This is a living example that reflects the wisdom of Islamic law in prohibiting leverage and usurious loans. Islam prohibits these tools because they are based on unfair foundations and great risks that lead to the depletion of people’s money in illegal ways.
Why does Islam prohibit leverage and usurious loans?
Riba (interest): Riba is a conditional increase on money lent, and it is forbidden because it leads to clear injustice. When money is borrowed with interest, the debtor bears the additional burden, even if he is unable to repay, which leads to financial distress.
Many who resort to usurious borrowing and leverage find themselves at the mercy of market fluctuations, and when they lose, their money is completely lost, while the usurious interest continues to accumulate.
Leverage involves borrowing money to trade larger amounts than you actually have. This multiplies potential profits but also losses. In the event of a loss, the trader is forced to cover the debt with interest.
As I mentioned, this week saw the liquidation of many portfolios due to the use of leverage, as the risks rose to unmanageable levels. The market is unforgiving, and when losses occur, the trader loses everything, including the borrowed money.
Islam forbids gambling and anything that leads to taking money unjustly. Leverage is similar to gambling, as it relies heavily on expectations and lacks real control, making it an unjustified risk in Islamic law.
Leveraged trading is like playing a losing game most of the time. Liquidation happens in seconds, leaving the trader broke.
Islamic law encourages justice in financial transactions. In the case of leverage and usurious loans, the stronger party (financial institutions) takes advantage of the weaker party (trader), resulting in clear exploitation.
Companies that provide leverage services benefit from the liquidation of traders' accounts, as they receive commissions and interest, while the trader bears the entire loss.
The wisdom of prohibition in Islam
Islam protects people from falling into financial traps that lead to bankruptcy and depletion of their money. Instead, it encourages responsible investment and calculated risk-taking using real capital. Halal trading means achieving sustainable profits without exposing oneself to unnecessary risks or oppressing others.
Real events such as the liquidation of the governor clearly show that following the Sharia is not only obedience to God’s commands, but also a means of protecting one’s life and wealth.
What happened this week with users who used leverage and usurious loans is evidence of the wisdom of Islam in prohibiting these tools. Islam calls for building wealth in safe and sustainable ways, and warns against ways that lead to the destruction and depletion of money in unfair ways.