Interest in any form is strictly prohibited in Islam as it is perceived to cause injustice. This prohibition of interest is based on the principles of Shariah which are against the exploitation of the borrowers in any manner.Those who devour usury will not stand except as stands one whom the evil one by his touch hath driven to madness. That is because they say "trade is like usury but Allah hath permitted trade and forbidden usury".

Interest-free banking popularly known as Islamic banking, originated in Egypt around the year 1963. It has grown at the rate of 15% per annum and today, it accounts for about $200 bn in assets. Ever since its inception in an Egyptian hamlet, Islamic banking has never looked back. An Islamic Development Bank was established in Jeddah in 1975 and a number of commercial banks such as the Dubai Islamic Bank, the Kuwait Finance House and the Bahrain Islamic Bank also came into existence in the 1970s and 1980s. The banking system in Pakistan and Iran is also Islamized to a large extent. Now there are about 203 Islamic Financial Institutions including banks. Besides these exclusive Islamic Financial Institutions, some banks in the West serve the Muslim community in accordance with their religious principles.

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