Does interest has an effect on the national economy?

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.

Riba (interest and/or usury) has dangerous effects and bad consequences on the economy. This is one of the reasons why Allaah forbade it. We will limit ourselves here to two disastrous effects of Riba on the national economy both in the consumption level and the production one.

Firstly, the Riba loans add to the exploitation of the poor and the needy as it results in more poverty, hence reducing their future earnings. On the other hand, these Riba loans make the rich creditors richer and add to their future earnings. It is known that the poor and needy classes constitute a big majority of the society. In case the income of this category of people decreases, then their demand on the consumed and invested commodities decreases as well. So, if we know that this demand is actually the magic key that turns the wheel of the national economy, as a whole, we realize how big the extent of the economic problem there will be and how expensive it is for the individual as well as the society in general.

Secondly, in the field of investment and production, the Riba banking system allows the outflow of currencies to the wealthy people who are able to pay the loans while the poor ones bear the expenses as the prices of commodities rise up; this results also in national economy inflation which is disastrous for any economy.

Finally, know that Allaah never forbade anything except that there are some harmful effects to it.

Allaah Knows best.