A Riba Generation: How the Financial System sets us up for failure

We live in a world where the financial system is designed to expose us to riba—interest—at every turn, entrenching us deeper into cycles of debt and making it nearly impossible to escape. Whether it's through our bank accounts, loans, or even retirement savings, the system is structured in a way that makes engaging with interest nearly unavoidable. We are not just participants in this system; we are victims of it, and the cost is more than financial—it’s spiritual and ethical. Islam warns of the consequences of dealing with riba. 

In Surah Al-Imran (3:130), Allah says: "O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful." This verse highlights that interest is not merely an economic issue—it’s a spiritual danger that keeps us from success.

The Trap of Everyday Banking: Perpetuating Riba

In today's world, it’s nearly impossible to function without a bank account. We’re forced to use them for everything—from receiving our salaries to safeguarding our savings. But here’s the harsh reality: the money we deposit into these banks doesn’t just sit there. It gets loaned out by these institutions at interest, fueling the very system that keeps vulnerable people trapped in the cycle of debt. Banks profit off lending your hard-earned money at high rates, further deepening the financial struggles of those who are already disadvantaged. 

Under the current banking system, UK banks only have to keep a small fraction of your deposits on hand. This is called the Loan-to-Deposit Ratio (LDR). This shows that the vast majority of bank deposits are used to create loans across all aspects of life—mortgages, credit cards, personal loans—all issued at interest. For instance, Lloyds Banking Group has an LDR of 96%, meaning the total loan book of the bank represents 96% of total customer deposits. 

This means that even if you're not directly borrowing, your money is perpetuating Riba and its associated harm by funding debt-driven profits.

It also means if every depositor simply wanted to withdraw their money in one go - there would be severe repercussions. 

Credit Cards: Ubiquitous and Dangerous

The pressure to use credit cards is relentless. According to some reports, 64% of adults have at least 1 credit card. 

Everyday transactions, from groceries to utilities, are increasingly tied to credit cards, often pushing people into a debt trap they cannot escape. The numbers tell the story, UK households hold over £60 billion in credit card debt.

People are incentivized to rely on credit, and once caught in the cycle, they are met with exorbitant interest rates. What might start as a way to manage daily expenses quickly spirals into long-term debt that disproportionately affects those who can least afford it. The interest payments, in turn, funnel wealth from the financially strapped to wealthy institutions.

Retirement Savings: Investing in Riba

The vast majority of retirement savings options, from pensions to investment accounts, are built on interest-bearing products like bonds, high-yield savings accounts, and mutual funds that loan money at interest. This presents a moral dilemma for Muslims, as Islamic law forbids earning an income from riba. Yet, we are forced into this system if we want any semblance of financial security in our later years.

According to the European Commission, 63% of pension assets are invested in interest-bearing debt and other fixed income securities. This is not just an economic issue; it’s a spiritual one that demands a rethinking of how we approach retirement savings in a more ethical, riba-free manner.

Mortgages: The “Deathpledge”

The notion of homeownership has long been painted as the cornerstone of financial security, but for many, it’s a financial trap designed to benefit banks more than homeowners. In the UK, some reports show 70% of home purchases are backed by mortgages. While this might seem like a path to owning an asset, the reality is far more punishing.

With total mortgage debt in the UK standing in excess of £1.6 trillion, this financial burden is immense. The structure of the mortgage system is also designed to heavily favor the banks and be lopsided in their sharing of risk. Banks de-risk their loan by collateralizing with the home itself, meaning that if you fail to keep up with payments, they take ownership of the property. 

Mortgagors are required to pay the lion's share of the interest first, especially in the early years of the loan, ensuring that the bank receives its profit quicker. This structure means that for the early part of the mortgage term, payments go almost entirely toward interest, not principal. 

If you want to pay down your mortgage faster, banks can often impose penalties and spurious fees. Mortgages help to keep you in debt longer, with wealth flowing upward to the financial institutions that reap the rewards of your lifetime payments.

Owning a home should be a path to financial stability, but in the current system, it’s become yet another way for banks to capitalize on the debt of ordinary people, perpetuating a cycle where the rich get richer while everyone else pays the price.

We Need a New System: A Call to Action

We are trapped in a world where riba is unavoidable, but it doesn’t have to be this way. We need to abandon the interest-based financial system and promote one where real economic activity drives growth, and the risks and rewards are shared equitably. A system where people aren’t “loaned” money by the wealthy but instead “co-invest” with aligned incentives. Where wealth is built through productivity and innovation, not by profiting off the misery and debt of others.

When we make choices about interest in consuming or benefitting from it, we are directly and indirectly contributing to a world with real consequences. 

Wahed’s vision is to create a world free from interest. We believe that growth should come from real economic activity, and wealth should be built sustainably, from investing in real assets. We believe by providing professional grade investments that are always free from interest, we aim to create long-term wealth for our clients without sacrificing their faith and values. 

Join the 400,000 strong community that believes in this mission too and become an investor with Wahed today.

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