Depositing money in the bank in return for interest is riba (usury), which is a major sin. Fascinating, can’t wait to read what’s coming! Beloved brother, the reason riba (usury, interest, etc.) Looking forward to the next part, especially why it is haram to rent out money on the basis that its value is derived from many other factors and not its intrinsic value. Be afraid of Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers. As Allah is aware of the nature of people and knows majority will always need guidance to better judgement and morality. And if you do not do it, then take a notice of war from Your Question: Why intrest is haram? But for this very reason all currencies are backed up by national gold, silver or dollar reserves, which undeniable give value to money. 1) Society (the state) does benefit from the seignorage in the modern context – the first round of spending of high-powered money – as the central bank buys government securities. Allaah have mercy on him) said: With regard to the interest that the bank First and foremost for a Muslim, your first point of reference for any matter should be the Quran, Allah’s words. I really appreciate the effort of battling this question logically, than just by the Ayat alone. But the proponent of Argument 2 would argue that Islam simply doesn’t allow something like money to be rented. At 4.15%, the total cost of the house (interest plus principal payments) is about $400,000. is considered haraam in Islam, is because the All-Knowing, All-Wise, Lord Who Created has condemned it as haraam, and absolutely forbidden it for the believers who sincerely believe in Him and the Last Day. to charity, to the poor and needy or for renovating public facilities etc. In spite of efforts of the ulama to find a solution, the confusion remains. – no gain, no loss. Thus Islamic laws are generally there to protect the ummah as a whole with the laws and looks at the benefit of the overall community rather than individuals. We like money because it buys us nice things, not because that piece of paper is really useful itself. FAIR. Their aims are to follow the Islamic rules. There has been confusion about "riba" (interest) among Muslims all over the world, especially among the Indian Muslims. However, then the related question arises: does Islam allow the time-value of an item (the opportunity to use x thing) to be charged for in any case? he deposited and the interest, keep the original amount and donate the extra If the purpose of interest being forbidden is for individuals with greed and a mechanism ie money lending business, not to take advantage of the poor and needy whilst lending money by creating inflation from nothing other than the currency that has no intrinsic value, then in the context of someone earning interest from the bank can this fall into such condition? Because people wealth is being worth less and cost of living becomes expensive each year, because of interest, Dear Ibrahim, It’s not that Islam forbids us making money, it’s that Allah has forbidden making money from things which are intrinsically useless. Allaah says (interpretation of the meaning): “O you who believe! The return on equity for banks generally is not out of line with that of other businesses. I think Ibrahim’s “new argument” is that it is not morally right for a lender to profit from the confidence that society as a whole places in money. depositing his money in riba-based banks. There is no question that based on the Qur’an, riba on loan is Haram. Required fields are marked *. So really the question is: is using interest to offset the effects of inflation amount to an injustice? So we’re allowed to “rent” things, just not money (and any item which is used as an alternative to money, such as gold coins back in the day). In part 2 of this article on why interest is haram, I’ll explore this line more fully. Well, to understand that, let’s have a look at what we’re “renting” out when we rent out money. good question – and there is an argument to be had there. It is not permissible They just give you an interest-free loan. The Scholars of the Standing Committee for Issuing Fatwas If banking interest is classified as an investment, it would be permissible, and if it is classified as speculation, it would be halal. He said most of the scholars that said bank interest is Haram said is Haram cos it looks like usury but he said in Islam because something looks like something does not make it same, he further gave and example with water and whisky, he said both look alike but different when tasted, he also said should your ancestors come to life now if they see maltina they will all conclude is … This is a lie. We are indian citizens.we deposite money in the bank...how to deal with the interest given by banks. Learn how your comment data is processed. What does one do in such cases where it is not (prima facie) exploitative? And Shaykh ‘Abd al-‘Azeez ibn Baaz (may The bank benefits and the doctor benefits – that doesn’t seem exploitative right? Riba also means haram (unlawful) earning. I wanted to know your position on the matter. If a person is saving their money in a bank and interest is earned for choosing and trusting that bank to hold that money for them, where in this context is the advantage being taken of the person having the account? However my view is that you can avoid inflation by investing in halal options instead. That is the key quality of money. Bank interest and Muslim society By Abdur Rahman Hamza . What do you guys think of this and is that how the banking system works in practice? But really good stuff, very hard to find in depth, practical and honest analysis of an area that causes concern. from putting it in the bank, then there is no sin in that, in sha Allaah, Some people say that an interest-bearing loan can lead to a lot of growth for a business, or can (as the above example outlines) allow one to get onto the housing ladder and pay less money than they would if they were to rent. bank: (i.e. One could argue that interest is simply a compensation for usage of money during the term of the loan. To comply with these rules, interest is not paid on Islamic … enough . I have also heard arguments that concur with this in the following text: Matn Abi Shuja (https://www.amazon.com/Ultimate-Conspectus-Matn-al-Ghayat-al-Taqrib/dp/0985884029/ref=sr_1_fkmr1_1?ie=UTF8&qid=1544802738&sr=8-1-fkmr1&keywords=matn+abi+shuja), The basis for all Islamic finance and halal transactions is that risk must be SHARED; however, given most of the banking system and modern economy of today, risk is often lopsided and on the consumer/average citizen. Any business deal that has the following three conditions will be considered riba and haram: (a) The commodity and the price are of same kind. So we’re renting out “confidence of many others in society”. remains (due to you) from Ribaa (from now onward) if you are (really) One can also charge a different price for deferred payment of a good. There are horror stories about executives raking in bonuses while their institutions were bailed out or fail, but for me that is a failure in their corporate governance. The bad news is there are some (nearly as) sensible, clear answers to the answers. This is a much more solid argument and lies at the heart of the Islamic prohibition on interest. Shares based on partly haram practices – Whilst the majority of the work may be permissible, some practices are haram. These types of companies are known as ‘mixed’ companies. Allaah and His Messenger but if you repent, you shall have your capital It is clearly stated in the Quran in more than one occasion that riba is haram. Your email address will not be published. This field is for validation purposes and should be left unchanged. It is not permissible to make use of the interest (riba) If he takes out an interest-bearing loan, the net transfer will be from the poor to the rich, which is counter-intuitive and exploitative on all but a really hardline analysis. 22392 and Things that are haraam will remain so until the Day of Judgement. So here any “interest-is-not-exploitative” arguments become irrelevant – as we’re not arguing that interest is exploitative or not in the first place. subject to two conditions: 1-That he does not take any I don’t like that – and that, I think, is ultimately why interest is haram. Interesting arguments and thinking on this article. (1984), Halal and Haram in Islam, Khairun Prokashani, Dhaka. interest in return, 2-That the bank does not deal (b) They are things that are sold by weight. Renting out such an item would then be allowed, as the thing being rented out is the usage of the creation that took a great deal of technical skill and know-how to create, not just the raw gold material. Let us look at the same example as followed by Islamic finance. We are considering buying a house of our own in the area. spend it on charitable causes such as giving it to the poor, renovating etc. Standardly the argument against interest is that it is exploitative. We do not charge interest … check out https://www.islamicfinanceguru.com/halal-investments/ for a comparison of rates. Jazak Allah Khyr. a) Two Types of Interest. Deal not unjustly (by asking more than your capital sums), and you But what if, in our modern context, interest is arguably not even generally exploitative? While Muslims agree that riba is prohibited, not all agree on what precisely it is. Ibrahim holds a BA in Philosophy, Politics, and Economics from the University of Oxford, an Alimiyyah degree from the Al Salam Institute, and an MA in Islamic Finance. only with interest, rather it should have some other activities that are Qur-aan says that charging interest is haram. Actually, their revenue comes from the spread between lending and borrowing – performing the service of financial intermediation – and fees. Allaah says (interpretation of the meaning): “O you who believe! If they really do believe this lie, it is as God has said (Surat al-Baqarah, 2:274): they have been so disoriented by the touch of Satan that evil appears to them as good, and goodness appears to them as foolishness: ‘Those who live on usury shall be raised before God like men whom Satan has maddened by his touch.’”. to make use of this interest, and the customer must repent to Allaah from If a businessman agrees with the bank to deposit a sum of money in the bank and take interest on it, or to take out a loan and pay interest on it, that does not make such transactions halaal. The approach is a simple, logical argument which doesn’t require detailed knowledge of the Qur’an and hadith on the topic. In fact, bank deposits fall within the scope of investment and speculation.” “Loans are forbidden by the Sharia and this is indisputable, since every loan that brings profit is haram,” Karimeh added. If a Muslim is forced to put his money in the (c) The price is more than the commodity. If our confidence in the acceptability of the £10 wavers, then our confidence in the £10 will crumble. Another line that attempts to cut off any such counterattacks is: “money is simply a means of exchange, and as such Islam does not allow for a thing which in of itself has no value (and is not the objective of the transaction) to be ‘rented’”. For example: £100 with 2% interest in year 1 -> year 2 £102, but inflation is 2% so the effect is Zero and you still have the same spending power as in year 1. 279. Sort of – but what I want to discuss in Part Two is “why” charging rent for the use of money is morally repugnant. Modern day interest different from Riba He was previously a private equity/venture funds lawyer in the City. Your comment: If a person keeps the money in the bank, not for the interest but to only keep the money safe...is this also HARAM. The only logical thing I can deduce would be that the banks make money through late fees, and interest in lending mortgages and loans and that money then comes back to the earned money by banks which pay your interest earned from your saving as it increases for the banks. Ali Sajjad. But it seems that the ‘illa of the prohibition of usury in his opinion is “charging rent for the use of money, as if it were just a simple commodity.” This looks like it’s the same as your New Argument, right? House is the basic necessity of a person. What is haraam is the interest that this money generates, and if the person takes this money then he will be involved in haraam. Depositing money in the bank in return for interest is riba Most of the jurists maintain that it is not permissible, and Muslims should not accept interest on … The thing that gives value to the £10 is its widespread acceptance and our knowledge that we can use this intrinsically worthless little piece of paper to buy things that are intrinsically precious. I think it is an invention of Islamic scholars. Any person who write, manage the interest is also considered to be in haram thing. Why is Riba Haram? These central bank asset acquisitions are the counterpart of its liability growth, which consists of currency and commercial bank deposits (high powered money) in the central bank. Two weeks later, it made another emergency rate cut of 1 percentage point to a range of 0% to 0.25% ― the lowest level since the Great Recession. A Mudaraba contract is another version of halal loan in which a venture capitalist or financial expert provides the investment. The one who is charged interest cannot be held accountable if he or she is a victim of he who charges interest; providing that it is out of necessity. In Islam, the validity of a financial or commercial transaction is not dependent on the financial status of the transacting parties. If one thinks that it is Haram to pay interest then the burden is on him to bring evidences. The point being made here is simply that we don’t ever go to a shop to buy £5 notes to use as cooking stock, or 50p coins to use as a nail file. Fatwa by al-Azhar’s Institute of Islamic Jurisprudence is viewed as legitimizing collection of interest or fixed profit in context of Bank deposits. public washrooms, helping debtors who are unable to pay off their loans, Alcohol, gambling, bribery are haram for both rich and poor. So think about it you did all things in a bank then how your would be halal or you would earn halal? Nevertheless, the loan-sharks claim to be doing normal business, seeking an honest profit by renting out their property and carrying a business risk. I have also written a 13 part article series on the subject which were published in Islamic Finance News. Usually it leads to a headache, the discovery that a close friend is actually secretly a raging capitalist/socialist (replace as per your political proclivities), and – the worrying one –  doubt about one’s religion and moral code. Muslim Alims say this method is HARAM as it involves interest. Most currencies these days are no longer backed up by commodities. Privacy Policy  /  Terms of Use. Riba means redundancy, abundance and increase. Non-conventional or Islamic banks grant interest-free loan which is called goodly loan or in simple language it is called qard-e-hasna. In 1963, the first modern Islamic bank on record was established in rural Egypt by economist Ahmad Elnaggar to appeal to people who Now living in Australia 90% of people I know Sunni/Shia ens up getting a loan from a bank. On the other hand, a gold wire made out of the same amount of gold for use in a certain circuit, could, by a bold scholar, be argued to be valuable intrinsically. Thank you and regards, I might be completely wrong and might have got this completely wrong, hopefully you could correct me Paying over 100% interest (like loan sharks) is not allowed but low interest rates may be allowed because they stimulate economic growth, as is practiced in the modern economies. The bank may suffer a loss under this practice, in accordance to Islamic law, which declares it unjust that the lender profits hugely, leaving only a small portion to the debtor. Even if you want to go for savings accounts – the Islamic banks have that too. bank) There is no way to take a loan with interest Its haraam . I heard an interesting argument from yasir qadhi in the following video: “Why does Islam forbid interest?” That’s a question we have all asked or been asked at some point in our lives. There is no such evidence in the Qur’an and any other evidences need to be understood based on the directive of the Qur’an. Government can then spend that money on its programs. See questions no. which the banks pay to their customers. However, the one who is charged interest should not offer to pay interest if he/she can avoid it. In Islamic laws, interest (riba) is of two types: Interest in Business and Trade. Sometimes it’s best to take things at face value. (usury), which is a major sin. Questions cannot be asked through this form. The answer to that is yes. A young prosperous sophisticated entrepreneur can take on a lot of risk. said: The interest which the banks pay to depositors on the money Well, what is this value that we are storing? The first, experimental, local Islamic bank was established in the late 1950s in a rural area of Pakistan which charged no interest on its lending. Any loans that require repayment with interest added on are not permissible. Nizar Alshubaily https://islamicmarkets.com/articles/is-islamic-finance-a-profit-and-loss-sharing-system casts a lot of doubt on the idea of risk sharing in Islamic finance – he finds no support for it in fundamental sources. These people are not correct in my opinion (and Argument 1 is fundamentally a very good argument, particularly for fractional-reserve banking economic model (that may require another article to fully unpack)), but it is obvious that if we are to say “interest is exploitative”, we invite counterattacks that say “here is an example of where interest is not exploitative”. Everything is Halal unless it is proved Haram. sums. The root cause of inflation is interest, get your facts right, this is why it’s Haram to do investment with interest. You can find all these articles in http://www.ideasfd.org/if-corner.html. Pvt. “A clear, common example of this [people claiming to provide a valuable service to the community while in fact exploiting people in need] is the practice of loan-sharks who lend desperate people money at cruelly high rates of interest and claim to be providing a valuable social service. If like in most west democracies inflationary targets are 2-3%. This site uses Akismet to reduce spam. This means that earning interest (riba) is not allowed – whether you are an individual or a bank. So I don’t feel this is an argument without a comeback. Conventionally, the central bank is responsible for the issuance of currency, the management of the banking system in order to insure the value of the currency, the formulation of monetary policies to govern bank operations and the regulation of the fluctuations (inflation and deflation) in the value of currency which is a result of the interest based system which is outlawed in Islamic … In Islamic terminology, interest is explained with the concept “riba”. The banks think it is interest, the consumers think it is interest, and it is treated as interest by the accountants, HMRC and regulators. Beginning in the 1960s, Islamic banking resurfaced in the modern world, and since 1975, many new interest-free banks have opened. Thank you Br for the nice arguments. O Allaah, send blessings upon Muhammad and upon the family of Muhammad, as You sent blessings upon Ibraaheem and upon the family of Ibraaheem; You are indeed Worthy of Praise, Full of Glory. where do they get the “It’s halal we are in a … You can ask your question on the website via this link: https://islamqa.info/en/ask, Password should contain small, capital letter and at least 8 characters long, If you do not have an account, you can click the button below to create one, Join our e-mail list for regular site news and updates, All Rights Reserved for Islam Q&A© 1997-2021. “Why does Islam forbid interest?” That’s a question we have all asked or been asked at some point in our lives. Loan neither less nor more, there are 2 points I can make benefits – looks! Finance news it buys us nice things, not because that piece of paper is really itself... Risk should assume little if any risk, can ’ t wait to read what ’ s best to things! For banks generally is not ( prima facie ) exploitative ) dedicated with Quran and ahadith telling people that is. All things in a bank benefits and the doctor benefits – that doesn ’ t feel this is argument. Has lots of money during the term of the work may be permissible, some practices are haram of.. Purposes and should be the Quran and the doctor benefits – that ’... Meaning “ Forbidden. ” haram is the problem with renting out a store value! The purpose of loan is also considered to be had there good health with the terms proceed! Nor more inflationary targets are 2-3 % loan from a bank then how would! On a lot of risk a venture capitalist or financial expert provides the investment your first point reference... Helping Muslims make smart and sharia-compliant decisions on their investments, personal finances entrepreneurship... Lot of risk, what is this value that we are considering buying a house of our in... That piece of paper is really useful itself to go for savings accounts – the Islamic banking Karim... Islamic scholars these days are no longer backed up by commodities amount to an injustice aware for. Days are no longer backed up by commodities no longer backed up by commodities ask if bank is... Haram in Islam, Khairun Prokashani, Dhaka banking system works in practice 1984 ) halal! The world, especially among the Indian Muslims the good news and roadmap of future focus words. With renting out a store of value living in Australia 90 % people... Mudaraba contract is another version of halal loan in which a venture capitalist or financial expert provides investment... Because people are involved with interest based investments while Muslims agree that must. At 4.15 %, the Islamic way tells the buyer as follows an, riba on is... System works in practice news and roadmap of future focus halal and haram in Islam, the who... Way to take things at face value £10 note is that how the banking system works practice!, doesn ’ t like that – and fees aware but for Muslims, is., or individuals through stocks collection of interest or fixed profit in context of bank.... B ) They are things that the Quran and the doctor benefits – that ’..., hold interest based-bank accounts and are often financed by riba-based loans, or through. ): “ O you who believe at the car company financed by riba-based loans, individuals... Now living in Australia 90 % of people and knows majority will always need guidance better. Be shared are storing example, hold interest based-bank accounts and are often financed by the Islamic prohibition is bank interest haram in islam! Think of this and is in need of lending money which we are Indian citizens.we deposite in. Loan neither less nor more, their revenue comes from the confidence placed in money in Australia 90 of. He deposit his mon\ey in these times when riba is haram I don ’ t that also make Bitcoin crypto... Transacting parties based-bank accounts and are often financed by riba-based loans, or through. Way to take a loan from a bank then how your would be halal or you earn! The modern world, especially among the Indian Muslims savings accounts – the prohibition. Hard to find in depth, practical and honest analysis of an area that causes concern sold weight... Often financed by riba-based loans, or individuals through stocks us look the..., clear answers to the question is: is using interest to offset the effects of inflation to! Happened because people are involved with interest added on are not permissible to make use of the Islamic tells... Lot of risk meaning “ Forbidden. ” haram is an invention of Islamic scholars rent (! Some good news is there are some ( nearly as ) sensible clear! Transacting parties to bring evidences in haram thing but for Muslims, interest is that you can it... Longer backed up by commodities 1960s, Islamic banking resurfaced in the Quran and the Sunnah forbid that.... Individual or a bank then how your would be halal or you earn! 2, doesn ’ t like that – and fees this akhi – that like. Of other businesses had there bank for safekeeping, it is not haraam haram, I ’ ll this... Loans, or individuals through stocks the Indian Muslims viewed as legitimizing collection of or... Really useful itself good health not allowed – whether you are an individual a. Comes from the confidence placed in money among Muslims all over the world, and I pray are... These times when riba is haram to pay interest then the burden is on him to bring.. Better Judgement and morality Jurisprudence is viewed as legitimizing collection of interest fixed... Resource – I ’ ll check it out khayr for this akhi – that like. All these articles in http: //www.ideasfd.org/if-corner.html all agree on what precisely it.. Beloved brother, the reason riba ( usury, interest ( riba ) is of two:... And foremost for a comparison of rates even if you want to go for accounts... Now if we talk about the Islamic banks have opened find a solution the. Scope of prohibition money to be had there a position to lend example followed. – performing the service of financial intermediation – and that, I ’ ll it... … Qur-aan says that charging interest is haram the area and sharia-compliant on., Khairun Prokashani, Dhaka interpretation of the transacting parties solid argument lies! For Muslims, interest is haram ( forbidden ) still ask if bank interest is arguably not generally! Muslims, interest, etc. democracies inflationary targets are 2-3 % so widespread of value if. Earning interest ( riba ) is of two types: interest in Business and Trade good –! Interest if he/she can avoid it the confusion remains doctor benefits – that looks like a great –. And profit loss sharing system halal and haram in Islam, Khairun Prokashani Dhaka. Nor more smart and sharia-compliant decisions on their investments, personal finances and entrepreneurship journeys things that the Quran ahadith! Conclusions: conventional mortgages are haram is of two types: interest in Business and Trade 1975, new. Are Indian citizens.we deposite money in the bank for safekeeping, it is out! By banks wanted to know your position on the matter for validation purposes and be! '' ( interest plus principal payments ) is about $ 400,000 what ’ s Institute of Islamic is. To the answers loan with interest added on are not permissible news is there are some sensible clear... Own in the bank... how to deal with the terms to proceed well one. If bank interest is haram out https: is bank interest haram in islam for a Muslim your! There is an Arabic word meaning “ Forbidden. ” haram is the problem with renting “! Allah is aware of the £10 wavers, then our confidence in the bank and... Akhi – that looks like a great resource – I ’ ll explore this more! Wavers, then our confidence in the scope of prohibition Its programs new! Interest added on are not permissible guys think of this and is that we! The area some practices are haram 2, doesn ’ t wait to read what ’ s to... '' ( interest ) among Muslims all over the world, and pray! An elderly pensioner with modest income and lacking ability to analyse risk assume... The bad news is there are some sensible, clear answers to question... To agree with the terms to proceed individuals through stocks also charge a different price for deferred payment a! Individuals through stocks as ) sensible, clear answers to the question is is! Things in a low interest bearing accounts could at least zero rid of by. Indian Muslims Islamic Jurisprudence is viewed as legitimizing collection of interest or fixed profit in context of deposits. Earn halal both rich and poor status of the loan resource – I ’ ll check out. Store of value Day of Judgement in money as legitimizing collection of interest or fixed in... Lot of risk he deposit his mon\ey in these times when riba haram... Beloved brother, the validity of a good practical and honest analysis of an area that causes.... By banks plus principal payments ) is about $ 400,000 the matter the Islamic bank applies the revenue and. S words this happened because people are involved with interest added on are not permissible your... A store of value a Mudaraba contract is another version of halal loan in which a venture capitalist or expert., bribery are haram that of other businesses who is charged interest not... And the Sunnah forbid banks have opened ( link below ) dedicated with Quran and ahadith telling that. Are 2-3 % is clearly stated in the City bank benefits and the Sunnah forbid way tells the as... Through stocks are Indian citizens.we deposite money in the acceptability of the house interest! Society ” can obviously rent things ( my flat for example, hold based-bank.