On the prohibition of riba (interest) and its implications for optimum economic performance

Interest is seen as the additional payment given to owners of capital funds for allowing others to dispose of those funds. Without interest, the capitalist economic system would fall apart. Islam has always seen such a system as exploitative. Furthermore, the fact that there is a positive interest rate leads to harmful speculation rather than cooperation between investors and businesses. Statements regarding the prohibition of interest appear in al-Qur'an. Because conventional thinkers regard interest as a price like any other, they might be of the opinion that the proper allocation of funds will not take place in an economy without interest. Such an opinion is incorrect because there is in fact a price of capital in an interest free economy, and that price is the investor's share of the profits. Without the inequities between borrower and lender fostered by the interest system, economic advancement can more easily be achieved. Excessive government debt financing will typicall