Are Finance Charges In Islam's Interest?

Rizwan Kadir liked working in finance, but when he read a verse in the Koran that said engaging in usury was the same as "waging war" against God and Islam's prophet Muhammad, fear struck him.

"When you come across an aya [verse] like this, it makes you start wondering what you're doing with your life," said Kadir, an investment banker in Chicago.

He started reading about Islamic views on interest and talking to workers at Islamic banks that offered interest-free finance as a foundation of their business.

Kadir eventually concluded that the prohibition on interest didn't jibe with Islamic logic and that the "interest-free" arrangements touted by Islamic banks were just usury under another name.

"What they're doing is calling the same thing with a bunch of different names," said Kadir, who has a mortgage and auto and student loans.

The prohibition on charging and paying interest is a cornerstone -- along with withholding investments from trades such as alcohol and

pornography -- of the rapidly emerging industry known as "Islamic finance."

There are about 270 Islamic banks with more than $265 billion in assets, according to sponsors of the International Islamic Finance Forum, a semiannual industry conference that meets in Switzerland this fall. Most of the banks are found in wealthy Muslim nations, such as Saudi Arabia, Bahrain, Dubai and Malaysia. In addition, many Western banks, such as industry giants Citibank and HSBC, have established Islamic finance departments.

But a growing chorus of critics say the idea that Islamic law forbids all forms of interest is incorrect. Moreover, they argue, some of the bankers, lawyers and clerics who draw up and bless "interest-free" transactions are profiting off the pious with

arrangements that look a whole lot like usury.

Islamic scripture condemns riba, an Arabic word meaning excess, which is commonly interpreted as usury. Some Islamic law scholars assert that all interest is prohibited. Others say that only excessive interest is prohibited and that interest is an indispensable part of society that a logical God wouldn't condemn.

"The notion that the spirit of the Koran is against modern forms of interest, like on a mortgage or a consumer loan, this to me makes no sense," said Timur Kuran, chairman of Islamic studies at Duke University.