Compound interest is riba, and it is the form the Quran addresses most directly - the verse instructing believers not to consume riba doubled and multiplied describes exactly the mechanism by which an unpaid debt grows on itself until it becomes unpayable. So interest that compounds is prohibited, and more emphatically than simple interest. But a distinction matters here and is frequently missed. Compound growth is not the same thing as compound interest. If you own a share of a permissible business and reinvest your profits, your wealth grows on itself in exactly the same mathematical shape - and that is not riba, because the return comes from ownership and real risk rather than from lending. The arithmetic is identical; the transaction is not. What decides it is not whether returns accumulate but whether they arise from a loan or from something you own and can lose.
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Just compound interest. The prohibition is on the transaction, not the shape of the curve. Lending 100,000 at 10% compounding and reinvesting profits from a screened business at 10% both produce about 259,000 after ten years - identical arithmetic. But in the first you risked nothing and the increase is a price for time; in the second you bore real risk and could have lost everything. Islamic law rules on transactions.
Because it is the case the Quran describes most directly. The verse about riba doubled and multiplied refers to a practice where a debt falls due, the debtor cannot pay, the creditor extends and increases it, and the cycle repeats until the debt has multiplied far beyond what was borrowed. That is how debt traps form, and modern credit card balances reproduce the mechanism closely.
Yes, provided the underlying holding is permissible. Reinvesting profits from a Shariah-screened shareholding, rental income into more property, or trading profits into your own business all compound your wealth without a loan anywhere in the arrangement. The return derives from ownership and genuine risk, which is what makes it legitimate.
Compounding wealth without a loan
Holding Shariah-screened shares or an Islamic fund and reinvesting the returns produces the same compounding effect people want from savings products, with the return arising from ownership of real businesses rather than from lending.
Re-screen holdings at least annually and purify any impermissible portion of dividends.
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