Table of Contents
Contemporary Challenges in Financial Life
Modern financial life presents Muslims with situations that did not exist in earlier centuries. The principles of Islam remain the same, but the forms of wealth, contracts, and markets have changed. This chapter looks at some of the main contemporary issues, without repeating the basic rulings of lawful earnings, trade, and interest, which are discussed elsewhere, and focuses on how those principles apply in new contexts.
Guiding Principles for New Financial Matters
When facing a new financial product or system, a Muslim begins with constant principles. Wealth is a trust from Allah, not an absolute possession. The believer is commanded to seek lawful provision and avoid what is doubtful.
Allah says:
“O you who believe, eat of the good things which We have provided for you, and be grateful to Allah, if it is indeed Him that you worship.”
(Qur’an 2:172)
And regarding avoiding the doubtful, the Prophet ﷺ said:
“What is lawful is clear and what is unlawful is clear, and between them are doubtful matters which many people do not know. So whoever avoids the doubtful matters clears himself in regard to his religion and his honor.”
(Al-Bukhari and Muslim)
Key principle: In new financial issues, the Muslim seeks what is clearly lawful, avoids the clearly forbidden, and is cautious regarding doubtful matters by asking people of knowledge and choosing safer alternatives when possible.
Banks, Interest-Based Accounts, and Islamic Alternatives
Modern banking systems are central to economic life. Many banks operate on conventional interest-based models. The prohibition of riba is already explained in detail elsewhere. Here we focus on how that prohibition appears in modern banking forms.
Allah says:
“O you who believe, fear Allah and give up what remains due to you of riba, if you should be believers. And if you do not, then be informed of a war from Allah and His Messenger.”
(Qur’an 2:278–279)
Savings accounts, fixed deposits, and many bonds commonly pay a guaranteed increase on money in exchange for time alone, not for sharing risk in a lawful partnership. This increase is a modern form of riba, even if it is not called by that name.
At the same time, Muslims often need bank accounts for salaries, payments, and basic transactions. Scholars generally distinguish between using a bank account out of need for safe keep and transfer of funds, and entering into interest-bearing contracts that are unnecessary.
Rule: It is forbidden to agree to or willingly benefit from guaranteed interest on loans or deposits, even if the bank or state gives it another name.
In many countries, Islamic banks and Islamic “windows” within conventional banks offer alternative products. These aim to use contracts such as partnership (musharakah), profit-sharing (mudarabah), cost-plus sale (murabahah), leasing (ijarah), and others, to avoid riba. Their reality must be judged by their actual contracts, not their labels.
The Prophet ﷺ said:
“A time will come upon the people when a man will not care from where he gets his wealth, whether from lawful or unlawful means.”
(Al-Bukhari)
The believer who opens an account or uses a financial product, even if advertised as Islamic, should exercise caution, ask questions, and consult knowledgeable scholars who understand both Sharia and modern finance.
Credit Cards, Consumer Debt, and Living Beyond Means
In many societies, credit cards and consumer loans are promoted as normal tools for everyday life. They often involve interest on any unpaid balance, late payment charges, and sometimes hidden fees.
The Prophet ﷺ said:
“Deliberateness is from Allah, and haste is from Shaytan.”
(At-Tirmidhi)
This applies to financial decisions as well. Many people sign credit agreements in haste and then fall into heavy debts. When interest charges apply to outstanding balances, the debt structure becomes a form of riba.
Some scholars permit the use of certain credit cards if the user is capable of paying the full balance within the allowed period every time, so that no interest is charged, and if there is no explicit acceptance of interest beyond what the law forces by default. Others discourage or forbid such use because of the risk of falling into interest and because the contract itself often contains interest clauses.
Regardless of difference in scholarly detail, all agree that entering into interest-bearing debt for luxury or unnecessary consumption contradicts the spirit of Islamic financial ethics.
Allah says:
“And do not squander wastefully. Indeed, the wasteful are brothers of the devils.”
(Qur’an 17:26–27)
Rule: A Muslim must avoid contracts that clearly and inevitably involve paying or receiving interest, and must avoid unnecessary debt, especially for luxuries.
Mortgages and Home Financing
Buying a home is one of the biggest financial decisions a person makes. In many countries, the common way to buy a house is through a long-term interest-based mortgage. This raises a serious problem, because such mortgages typically involve paying riba over many years.
Allah describes believers as:
“those who, when they spend, are neither extravagant nor stingy, but are between that, moderate.”
(Qur’an 25:67)
Islamic finance has tried to provide alternatives through structures like diminishing partnership (musharakah mutanaqisah), leasing to own (ijarah muntahiyah bit-tamlik), and cost-plus sale (murabahah). In these, the institution and the buyer share ownership or structure the purchase as a series of sales or leases, instead of as a pure loan with interest.
The reality, however, can vary from country to country and from product to product. Some “Islamic” mortgage products may only change terminology, while others genuinely alter the structure to avoid riba. Because housing is a major need, and circumstances differ, scholars have issued detailed opinions and sometimes concessions for particular situations. A beginner should not rush to a conclusion, but rather consult reliable scholars who understand local law and available products.
What is constant is the believer’s intention to avoid clear riba and to seek lawful shelter and stability without opposing Allah.
The Prophet ﷺ said:
“You will never leave something for the sake of Allah, but Allah will give you something better than it.”
(Ahmad)
Insurance and Risk Management
Modern life is filled with various forms of insurance: health, car, home, life, and more. Classical jurists did not know insurance in its modern commercial form, so scholars of our times have studied it to see how it relates to Sharia rules on contracts, gambling, and uncertainty.
Many conventional insurance contracts contain elements of excessive uncertainty (gharar) and a resemblance to gambling, because a person pays a series of premiums but may receive nothing, or may receive much more than they paid, based on uncertain future events rather than clear exchange.
The Prophet ﷺ forbade “the sale involving gharar.”
(Reported by Muslim)
At the same time, modern life includes legal requirements, such as compulsory car insurance in many countries, and real needs like health coverage or protection against major disasters. Because of this, scholars often differentiate between:
- Commercial, for-profit insurance, where the company’s aim is profit, and the contract is structured as a sale of indemnity.
- Cooperative or mutual insurance (takaful), where participants contribute to a shared fund that helps each other and where the operator is paid a fee to manage it.
Many scholars consider conventional commercial insurance problematic and encourage Muslims to use cooperative or takaful models when available. When there is no Islamic alternative, some scholars allow taking the minimum conventional insurance required by law or need, while still considering it less than ideal, because of necessity.
Allah says:
“He has explained to you in detail what is forbidden to you, except under compulsion of necessity.”
(Qur’an 6:119)
Principle: Muslims should seek cooperative, Sharia-compliant risk sharing models and avoid conventional insurance when possible, resorting to it only to the extent of genuine need or legal obligation, and with repentance and caution.
Stock Markets and Investing in Companies
Shares in modern companies represent ownership in those companies. When a person buys a share, they become a part-owner, entitled to a portion of profits and assets. This raises the question: is it permissible to own a part of a company that may be involved in various activities?
The basic rule in Islamic law is that trade in lawful goods and services is permissible.
Allah says:
“Allah has permitted trade and has forbidden riba.”
(Qur’an 2:275)
Trading shares of a company whose main business is permissible, such as manufacturing useful products, technology, or services, can be allowed, provided that the company does not primarily deal in forbidden goods or services like alcohol, gambling, or interest-based lending.
However, many modern companies place their surplus funds in interest-based instruments or borrow with interest. Scholars have developed criteria and screening methods to classify shares:
- Companies with primarily unlawful activity. These are generally forbidden to own or profit from.
- Companies with primarily lawful activity but with some impermissible elements in their finances. Some scholars allow investment in such companies under strict conditions, including efforts to purify the portion of profits that comes from unlawful sources by giving that part away in charity without seeking reward.
- Companies that try to follow Islamic standards in their structure and finances, which are the most preferable.
The Prophetic teaching about protecting oneself from doubtful matters also applies here.
“So whoever avoids the doubtful matters clears himself in regard to his religion and his honor.”
(Al-Bukhari and Muslim)
In addition, speculative, high-risk trading that resembles gambling, such as rapid buying and selling without real investment intention, or trading in purely virtual numbers with excessive leverage, may fall under prohibited forms of gambling and gharar.
Rule: Investing should be in real, productive, and predominantly lawful businesses, avoiding companies and instruments that are based on riba, gambling, or clearly forbidden activities.
Bonds, Sukuk, and Government Debt
Traditional bonds are usually structured as interest-bearing loans. The investor lends money to a government or company and receives regular interest payments plus the principal at maturity. As this is a clear case of riba, most scholars consider conventional bonds to be impermissible.
Sukuk, often called “Islamic bonds,” are different in structure. They represent ownership in an asset, project, or usufruct, with returns tied to the underlying real asset or activity instead of a pure loan with interest. In principle, this aligns with Islamic rules. In practice, the details of each sukuk structure must be examined, because some may be designed in a way that very closely mimics conventional interest-bearing loans.
The general ethical concern is that the Muslim avoids benefiting from lending with interest, whether to states, companies, or individuals, even if the modern market presents it as normal. The Qur’an does not distinguish between small or large scale riba.
“And whatever you give for riba to increase within the wealth of people will not increase with Allah.”
(Qur’an 30:39)
Speculation, Derivatives, and Gambling-Like Trading
Modern financial markets include complex products known as derivatives, such as futures, options, and swaps. They often involve contracts about the future price of something, rather than the real purchase and delivery of an asset. While the details are technical, many of these instruments contain elements of:
- Excessive uncertainty about what is being exchanged.
- Pure betting on movements of prices without intention of owning or using the underlying asset.
- Leveraged positions that multiply risk.
Islam forbids gambling (maisir) and contracts filled with gharar.
Allah says:
“O you who believe, indeed, intoxicants, gambling, [sacrificing on] stone altars, and divining arrows are but defilement from the work of Satan. So avoid it that you may be successful.”
(Qur’an 5:90)
The Prophet ﷺ forbade selling what one does not possess in ways that lead to injustice, and he forbade gharar sales.
(Reported by Abu Dawud and Muslim)
Trading that is essentially a bet on price movements, with no connection to real economic activity, is very close to gambling, even if done on a computer screen in a financial market. A Muslim seeks investment that is tied to real goods and services, not mere betting.
Principle: Any financial activity that primarily consists of betting on chance or price movements, without real ownership, delivery, or productive purpose, is to be avoided as a form of gambling and prohibited uncertainty.
Digital Currencies and Crypto Assets
In recent years, digital currencies such as Bitcoin and other crypto assets have emerged. They are decentralized, digital forms of value that can be transferred across networks, sometimes used as payment, sometimes held as investments, and sometimes used purely for speculation.
Because crypto assets did not exist in earlier times, scholars have differed on how to classify them. Some see them as a valid form of property that can be owned and traded, as long as they are not used for unlawful purposes, and as long as their trade does not involve riba or gambling. Others are more cautious, pointing to:
- Extreme price volatility that can turn trading into a form of speculation and gambling.
- Use in illegal activities in some cases.
- Lack of intrinsic value or widespread recognition as money in many societies.
The basic principles remain: avoid riba, avoid gambling-like speculation, and avoid unjust harm. If a digital asset is used mainly as a tool for speculation, with high risks and no real underlying utility, it becomes difficult to justify under Islamic ethics.
Allah says:
“And cooperate in righteousness and piety, but do not cooperate in sin and aggression. And fear Allah; indeed, Allah is severe in penalty.”
(Qur’an 5:2)
Crypto projects that promise guaranteed returns, “doubling your money quickly,” or multi-level marketing of tokens often contain deception and resemble Ponzi schemes, which are clearly forbidden.
A Muslim who considers owning or using digital currencies should be aware of the risks, avoid greed, and seek learned guidance. It is better to miss out on a possible gain than to fall into something sinful or destructive.
Payday Loans, Microcredit, and Exploitative Lending
In many societies, there are lenders who target the poor and desperate with high-interest, short-term loans. Payday loans, certain microcredit schemes, and informal moneylenders can charge extremely high interest, trapping people in cycles of debt.
Islamic teaching strongly condemns exploiting the needy. While lending without riba is a virtuous act, taking advantage of someone’s weakness with interest is oppression.
The Prophet ﷺ said:
“Whoever relieves a believer from a difficulty of the difficulties of this world, Allah will relieve him from a difficulty of the difficulties of the Hereafter.”
(Muslim)
He also said about a man who lends:
“Whoever would be pleased to have Allah save him from the distress of the Day of Resurrection, let him give more time to one in difficulty, or remit his debt.”
(Muslim)
Islam encourages benevolent loans (qard hasan) without interest, and charity, rather than profiting from someone’s hardship. Exploitative lending is not only forbidden, it is contrary to the spirit of mercy that Islam emphasizes.
Rule: Profiting from the desperation of the poor through high-interest loans or harsh terms is oppression and contradicts Islamic ethics. The believer should seek to support, not exploit, those in need.
Ethical Consumption, Environment, and Social Responsibility
Modern financial choices are not limited to contracts and interest. They also involve what kind of activities our money supports. Today, a person may invest in companies that harm the environment, exploit workers, promote harmful products, or support injustice.
Islam calls the believer to stand for justice and mercy, not only in worship but in economic life.
Allah says:
“O you who believe, be persistently standing firm in justice, witnesses for Allah, even if it be against yourselves or parents and relatives.”
(Qur’an 4:135)
The Prophet ﷺ said:
“The Muslim is the brother of the Muslim. He does not oppress him, nor abandon him, nor belittle him.”
(Muslim)
A Muslim should consider whether their spending and investments support harmful industries, or whether they can choose alternatives that are kinder to people and the environment, while still lawful and practical. This requires awareness, research, and sometimes sacrifice of quick profit for the sake of conscience and obedience to Allah.
Practical Attitude Toward Complex Modern Issues
Modern financial systems can be complex. Not every Muslim needs to become a specialist in finance, but everyone is responsible to the extent of their ability. The Qur’an instructs:
“So ask the people of remembrance if you do not know.”
(Qur’an 16:43)
A sound approach includes:
Seeking knowledge slowly, starting with basics of halal and haram, and learning more as needed.
Consulting scholars who understand both Islamic law and modern financial practices, and not relying only on advertisements or popular opinion.
Avoiding haste and greed in financial decisions, and remembering that true provision is from Allah.
The Prophet ﷺ said:
“Indeed, the Spirit of holiness (Jibril) inspired in my heart that no soul will die until it has completed its provision and its term, so fear Allah and be moderate in seeking. Do not let the delay of provision cause you to seek it by disobeying Allah, for what is with Allah is not attained except by obeying Him.”
(Ibn Hibban)
Principle: The believer’s goal in financial life is not to chase every possible gain, but to seek pure provision, free of riba, injustice, and harm, trusting that what is with Allah is better and more lasting.
Modern financial issues will continue to change as technology and markets evolve. The permanent anchor for the Muslim is tawhid, trust in Allah, and adherence to the ethical limits and principles revealed in the Qur’an and Sunnah.