam this method is not only permissible but rather it has been declared as the most commendable and approved way of earning one's livelihood. Yes, if the other partners, i.e. the investor is oppressed, his amount of profit is fixed and the rest is received by the other partner, then this is clear unfair play. This cannot be called trade or business. This is an exchange of credit. The Qur'an has called this interest.
If it is argued that there is a benefit for the investor in the abovementioned manner where his amount of profit is fixed because he has nothing to do with the profit and loss of the business and if the business runs into a complete loss, then too he receives his fixed amount of profit. On the other hand, if he is a partner in terms of shares, then there exists a danger of sustaining a loss. The answer to this is clear. In this case the other partner, i.e. the active partner, will be oppressed because he has sustained a loss in the business. He has lost the actual capital whereas the investing partner receives his invested amount of capital and in addition the responsibility of giving the investing partner his fixed amount of profit also lies on the head of the afflicted partner.
The Qur'an wishes to treat both partners fairly. The accrued profit should be received by both. In the case where there is no profit, none should receive anything. However, if profit is accrued then it should be fairly distributed in terms of shares. In addition to this, the current law of insolvency is such that finally, the whole nation has to bear the entire loss of the insolvent trader. If a little thought is given to the reality of interest dealings, it will be understood that its definite result is poverty and want of the entire nation and an inconceivable increase in the capital of a few capitalists. This uneven economical structure then becomes the means of the destruction of the entire country. This is the reason why Islam has prohibited this type of dealing.
Excerpt from 'The Question of Interest' by Mufti Shafee Saheb (RA).