The Impact of Riba on Macroeconomic Stability: A Comparative Analysis of Conventional and Sharia Banking

Abstract

The practice of usury, which in Islamic terminology refers to the additions obtained from unfair money-lending transactions, is one of the elements that is considered to undermine macroeconomic stability in the modern interest-based financial system. Conventional banking systems that rely on interest as the main instrument in the financial intermediation process have been shown to magnify social inequality, increase debt accumulation, and create speculative cycles that are vulnerable to global financial crises. On the other hand, the Islamic banking system, which is based on the principles of usury-free, profit and loss sharing, and strong connectivity with the real sector, offers an alternative to a more stable and equitable financial structure. This study aims to comprehensively analyze the negative impact of usury on macroeconomic stability and compare it with the advantages of the Islamic banking system in maintaining economic balance. Qualitative and comparative approaches are used, by analyzing empirical data, academic literature, and case studies of financial crises such as 1997 and 2008. The results of the analysis show that the interest-based financial system exacerbates economic volatility, increases the inequality of wealth distribution, and increases the risk of an economic bubble. Meanwhile, the Islamic financial system shows better resilience in the face of economic shocks, due to the avoidance of usury and a focus on real sector financing. Furthermore, this article emphasizes that the implementation of the usury-free system not only offers macroeconomic stability, but also strengthens social justice through zakat, waqf, and infaq mechanisms that are integrated in the Islamic financial structure. Considering Indonesia's condition as the world's largest Muslim country, strengthening Islamic financial institutions, public education, and regulatory support are needed to accelerate the transformation towards a fairer, more stable, and sustainable national financial system. This research provides concrete recommendations for policymakers to consider expanding the adoption of Islamic finance principles as a long-term strategy in maintaining national macroeconomic stability.