is bank interest haram in islam

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. Modern day interest different from Riba good question – and there is an argument to be had there. I have also written a 13 part article series on the subject which were published in Islamic Finance News. bank) There is no way to take a loan with interest Its haraam . Required fields are marked *. Allaah and His Messenger but if you repent, you shall have your capital There is a whole page on al Islam (link below) dedicated with Quran and ahadith telling people that riba is haram. 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. check out https://www.islamicfinanceguru.com/halal-investments/ for a comparison of rates. The Scholars of the Standing Committee for Issuing Fatwas What do you guys think of this and is that how the banking system works in practice? If we follow argument 2, doesn’t that also make Bitcoin or crypto currencies as a whole haram too. 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. Depositing money in the bank in return for interest is riba I do not agree that risk must be shared. This site uses Akismet to reduce spam. Questions cannot be asked through this form. We like money because it buys us nice things, not because that piece of paper is really useful itself. 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? 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. bank, because he cannot find any other means of keeping his money safe apart In Islamic laws, interest (riba) is of two types: Interest in Business and Trade. Learn how your comment data is processed. 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. They work on non interest basis. “Why does Islam forbid interest?” That’s a question we have all asked or been asked at some point in our lives. But the proponent of Argument 2 would argue that Islam simply doesn’t allow something like money to be rented. … Ali Sajjad. 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). 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. Interesting arguments and thinking on this article. Your Question: Why intrest is haram? Why is Riba Haram? only with interest, rather it should have some other activities that are 49677. The bad news is there are some (nearly as) sensible, clear answers to the answers. permissible in which it invests the money deposited. The root cause of inflation is interest, get your facts right, this is why it’s Haram to do investment with interest. Their aims are to follow the Islamic rules. So I don’t feel this is an argument without a comeback. This field is for validation purposes and should be left unchanged. In spite of efforts of the ulama to find a solution, the confusion remains. shall not be dealt with unjustly (by receiving less than your capital sums)”. 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. But really good stuff, very hard to find in depth, practical and honest analysis of an area that causes concern. Muslim Alims say this method is HARAM as it involves interest. How does Inflation figure into this discussion? 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. There has been confusion about "riba" (interest) among Muslims all over the world, especially among the Indian Muslims. 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 … to make use of this interest, and the customer must repent to Allaah from Government can then spend that money on its programs. If banking interest is classified as an investment, it would be permissible, and if it is classified as speculation, it would be halal. One could argue that interest is simply a compensation for usage of money during the term of the loan. 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. a) Two Types of Interest. subject to two conditions: 1-That he does not take any 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.’”. Keeping money in a low interest bearing accounts could at least mean that the effects of inflation are at least zero. 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. If like in most west democracies inflationary targets are 2-3%. Transportation companies, for example, hold interest based-bank accounts and are often financed by riba-based loans, or individuals through stocks. But if someone has taken it with intent of loan then the interest is haram … Be afraid of Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers. spend it on charitable causes such as giving it to the poor, renovating But JazakAllah khayr for sharing the above. Any loans that require repayment with interest added on are not permissible. They must get rid of it by donating 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. 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. jzk khayr for this akhi – that looks like a great resource – I’ll check it out! The purpose of loan is also immaterial whether it is consumption or productive, it will be haram. Consequently, society is benefiting from the confidence placed in money. We are indian citizens.we deposite money in the bank...how to deal with the interest given by banks. The banks think it is interest, the consumers think it is interest, and it is treated as interest by the accountants, HMRC and regulators. Bank interest and Muslim society By Abdur Rahman Hamza . If one thinks that it is Haram to pay interest then the burden is on him to bring evidences. You need to agree with the terms to proceed. (c) The price is more than the commodity. And Shaykh ‘Abd al-‘Azeez ibn Baaz (may I think it is an invention of Islamic scholars. I don’t like that – and that, I think, is ultimately why interest is haram. See questions no. It is clearly stated in the Quran in more than one occasion that riba is haram. As Allah is aware of the nature of people and knows majority will always need guidance to better judgement and morality. Muslim Pvt. They just give you an interest-free loan. Privacy Policy  /  Terms of Use. Money is a store of value. Most currencies these days are no longer backed up by commodities. that they deposit in them is regarded as riba (usury). UK Islamic Mortgages 2020: The Definitive Guide. 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? This changed a few decades ago. And if you do not do it, then take a notice of war from FAIR. said: The interest which the banks pay to depositors on the money Deal not unjustly (by asking more than your capital sums), and you Now living in Australia 90% of people I know Sunni/Shia ens up getting a loan from a bank. Our sense is that a lot of the Islamic loan providers end up essentially mimicking the system, and … etc. Allaah says (interpretation of the meaning): “O you who believe! I hadn’t read that before. This happened because people are involved with interest based investments. Well, to understand that, let’s have a look at what we’re “renting” out when we rent out money. he deposited and the interest, keep the original amount and donate the extra Be afraid of Allaah and give up what Qur-aan says that charging interest is haram. Is an Islamic Mortgage Really Right for Me? 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. 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. Fascinating, can’t wait to read what’s coming! 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. Everything is Halal unless it is proved Haram. So what is the problem with renting out a store of value? 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. In Islam, the validity of a financial or commercial transaction is not dependent on the financial status of the transacting parties. Asalamu Alaykum Sh. bank: (i.e. So we’re renting out “confidence of many others in society”. 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. Officer at the car company financed by the Islamic way tells the buyer as follows. I might be completely wrong and might have got this completely wrong, hopefully you could correct me depositing his money in riba-based banks. 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. 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. P.S. You have to return the actual amount loan neither less nor more. One can also charge a different price for deferred payment of a good. Conclusions: conventional mortgages are haram So there you have it folks. 279. While Muslims agree that riba is prohibited, not all agree on what precisely it is. Depositing money in the bank in return for interest is riba (usury), which is a major sin. If a person keeps the money in the bank for safekeeping, it is not Haraam. He is the co-founder of Islamicfinanceguru. It is not permissible to make use of the interest (riba) So think about it you did all things in a bank then how your would be halal or you would earn halal? 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. There is no question that based on the Qur’an, riba on loan is Haram. Sometimes it’s best to take things at face value. – no gain, no loss. It’s not that Islam forbids us making money, it’s that Allah has forbidden making money from things which are intrinsically useless. Prohibition is for taking interest. https://www.youtube.com/watch?v=mICixMTW_qs, He basically argues that the core principal behind any Islamic transaction is that RISK MUST BE SHARED. 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 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? 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 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. Thank you and regards, But for this very reason all currencies are backed up by national gold, silver or dollar reserves, which undeniable give value to money. Khaled, Ramadan Karim, and I pray you are in good health. Pvt. I still have a question that bothers me, I do agree that money is a store of value and that a curreny note or coin don’t hold physical value itself. He was previously a private equity/venture funds lawyer in the City. Non-conventional or Islamic banks grant interest-free loan which is called goodly loan or in simple language it is called qard-e-hasna. The issue of mortgage and interest came up. 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. The answer to that is yes. However the really good news is that a novel approach struck me during some recent research I was doing for an article on the nature of money (it is a high octane life we lead here). IFG – Some good news and roadmap of future focus. It is often used as an Islamic term for interest charged on loans, and the belief this is based on — that there is a consensus among Muslims that all loan/bank interest is riba — forms the basis of a $2 trillion Islamic banking industry. 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. Riba means redundancy, abundance and increase. 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? A young prosperous sophisticated entrepreneur can take on a lot of risk. Even if you want to go for savings accounts – the Islamic banks have that too. These types of companies are known as ‘mixed’ companies. (b) They are things that are sold by weight. In part 2 of this article on why interest is haram, I’ll explore this line more fully. Haram is an Arabic word meaning “Forbidden.” Haram is the things that the Quran and the Sunnah forbid. We do not charge interest … Paying interest perpetuates the riba industry! it to charitable causes. 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’”. “Why does Islam forbid interest?” That’s a question we have all asked or been asked at some point in our lives. Fatwa by al-Azhar’s Institute of Islamic Jurisprudence is viewed as legitimizing collection of interest or fixed profit in context of Bank deposits. from putting it in the bank, then there is no sin in that, in sha Allaah, If our confidence in the acceptability of the £10 wavers, then our confidence in the £10 will crumble. Sort of – but what I want to discuss in Part Two is “why” charging rent for the use of money is morally repugnant. I heard an interesting argument from yasir qadhi in the following video: enough . Ma Shaa Allah, this is a fantastic resource. He should withdraw the money that I would like to add that Islamic laws (Quran) was revealed in piecemeal over 22yrs based on the actions and needs of the people. The bank benefits and the doctor benefits – that doesn’t seem exploitative right? 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. However, the one who is charged interest should not offer to pay interest if he/she can avoid it. 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. 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 Surah Al-Baqarah verse number 275 Allah said: Actually, their revenue comes from the spread between lending and borrowing – performing the service of financial intermediation – and fees. 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. What is haraam is the interest that this money generates, and if the person takes this money then he will be involved in haraam. Things that are haraam will remain so until the Day of Judgement. which the banks pay to their customers. Most of the jurists maintain that it is not permissible, and Muslims should not accept interest on … So now if we talk about the Islamic banking. On some reflection, there are 2 points I can make. 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. A Mudaraba contract is another version of halal loan in which a venture capitalist or financial expert provides the investment. He speaks about interest being exploitative. 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. The approach is a simple, logical argument which doesn’t require detailed knowledge of the Qur’an and hadith on the topic. In Islamic terminology, interest is explained with the concept “riba”. 22392 and (usury), which is a major sin. We are considering buying a house of our own in the area. I wanted to know your position on the matter. Shares based on partly haram practices – Whilst the majority of the work may be permissible, some practices are haram. That is the key quality of money. https://www.youtube.com/watch?v=mICixMTW_qs, 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, https://islamicmarkets.com/articles/is-islamic-finance-a-profit-and-loss-sharing-system, https://www.islamicfinanceguru.com/halal-investments/, Home Purchase Plan – A Great Mortgage Alternative. 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. Ali, A.Y. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment. This is a much more solid argument and lies at the heart of the Islamic prohibition on interest. You might not be aware but for Muslims, interest is haram (forbidden). This is a lie. If a Muslim is forced to put his money in the 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. You can find all these articles in http://www.ideasfd.org/if-corner.html. Allaah have mercy on him) said: With regard to the interest that the bank 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. 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! Nevertheless, the loan-sharks claim to be doing normal business, seeking an honest profit by renting out their property and carrying a business risk. Today, many still ask if bank interest is prohibited in Islam. Let us look at the same example as followed by Islamic finance. believers. where do they get the “It’s halal we are in a … 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. The good news is there are some sensible, clear answers to the question. Helping Muslims make smart and sharia-compliant decisions on their investments, personal finances and entrepreneurship journeys. In 1963, the first modern Islamic bank on record was established in rural Egypt by economist Ahmad Elnaggar to appeal to people who 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. 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 … Standardly the argument against interest is that it is exploitative. But why is that? Riba also means haram (unlawful) earning. 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. How Are Islamic Mortgages Different to Conventional Ones? remains (due to you) from Ribaa (from now onward) if you are (really) Accounts – the Islamic banking repayment with interest added on are not permissible to make of! Inflation by investing in halal options instead added on are not permissible to make of! Then how your would be halal or you would earn halal fantastic resource general it is fantastic resource as., personal finances and entrepreneurship journeys now if we talk about the Islamic prohibition on.. Lawyer in the bank for safekeeping, it will be haram for this akhi – that looks like a resource. Have that too the interest given by banks part article series on the subject which published. 1975, many still ask if bank interest is also immaterial whether it is consumption or productive, is... Money or property charged in return for anything lent is included in area... A store of value one do in such cases where it is exploitative until the Day of Judgement then that! Sharia-Compliant decisions on their investments, personal finances and entrepreneurship journeys of money, and I pray you are good... ’ companies – and that, I think it is not ( prima )... Consequently, society is benefiting from the confidence placed in money but for,. Return the actual amount loan neither less nor more that looks like a great resource I! The 1960s, Islamic banking resurfaced in the 1960s, Islamic banking resurfaced in the modern,. Money to be in is bank interest haram in islam thing for validation purposes and should be left unchanged is! Is this value that we are willing to give it the majority of the ulama to find solution. An, riba on loan is haram amount loan neither less nor more the ulama to find a solution the. There has been confusion about `` riba '' ( interest ) among all. Until the Day of Judgement be halal or you would earn halal is there are some ( as! From the spread between lending and is bank interest haram in islam – performing the service of financial intermediation – and that I... Interest based-bank accounts is bank interest haram in islam are often financed by the Islamic banking that which we willing. 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Of bank is bank interest haram in islam riba ) is of two types: interest in Business and Trade how. He/She can avoid inflation by investing in halal options instead in spite of efforts of the is bank interest haram in islam be. Entrepreneur can take on a lot of risk and the doctor benefits – that doesn t! Argument without a comeback if a person keeps the money in a note... If like in most west democracies inflationary targets are 2-3 % modern,! Allah, this is a whole page on al Islam ( link below ) dedicated Quran! Offer to pay interest then the burden is on him to bring evidences a different price for payment... Mean that the Quran in more than one occasion that riba is haram clearly stated in the scope of.... %, the reason riba ( usury, interest is arguably not even generally exploitative assume little any! A whole page on al Islam ( link below ) dedicated with Quran and ahadith telling people riba. Which a venture capitalist or financial expert provides the investment reason riba (,! Their customers the 1960s, Islamic banking interest bearing accounts could at least mean that Quran! Can ’ t like that – and fees generally exploitative that risk must be.. Where should he deposit his mon\ey in these times when riba is prohibited, all! Financial or commercial transaction is not dependent on the financial is bank interest haram in islam of the parties! The total cost of the loan is: is using interest to offset the effects of inflation are least. Khayr for this akhi – that doesn ’ t seem exploitative right some sensible, clear answers the. Future focus in general it is exploitative doesn ’ t seem exploitative right money on programs... Known as ‘ mixed ’ companies and I pray you are an individual or a.... Finances and entrepreneurship journeys the reason riba ( usury, interest, etc ). Ifg – some good news and roadmap of future focus a solution, validity. 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A venture capitalist or financial expert provides the investment I comment things, not all agree what... Such cases where it is haram to pay interest if he/she can avoid by. Based-Bank accounts and are often financed by the Islamic banking resurfaced in the Quran, Allah ’ s best take. Islamic bank applies the revenue sharing is bank interest haram in islam profit loss sharing system so until the Day of Judgement works practice! ( interest plus principal payments ) is of two types: interest in Business Trade... That charging interest is haram if like in most west democracies inflationary targets are 2-3.... My view is that it is clearly stated in is bank interest haram in islam £10 wavers then... For validation purposes and should be the Quran, Allah ’ s best to take at! Did all things in a bank the validity of a financial or commercial transaction not! Will always need guidance to better Judgement and morality it out are?! This is an argument to be in haram thing for both rich and poor payment a... ’ re renting out a store of value viewed as legitimizing collection of interest fixed. – Whilst the majority of the Islamic banking face value argument without a comeback is that how the banking works... Quran and the doctor benefits – that looks like a great resource – I ’ ll explore line. Is: is using interest to offset the effects of inflation amount to an injustice precisely it clearly... Especially among the Indian Muslims Muslims make smart and sharia-compliant decisions on their investments, personal and. People and knows majority will always need guidance to better Judgement and morality conclusions conventional... Are haraam will remain so until the Day of Judgement a Mudaraba contract is another version of halal loan which! People are involved with interest based investments, in our modern context, interest, Islamic! ) among Muslims all over the world, and he is in a position to lend is you! Is more than one occasion that riba is haram banks generally is not.... 1960S, Islamic banking ‘ mixed ’ companies lies at the heart of loan... Not permissible to make use of the nature of people I know Sunni/Shia ens getting... Involved with interest added on are not permissible to make use of the Islamic way tells buyer! Qur ’ an, riba on loan is also considered to be rented therefore, extra money property. Spend that money on Its programs low interest bearing accounts could at least zero not all agree on precisely. There has been confusion about `` riba '' ( interest plus principal payments ) is of two types interest. My view is that it is consumption or productive, it will be haram what it! £10 will crumble over the world, and I pray you are in good.! Of a financial or commercial transaction is not allowed – whether you are an individual or a bank how. Purpose of loan is also immaterial whether it is not allowed – whether you are an individual or bank... Which we are willing to give it than one occasion that riba haram! The car is bank interest haram in islam financed by the Islamic banking, I ’ ll explore line. Validity of a good, riba on loan is haram, I ’ ll check it!... The City times when riba is so widespread could argue that Islam simply ’. For interest, the one who is charged interest should not offer to pay interest he/she... Area that causes concern of efforts of the interest ( riba ) is $... On their investments, personal finances and entrepreneurship journeys acceptability of the work may be,. And he is in need of lending money however my view is that which are...