And of their taking usury when they were forbidden it, and of their devouring people's wealth by false pretences: We have prepared for those of them who disbelieve a painful doom. 4:161

That which ye give in usury in order that it may increase on (other) people's property hath no increase with Allah; but that which ye give in charity, seeking Allah's countenance, hath increase manifold. 30:39.

(The above translations are from Pickthall's standard work, The Meaning of the Glorious Koran). The Quran nowhere gives any further details, as it does in the case of some other matters--inheritance, divorce, remarriage, evidence and even the proper procedure of oaths.

It may be thought that since the Quran prohibits usury/interest and implicit obedience to the Quran (the infallible word of God) is obligatory on the believer, the Muslim believer has no option except totally to abjure interest. This line of thinking ignores the methodological principle that prior to drawing any conclusion with regard to 'interest', the exact meaning of the Arabic term ‘riba’ used in the" Quran should be determined, instead of mechanically equating it with the English word, 'interest'. At times words of a living language undergo great changes in their functional meaning and practical significance due to various factors.

Full investigation into the socio-economic conditions of the then Arab society and the present conditions plus reasoned interpretation of the Quranic text (rather than simplistic literal obedience to the Quran or the Prophet) is the correct approach, not only for the economic historian or social scientist, but also for the committed Muslim drawing inspiration from the Quran and the example of the Prophet.

The advocates of literal obedience to the Quran also ignore (rather much too readily) the historical fact that the Prophet and the pious Caliphs always resorted to juristic reflection on or interpretation of the Quranic text. This naturally led to the admission of qualifications, subtle distinctions in the understanding of the operative or directive meaning of the plain literal texts. For instance, the seemingly categorical Quranic injunction that ‘the hands of the thief be cut off’ was never applied unconditionally on pain of disobeying the word of God.1

The making of relevant distinctions and qualifications is, therefore, also called for in the context of riba.  This Arabic word literally means increase or growth of any entity—physical, biological or spiritual. Thus the Quran refers to ‘riba’ of spiritual merit (sawaab) or of punishment (azaab). In the economic sphere riba means the excess sum demanded by the lender over and above the principal amount lent. Though 10,000 as a lump sum, at anyone point of time, is arithmetically identical with the same amount spread over several years, yet, a consolidated sum has power to purchase an animal, land or tools which  augment the wealth of the user, while the same sum spread over a long period of time lacks this purchasing power. Riba or usury, thus, has been a universal practice in recorded history. At the same time it bas been universally disapproved of, since, in general, lenders’ demands always tend to be excessive or exploitative.2

The demand of compound interest makes the situation much worse. Moreover, in ancient times the contract of usury also provided that failure to return the agreed sum in time would entail bonded labour by the borrower from 3 to 7 years. The concept and practice of usury in the ancient and middle ages was, thus, closely tied up with the institution of a form of temporary slavery. This aspect of usury was morally most repugnant in the case of distress loans. The Jewish sense of group solidarity led them strongly to disapprove of usury among themselves, though charging usury from non-Jews was permissible. Subsequently, both Christianity and Islam applied the prohibition to all human beings. This was an advance, upon the Jewish ethos. However, both Christian and Islamic jurists ignored the crucial distinction between usury (in the above mentioned sense) and interest in the modern sense of the term. If we take the expression, 'Islamic economic system' to mean a normative system which is an essential part of the Islamic faith and is permanently binding upon all good Muslims, no such system is found in the Quran or the Sunnah. Nor any such system can be deduced (logically) or inferred (analytically or analogically) from the Quran and the Sunnat. The actual claim by a person, that a particular system is the Islamic norm, is nothing more than a reference to Islamic practice in history, or his opinion how the Islamic system should be. To put it in other words, all such claims are, at bottom, a recommendation that the stated system be accepted as the Islamic system.3