Why is Riba Haram? depositing his money in riba-based banks. Questions cannot be asked through this form. Because people wealth is being worth less and cost of living becomes expensive each year, because of interest, Dear Ibrahim, If one has renting out a gold coin (somehow back in vogue as a currency let’s say), we wouldn’t want the gold coin for itself, but for what nice things it could buy. shall not be dealt with unjustly (by receiving less than your capital sums)”. The banks think it is interest, the consumers think it is interest, and it is treated as interest by the accountants, HMRC and regulators. remains (due to you) from Ribaa (from now onward) if you are (really) Your email address will not be published. to charity, to the poor and needy or for renovating public facilities etc. Asalamu Alaykum Sh. 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. … This is a much more solid argument and lies at the heart of the Islamic prohibition on interest. But for this very reason all currencies are backed up by national gold, silver or dollar reserves, which undeniable give value to money. 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”. Non-conventional or Islamic banks grant interest-free loan which is called goodly loan or in simple language it is called qard-e-hasna. If a Muslim is forced to put his money in the This is a lie. check out https://www.islamicfinanceguru.com/halal-investments/ for a comparison of rates. A poor person has little money and is in need of lending money. Keeping money in a low interest bearing accounts could at least mean that the effects of inflation are at least zero. 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. While Muslims agree that riba is prohibited, not all agree on what precisely it is. A Mudaraba contract is another version of halal loan in which a venture capitalist or financial expert provides the investment. Allaah have mercy on him) said: With regard to the interest that the bank Riba also means haram (unlawful) earning. The answer to that is yes. 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. – no gain, no loss. 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’”. Your email address will not be published. Our sense is that a lot of the Islamic loan providers end up essentially mimicking the system, and … Depositing money in the bank in return for interest is riba (usury), which is a major sin. UK Islamic Mortgages 2020: The Definitive Guide. This happened because people are involved with interest based investments. 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. 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. I hadn’t read that before. We are considering buying a house of our own in the area. So really the question is: is using interest to offset the effects of inflation amount to an injustice? Ali, A.Y. We do not charge interest … 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. But what about the case of a doctor who earns £100,000 a year, who wants to take out a mortgage and pay £1000 a month for 25 years, and own his house at the end of it, rather than £1000 a month in rent for 25 years and own nothing at the end of it? 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.’”. We like money because it buys us nice things, not because that piece of paper is really useful itself. Beloved brother, the reason riba (usury, interest, etc.) 22392 and Is an Islamic Mortgage Really Right for Me? 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. Consequently, society is benefiting from the confidence placed in money. Helping Muslims make smart and sharia-compliant decisions on their investments, personal finances and entrepreneurship journeys. (c) The price is more than the commodity. The good news is there are some sensible, clear answers to the question. Pvt. etc. In Islamic terminology, interest is explained with the concept “riba”. Today, many still ask if bank interest is prohibited in Islam. I wanted to know your position on the matter. 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. I really appreciate the effort of battling this question logically, than just by the Ayat alone. a) Two Types of Interest. I do not agree that risk must be shared. public washrooms, helping debtors who are unable to pay off their loans, 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. P.S. In 1963, the first modern Islamic bank on record was established in rural Egypt by economist Ahmad Elnaggar to appeal to people who (usury), which is a major sin. The December 2002 fatwa issued by al-Azhar’s Institute of Islamic Jurisprudence is viewed as legitimizing the collection of interest in the context of bank deposits. 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. permissible in which it invests the money deposited. “Why does Islam forbid interest?” That’s a question we have all asked or been asked at some point in our lives. In part 2 of this article on why interest is haram, I’ll explore this line more fully. I lend you £100 for 2 months; I consequently don’t have access to my £100 for 2 months and should be compensated for that loss of opportunity. He speaks about interest being exploitative. 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. They must get rid of it by donating from putting it in the bank, then there is no sin in that, in sha Allaah, This site uses Akismet to reduce spam. Modern day interest different from Riba Privacy Policy  /  Terms of Use. Bank interest and Muslim society By Abdur Rahman Hamza . We are indian citizens.we deposite money in the bank...how to deal with the interest given by banks. You might not be aware but for Muslims, interest is haram (forbidden). Conclusions: conventional mortgages are haram So there you have it folks. 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. 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. There is no question that based on the Qur’an, riba on loan is Haram. it to charitable causes. 279. If one thinks that it is Haram to pay interest then the burden is on him to bring evidences. He was previously a private equity/venture funds lawyer in the City. But as ever, I’d love to hear your thoughts on the above, any alternative arguments you have found useful, and what you guess I will be arguing in my next article! 49677. One can also charge a different price for deferred payment of a good. Prohibition is for taking interest. See questions no. to make use of this interest, and the customer must repent to Allaah from The bad news is there are some (nearly as) sensible, clear answers to the answers. he deposited and the interest, keep the original amount and donate the extra Interesting arguments and thinking on this article. The issue of mortgage and interest came up. So now if we talk about the Islamic banking. How does Inflation figure into this discussion? 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. Things that are haraam will remain so until the Day of Judgement. But why is that? This field is for validation purposes and should be left unchanged. FAIR. Muslim Alims say this method is HARAM as it involves interest. They work on non interest basis. Thank you and regards, 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 … Riba means redundancy, abundance and increase. If it belongs to government, it is permissible to take interest provided that half of the interest is given away to poor people (Momineen of them). Qur-aan says that charging interest is haram. Fascinating, can’t wait to read what’s coming! So what is the problem with renting out a store of value? bank: (i.e. 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. believers. 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. Let us look at the same example as followed by Islamic finance. 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. But what if, in our modern context, interest is arguably not even generally exploitative? One could argue that interest is simply a compensation for usage of money during the term of the loan. Even among Muslims there are people who do this though they well know that God has condemned lending in this manner: it is against the law of God to charge rent for the use of money, as if it were just a simple commodity like land or buildings or tools or other property of the kind that can be lawfully rented out. sums. IFG – Some good news and roadmap of future focus. Be afraid of Allaah and give up what I think it is an invention of Islamic scholars. Ma Shaa Allah, this is a fantastic resource. that they deposit in them is regarded as riba (usury). It’s not that Islam forbids us making money, it’s that Allah has forbidden making money from things which are intrinsically useless. Most currencies these days are no longer backed up by commodities. In Surah Al-Baqarah verse number 275 Allah said: These types of companies are known as ‘mixed’ companies. enough . 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. You have to return the actual amount loan neither less nor more. Actually, their revenue comes from the spread between lending and borrowing – performing the service of financial intermediation – and fees. So I don’t feel this is an argument without a comeback. Your Question: Why intrest is haram? To comply with these rules, interest is not paid on Islamic … bank, because he cannot find any other means of keeping his money safe apart I would like to add that Islamic laws (Quran) was revealed in piecemeal over 22yrs based on the actions and needs of the people. 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. Allaah and His Messenger but if you repent, you shall have your capital Ali Sajjad. You need to agree with the terms to proceed. spend it on charitable causes such as giving it to the poor, renovating Required fields are marked *. There is a whole page on al Islam (link below) dedicated with Quran and ahadith telling people that riba is haram. “Why does Islam forbid interest?” That’s a question we have all asked or been asked at some point in our lives. The return on equity for banks generally is not out of line with that of other businesses. But JazakAllah khayr for sharing the above. ... As a substitute for interest, the Islamic bank applies the revenue sharing and profit loss sharing system. Deal not unjustly (by asking more than your capital sums), and you 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). A rich person is one who has lots of money, and he is in a position to lend. Well then one makes the move that in general it is exploitative. Well, what is this value that we are storing? Allaah says (interpretation of the meaning): “O you who believe! 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? Paying interest perpetuates the riba industry! The root cause of inflation is interest, get your facts right, this is why it’s Haram to do investment with interest. 2) Do commercial lenders benefit excessively from the confidence placed in money? At 4.15%, the total cost of the house (interest plus principal payments) is about $400,000. Any loans that require repayment with interest added on are not permissible. 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? They just give you an interest-free loan. Money is a store of value. An elderly pensioner with modest income and lacking ability to analyse risk should assume little if any risk. 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. Everything is Halal unless it is proved Haram. So think about it you did all things in a bank then how your would be halal or you would earn halal? 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. Nevertheless, the loan-sharks claim to be doing normal business, seeking an honest profit by renting out their property and carrying a business risk. It is clearly stated in the Quran in more than one occasion that riba is haram. which the banks pay to their customers. I heard an interesting argument from yasir qadhi in the following video: Save my name, email, and website in this browser for the next time I comment. Alcohol, gambling, bribery are haram for both rich and poor. In Islamic laws, interest (riba) is of two types: Interest in Business and Trade. jzk khayr for this akhi – that looks like a great resource – I’ll check it out! Most of the jurists maintain that it is not permissible, and Muslims should not accept interest on … What is haraam is the interest that this money generates, and if the person takes this money then he will be involved in haraam. But the proponent of Argument 2 would argue that Islam simply doesn’t allow something like money to be rented. Now living in Australia 90% of people I know Sunni/Shia ens up getting a loan from a bank. What does one do in such cases where it is not (prima facie) exploitative? Answer: It is permissible to deposit money in a bank without prior condition for interest and it is as well permissible to take interest, if the bank in which money is deposited belongs to Muslims. You can find all these articles in http://www.ideasfd.org/if-corner.html. As Allah is aware of the nature of people and knows majority will always need guidance to better judgement and morality. It is not permissible But, in order to get to the argument (in a follow-up article to this one), I need to lay the groundwork with an analysis of the usual answers that we can give. If banking interest is classified as an investment, it would be permissible, and if it is classified as speculation, it would be halal. interest in return, 2-That the bank does not deal Well, to understand that, let’s have a look at what we’re “renting” out when we rent out money. In spite of efforts of the ulama to find a solution, the confusion remains. One can obviously rent things (my flat for example). And if you do not do it, then take a notice of war from The approach is a simple, logical argument which doesn’t require detailed knowledge of the Qur’an and hadith on the topic. I don’t like that – and that, I think, is ultimately why interest is haram. Bank Interest I want to ask you about bank interest is it Haram or Halal All perfect praise be to Allaah The Lord of the WorldsI testify that there is none worthy of worship except Allaah and that Muhammad sallallaahu alayhi wa sallam is His slave and Messenger Allaah has forbidden Ribaa interest andor usury and threatened those who deal with it with a severe … said: The interest which the banks pay to depositors on the money The value in a £10 note is that which we are willing to give it. gives to you, do not give it back to the bank and do not keep it, rather 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. House is the basic necessity of a person. bank) There is no way to take a loan with interest Its haraam . (1984), Halal and Haram in Islam, Khairun Prokashani, Dhaka. 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