Riba: its economic implications

According to the Qur'an, wealth spent on zaka is multiplied. Interest, which hurts the economy, is totally banned by the last verses of Surah al-Baqarah revealed at Madinah. Charity and zaka, as seen in the Qur'an, lead to economic growth and expansion. Riba is of two sorts: riba al-nasi`ah, applied on loans; and riba al-fadl, difficult to define and related to a broad spectrum of transactions. The interest taken by banks is based on calculations of the real interest rate, predicted inflation, and protection of the bank from default risk. While it is somewhat justifiable to use indexation to face issues of purchasing power, predicting inflation and charging based on this prediction is inappropriate. The Qur'an allows qard hasan (interest-free loans). Money-lending cannot yield income. Adopting an interest-free system would have improved the Pakistani economy, but because the financial instrument most commonly being used -- mark-up -- is close to interest, such improvement has n