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BANKING.

 

1)           Banking; An overview of the system

2)           Banking; Just a clearing house

3)           islamic banking

4)           LIVING ON BANK INTEREST

5)           Bank Interest

6)           THE WISDOM OF PROHIBITING INTEREST

7)           INTEREST MONEY GIVING FOR CHARITY

8)           Loans and inflation

9)           CREDIT CARD (VISA CARD) FROM ISLAMIC BANKS

 

10)       USING CREDIT CARDS, EVEN IF YOU PAY WITHIN TIME

11)       STUDENT Loans

 

1. Banking: An overview of the system

Question:

Are 'riba' and interest synonymous? There exists a general impression that transactions involving all forms of interest are forbidden in Islam. Perhaps an international debate amongst Muslim scholars and religious leaders on this important issue is necessary. What is submitted here are thoughts of a layman who, like most others, is beset with many doubts concerning this rather complex matter. Almost every one agrees that Islam desires the development of a fair economic and commercial system that will prevent wealth from being inactive or concentrated in the hands of a few. Instead it encourages its continuous circulation and utilization so that the whole society becomes prosperous. Circulation and utilization of wealth presupposes an arrangement that will permit the pooling of our individual resources in some shape or form, especially in an industrialized society.

Answer :

Not everyone that possesses capital can become an entrepreneur, nor does everyone with commercial acumen possess enough wealth to finance all the projects he may be able to manage efficiently. Thus a way has to be found which will enable the entrepreneur to borrow funds from those who cannot put them to good use, and, most importantly, make him share the profit of this venture with the lender on an equitable basis.

Now, it is obvious that not everyone with money to spare can find an entrepreneur whom he can trust and who needs exactly the amount that is available for investment. This is particularly [true] of small savers (e.g. widows, peasants, small income earners, etc.) not well versed in business matters. Also if the entrepreneur needs to locate and enter into partnership with a large number of small investors, he may find the task wearisome and would not have much time left to attend to the business.

Therefore, it seems that a pooling center or a clearing house would need to be set up to bring together the investor and the entrepreneur, ensuring that the legitimate interests of both parties are adequately safeguarded. Without such an arrangement, it would not be possible to collect funds from small savers and make them available to those who need them, especially if this is to be done after due scrutiny and securing reasonable guarantees. This process requires financial and business expertise, which can only be provided by a group of properly qualified professionals and not by individual investors themselves.

In the system that prevails in almost all countries today, this function is provided by the banks, that secure deposits from individuals and then give loans to businessmen after due scrutiny. The bank charges interest on the money loaned and after deducting its own expenses and profit, passes it on to those whose money it had so utilized. Current practices also allow for the rate of interest charged and paid out to vary according to the market conditions, and the rate does not necessarily remain fixed at a predetermined figure. Thus, both the saver and the entrepreneur gain or lose as a result of the market conditions and this, perhaps, satisfies the requirement of a partnership between the borrower and the lender where the profit or loss is shared equitably.

Needless to say, the interaction of a bank makes all lending and borrowing deals impersonal and virtually eliminates the chances of disagreements and disputes between individuals. Also the banking institution is able to cater to the changing demands of the lender and borrower, both with regard to the amount and period involved, which simply will not be possible if the borrower has to deal directly with the lender. All this makes for more efficient utilization of available resources.

But not even banks can really become full partners in all business ventures they finance for two reasons. First it is not their line of business and secondly the overheads would become too much of a burden. Now the objection against the current banking system is that it is based on interest, which is forbidden in Islam. Perhaps here we need to consider the matter carefully and dispassionately and determine what is the real substance of what is forbidden.

The word used in the Qur'an is 'riba' which has not been defined but, perhaps, an insight into its meaning can be gained by examining its context. Many scholars are of the view that an essential component of 'riba' is an exploitation of the needy borrower by a lender. If, for instance, a widow or an orphan or an unemployed person is loaned money by an individual on the condition that the amount returned would be greater than the amount borrowed, then it would be an attempt to benefit from someone's misfortune and this would certainly fall within the ambit of 'riba', but if a businessman obtains a loan to expand his business and increase his profits, surely there is no element of exploitation in requiring him to pay a charge for use of money given to him. After due deductions, this amount is passed on to the individual depositor.

Thus, there is no suggestion of any exploitation of a borrower or a lender in such a deal. Indeed, this is a simple business or commercial deal where both the borrower and the lender are subject to the vagaries of the market-place. This becomes even more so when one considers the modern phenomenon of inflation which causes the purchasing power of currency to vary as a result of market forces and even fixed rates of interest do not really remain fixed. The saving schemes floated by various governments also fall under business loans as the money collected is spent on development schemes and infrastructure which, in turn, spur greater commercial activity and create more employment. Again, there is no question of the saver taking undue advantage of the borrower.

Another element that needs to be considered is that hardly anyone objects to letting out a house or shop on rent although the rent is a fixed amount. Now, it may be argued that basically a building or money are various forms of the same commodity capital. Thus, if rental of a building is permissible and does not contain an element of exploitation of the poor and the needy, why should borrowing money be otherwise. We Muslims have generally started equating all forms of interest with 'riba'. What may have been understood by learned and pious men hundreds of years ago, however valid in the conditions prevailing at that time, may not necessarily be rigidly applicable to situations and forms of transactions that have evolved only recently.

Many discerning people are of the view that perhaps the nearest equivalent of 'riba' in current parlance is usury where money is loaned at exorbitant rates to those in a tight corner in an effort to profit from their misfortune. They do not think that the term 'riba' can really be applied to the current form of commercial interest charged or paid out by a financial institution. Surely what we need to do is to understand the spirit and the essence of the original Qur'anic message, and not put ourselves into a straight jacket of semantics. Occasionally a term used in one language does not have an exact equivalent in another. Therefore, we should not, I think, attempt at translating an essentially untranslatable term, 'riba', into a multifaceted term in another language, 'interest'.

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2. Banking; Just a clearing house

Question:

Is that banking is just a clearing house?

Answer:

It is very interesting to receive a letter like this one in which a reader argues a case in an orderly relaxed manner, defending his point of view and airing thoughts that are inevitably shared by numerous other readers. My reader argues that the role of the bank these days is that of a medium, facilitating the all beneficial need of introducing savers to businessmen. Thus the money of the first is made available to the second who are thus able to utilize their expertise and business acumen in order to ensure the growth of the investment.

He argues that there is a strong need for this service which is provided by banks which actually act in this respect as clearing houses. That there is such a need cannot be doubted. But whether the system operated by the bank satisfies Islamic requirements is a totally different matter. My reader tries to show that it does meet its requirements, particularly the changes required in the rate of returns on investment. When the objection is raised to the interest system on the basis that the returns are fixed in advance, some people think that if the rate of interest changes then that objection is met.

We find this argument clearly exposed by our reader, who goes to the extent of saying that if the rate of interest drops, then both the depositor and the borrower lose. If the rate of interest goes up, both of them are bound to benefit.

To start with, this is not correct. Fluctuations in the rate of interest affect depositors and borrowers in opposite ways. If the rate of interest drops, the borrower is pleased because the charge he has to pay to the bank on his loan becomes less, and he benefits as a result, while the saver or depositor receives less on his money, which is something definitely unwelcome to him. The same is true when the rate of interest goes up. The depositor is pleased because he receives more, but the borrower is displeased because he has to pay more.

In business, partners either profit together or lose together. If you are a sleeping partner in a business, your share increases at the same time as that of the active partner, because the income comes from a better performance in the business. When the business does not do all that well, both your shares drop. Moreover, changes in the rate of interest do not reflect the performance of the particular business project in which your money has been placed, they only reflect the situation in the money market which is affected by considerations totally different from how individual businesses are performing.

Changes in interest rates are determined by central banks which have a totally different role from that of ordinary banks and in isolation of individual business performance. Moreover, the depositor will never share in the loss of the business in which his money is invested. Suppose you have deposited a certain amount in a bank and the bank gives this total amount to a borrower who runs a particular business. It so happens that the project in which money has been invested fails and makes considerable loss. What is your position at the end of the year? You will still receive the interest agreed upon between you and the bank, allowing for any changes in between, and you will not even bother to know to whom your money was lent and what sort of performance it made.

We cannot in any way associate this banking transaction with the partnership approved by Islam in which both investor and borrower are actual partners and they share in any profits or losses. The fact is that there is no partnership whatsoever in the arrangements made between the bank and its depositors on the one hand, or between the bank and its borrowers on the other. There are two separate transactions which the bank is happy to run, because at the end of the day, it stands to make much profit. You need to look at the announced performance of leading banks in most countries to discover that they actually make huge profits which come mostly from their running this facility.

Besides, one of the basic functions of a bank is to make money available to those who need it. This raises questions on the whole operation because it facilitates for its depositors taking the position of lender. Muslims generally would rather not have the dubious privilege of becoming lenders either to business projects or indeed for any other purpose. It is far easier for us to consider an "investment" role for banks. But this relates to a different aspect of banking operation.

Leading banks nowadays operate systems for investing the money of their depositors, putting it in shares and stocks. Such systems are much easier to sort out so that they become acceptable from the Islamic point of view. But when the bank is lending out our money at a profit, then it places us in a position of a lender who gets back more than the principal he lent. The fact is that when you lend someone else an amount of money and you agree with him either explicitly or implicitly that the amount he will return to you at the end of the period of the loan will be more than what you paid him, then this transaction is 'riba', or, to use the proper English term for it, "usurious".

The Prophet says: "Every loan that brings in a gain is usurious." It is perfectly permissible that a person who has borrowed money from another pays it back and gives the lender something extra, a gift perhaps or an increase in the amount, but this must not be the result of any prior agreement between them, either explicit or implicit. Indeed, there should be no hint that the lender will be getting anything other than the amount he had advanced.

My reader makes much of the differences between what a bank does and the money lender does, to the extent that he prefers to use the Arabic term, 'riba' and makes it clear that he is against usury. At the end of his letter he claims that 'riba' is "an essentially untranslatable term."

In this he is totally mistaken because riba is a simple Arabic term which means, from the linguistic point of view, "excess." In a financial transaction, 'riba' refers to the payment of something over and above what has been given in the first place.

Early Muslim scholars have told us what is exactly meant by 'riba', when they said that the person would borrow some money for a specified period. At the end of that period he would go to the lender and tell him that he is unable to repay the loan and requires an extension of it. The extension is granted on condition that the amount he repays will be higher.

Is this not practiced by banks today? Does the bank charge you the same amount if you repay your loan over three months or six months or a year? Do you not pay much more interest when you make your repayment over an extended period? Besides, who says that banking arrangements do not exploit the weakness of those who need the money?

My reader gives the case only of people who have business acumen, but what about borrowing from a bank for a specific purpose which is not expected to generate income, such as buying a car, or indeed a diamond ring for your wife? What does a bank do after the collapse of a business project to which it had made some advances? Is it not true that there is no consideration of the weakness or the status of the borrower? Instead, receivers and liquidators are called in without any regard to the terrible position in which the borrower finds himself.

Nevertheless, I have said in the past that the interest system is not exactly synonymous with the usury as it was practiced in the pre-Islamic days. Nevertheless, there are aspects of similarity between the two which are, in the view of most Muslim scholars, sufficient to make the interest system forbidden from the Islamic point of view. If banking facilities are to be made lawful, the first thing that is required is a thorough discussion of the various aspects of the banking system, to be conducted between bankers, economists and Islamic scholars. Who will bring about such a discussion, and when, is far from clear. We can only hope that someone will start the ball rolling.

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3. islamic banking

Question:

Is there any product available where a Muslim can keep his money and it is free from Riba (Interest)? Is there any organization, which provide safe method of halal investment in international market? (For small and medium size investment. Such as property in USA or England etc.)

Answer:

Yes, there are many such institutions in the US and Canada. Try Islamicity's economic section, it has a listing of some of them. Also, if you purchase some Muslim magazines, you will find advertisements of such institutions.

There are for example LaRiba in Pasadena California;

AMANA Fund operated by the Islamic Society of North America,

MSI operated by the Islamic Circle of North America,

Dallah al-Baraka in England,

SNA's NAIT, Al-Safwa operated by Dallah in KSA (Kingdom of Saudi Arabia),

The Al-Ahli National Bank Fund, KSA ( Al-Bank Al-Ahli Al-Tujari - Operated by Vanguard Funds), and others.

PLEASE NOTE THAT THIS IS NOT AN ENDORSEMENT OR RECOMMENDATION OF ANY MUTUAL FUND OR INVESTMENT. THIS IS FOR INFORMATIONAL USE ONLY. IT SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO INVEST. WE STRONGLY RECOMMEND THAT YOU READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST AND THAT YOU DIVERSIFY YOUR INVESTMENTS. Also, you may contact La Riba at the following addresses. You may talk to Dr. Yahia Abdur-Rahman. Please mention that you located LaRiba through this section. The address is:

WWW.AMERICANFINANCE.COM, or call them at 1-888-LARIBA1. Thank you for asking and Allah knows best.

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4. LIVING ON BANK INTEREST

Question:

I am a woman and I have a lot of money that I inherited. I am spending on my house, food, college fees and arranging marriages for my children. My husband is a police officer, but his salary is not enough for us to live comfortably without any financial difficulties. I put all my inheritance in the bank and we are living on the interest.

Is the way I am spending it counted as zakaah or do I have to pay zakaah too?

How much is the zakaah on the interest or the capital?.

Answer: Praise be to Allah.  

1 – Putting money in riba-based banks and taking the riba (which is called “interest”) is haraam and is a major sin. 

The scholars of the Standing Committee said: 

Firstly:

The profits which the bank pays to depositors on the sums of money that they deposit in the bank is regarded as riba (usury, interest) and it is not permissible for him to benefit from these profits. He has to repent to Allah from depositing money in riba-based banks, and withdraw the money he deposited and the interest. He should then keep the capital and spend the interest on charitable causes to help the poor and needy, to provide facilities and so on. 

Secondly:

He should look for a way that avoids dealing in riba, even if it is investing in a store, and put his money there as a mudaarabah transaction, on the basis that he will have a set share of the profits, such as one-third, or he should put the money there for safekeeping, without getting any interest. 

Fataawa Islamiyyah, 2/404 

What is meant by mudaarabah (silent partnership or limited partnership) is when two people cooperate, one by contributing money and the other by doing the work, and the profits are shared between them according to whatever agreement they reached. 

Shaykh ‘Abd al-‘Azeez ibn Baaz (may Allah have mercy on him) said: 

Undoubtedly dealing with banks that deal with riba is not permissible, because that is helping them in sin and transgression. Allah says (interpretation of the meaning): 

“....Help you one another in Al‑Birr and At‑Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression....” [Al-Maa'idah 5:2] 

And it was proven that the Prophet (peace and blessings of Allah be upon him) cursed the one who consumes riba, the one who pays it, the one who records it and the two who witness it, and he said, “They are all the same.” This was narrated by Muslim in his Saheeh

With regard to putting money in riba-based banks with a monthly or annual interest payment, this also comes under the heading of riba which is haraam, according to scholarly consensus. As for putting it in the bank without interest, in order to be on the safe side it is better not to do that except in case of necessity if the bank deals with riba, because putting money in the bank, even if you do not take interest, is still helping them to do riba-based transactions, so there is the fear that the one who does this will come under the same heading as those who cooperate in sin and transgression, even if that is not what he intended.

So we must beware of that which Allah has forbidden and look for the right way to keep our money and dispose of it. May Allah help the Muslims to do that which will lead to their happiness and glory and success. May He make it easy for them to quickly establish Islamic banks that are free from riba-based transactions, for He is able to do that. May Allah send blessings upon our Prophet Muhammad and his family and companions. 

Fataawa Ibn Baaz, 4/30, 31 

2 – What a mother spends on her children does not count as zakaah, because if a father is unable to spend on his children, the duty to do so passes to the mother, if she has the means. Al-Mughni, 11/373 

If the mother is obliged to spend on her children and they become independent of means because of this spending, then it is not permissible to give them zakaah. 

3 – The money should be withdrawn from the riba-based bank quickly, and it is not permissible for you to benefit from any of the interest, rather you have to get rid of it by spending it in any charitable way. The interest that you took before is forgiven, if you took it because you were unaware of the Islamic ruling. 

Shaykh ‘Abd-Allah ibn Jibreen said: 

You have to repent for the riba that you consumed that was given to you by the bank in the name of interest, but you do not have to dispose of it. Rather it is something that Allah forgives, because He says (interpretation of the meaning): 

“....So whosoever receives an admonition from his Lord and stops eating Ribaa, shall not be punished for the past; his case is for Allah (to judge)....” [Al-Baqarah 2:275] 

If you take riba after that, then give it to those who deserve charity, whether they are relatives or strangers, so that you may be free of the sin of consuming riba. 

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5. Bank Interest

Question:

There is no doubt about the fact that usury is forbidden. However, Qur'anic reference to usury speaks of doubling and multiplying the capital as a result of usurious transactions. The Hadith suggests that such transactions lead to feelings of greed, selfishness, laziness, etc. on the part of the lender and misery on the part of the borrower. Nowadays, banks lend at a fixed rate of, say, 10-12 percent and give a slightly lower rate to depositors. If it is ascertained that the bank does not use certain deposits for lending to others with interest, is it permissible to use such deposit accounts and receive the fixed interest given on such deposits.

Answer: Praise be to Allah.  

It is true that the Qur'an refers to usury as doubling up the money lent to someone in need, or even multiplying it. However, this does not mean that usury must reach a rate of 100 percent or more before it is forbidden. If you refer to the verses dealing with usury in the second surah of the Qur'an, "The Cow", you will see that the injunction is very clear:

"Believers, fear Allah and waive what remains outstanding of usury, if you are truly believers. (278) If you do not, then take notice that you are at war with Allah and His messenger. If you repent, you may have only your principal loans, neither inflicting nor suffering injustice." (Al-Baqarah 2:278,279)

The Qur'anic verse is clear in requiring a lender to get back only what he has advanced. [It takes into account all usury, regardless of the extent; whether nominal or exorbitant.] The Prophet has disapproved of selling two measures of low quality dates for one measure of high quality dates, because he considered that as usury. He told his companions to do each transaction separately for cash, so that there is no element of usury in the deal.

In the light of the foregoing, all scholars agree that even the smallest amount of usury or increase on the principal amount advanced to anybody, is forbidden. When you deposit money with a bank, you are certainly not in a position of a lender and the bank is not a borrower. You have defined the relationship in a way which means that any returns given to you by the bank are legitimate earnings. As you realize, banks use the money they receive from their clients to lend it to borrowers, charging them interest, which means that they actually receive more than they give, in return for the loans they advance. Such transactions are forbidden in Islam.

However, if you arrange with the bank that it invests your money for you in some way which does not involve lending to others with interests, then the return from such an investment may be legitimate to take. Some banks invest in shares and unit trusts. If the share they invest in are those of companies which do not trade in something forbidden, then such an investment is lawful.

Quite recently, the Mufti of Egypt published a ruling stating that such an investment is lawful, even if the rate of returns is fixed at the outset. He makes it clear, however, that straightforward bank transactions of borrowing and lending, which involve interest are unlawful. If you wish to make use of the services provided by banks, you should bear in mind that any interest given on deposits used for lending is unlawful to have. If you give instructions in the bank to invest your money in a lawful way, as in a profit-loss sharing account, then the money you receive on your investments is perfectly legitimate.

Consuming Riba 

In the hadeeth of Samurah (may Allah be pleased with him) it says:

“… So we went on and came to a river – I think he said, red like blood. – In the river there was a man swimming, and on the bank there was a man who had gathered many stones. Whilst the swimmer was swimming, the man who had gathered the stones approached him. The swimmer opened his mouth and the man on the bank threw a stone into it, then the swimmer carried on swimming. Each time he came back, he opened his mouth again, and the man on the bank threw another stone into his mouth. … The man you saw swimming in the river with rocks being thrown into his mouth is the one who consumed riba (usury).” 

Since interest money is considered haram (unlawful) in Islam, you are not supposed to use it either on yourself or on those who are considered your dependents. On the other hand, you are also not supposed to leave the interest thus accumulated to the bank either, for to do so is akin to fattening an institution that thrives on interest.

Therefore, the only permissible option left to consider for you is to take out the amount thus accumulated and give it all away to public charities such as hospitals, orphanages, refugees, and welfare. By doing so you have discharged your obligation and you are absolved of any sin or guilt,
in sha’ Allah.

Excerpted, with slight modifications, from: www.islamonline.net

 

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6. THE WISDOM OF PROHIBITING INTEREST

The strict prohibition of interest in Islam is a result of its deep concern for the moral, social, and economic welfare of mankind. Islamic scholars have sound arguments explaining the wisdom of this prohibition, and recent studies have confirmed their opinions, with some additions and extensions of their arguments.

We confine ourselves to what Imam al-Razi says in his Tafsir of the Qur'an:

First: The taking of interest implies appropriating another person's property without giving him anything in exchange, because one who lends one dirham for two dirhams gets the extra dirham for nothing. Now, a man's property is for (the purpose of) fulfilling his needs and it has great sanctity, according to the hadith, 'A man's property is as sacred as his blood' (Transmitted by Abu Na'eem in Al-hilbah.) This means that taking it from him without giving him something in exchange is haram.

Second: Dependence on interest prevents people from working to earn money, since the person with dirhams can earn an extra dirham through interest, either in advance or at a later date, without working for it. The value of work will consequently be reduced in his estimation, and he will not bother to take the trouble of running a business or risking his money in trade or industry. This will lead to depriving people of benefits, and the business of the world cannot go on without industries, trade and commerce, building and construction, all of which need capital at risk. (This, from an economic point of view, is unquestionably a weighty argument.)

Third: Permitting the taking of interest discourages people from doing good to one another, as is required by Islam. If interest is prohibited in a society, people will lend to each other with good will, expecting back no more than what they have loaned, while if interest is made permissible the needy person will be required to pay back more on loans (than he has borrowed), weakening his feelings of good will and friendliness toward the lender. (This is the moral aspect of the prohibition of interest.)

Fourth: The lender is very likely to be wealthy and the borrower poor. If interest is allowed, the rich will exploit the poor, and this is against the spirit of mercy and charity. (This is the social aspect of the prohibition of interest.)

Thus, in a society in which interest is lawful, the strong benefit from the suffering of the weak. As a result, the rich become richer and the poor poorer, creating socio-economic classes in the society separated by wide gulfs. Naturally this generates envy and hatred among the poor toward the rich, and contempt and callousness among the rich toward the poor. Conflicts arise, the socio-economic fabric is rent, revolutions are born, and social order is threatened. Recent history amply illustrates the dangers to the peace and stability of nations inherent in interest-based economies.

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7. INTEREST MONEY GIVING FOR CHARITY

Question:

I would like to know, if I have money in a saving account that pays interest. Then if I keep track of interest and then end of the year give to a Muslim charity....is this ok or Muslim community is not allowed to have anything to do with INTEREST.....so if I cannot give it to Muslim charity then what should I do with it?

Answer:

Yes, you should give the interest for poor people or for relief organizations that do relief work. But since interest is Haram, you should give it away and not expect any reward for it, which is different from the regular charity you give for which Allah rewards you. Still, the best option is to minimize interest and invest your money in a Halal manner or with an Islamic investment firm. Thank you for asking and God knows best.

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8.  Loans and inflation

Question:

If we give loan to somebody for suppose number of years, then when he returns, its value is decreased due to inflation, what you say?

Answer:

When a person gives another a loan, he is doing him a great favor, for which he stands to earn rich reward from God. There is a Hadith which states: "It is written on the door to heaven: A sadaqah (or charitable donation) is rewarded by ten times its value, while a loan is rewarded eighteen times." The Prophet says that he asked Gabriel the Angel about this and Gabriel told him that it is because a loan answers a very pressing need on the part of the borrower.

Islam lays down a very strict condition on loans which requires the lender to ask for repayment of his principal only. No increase or profit should be asked by the lender. However, a borrower is recommended to follow the Prophet's practice and give the lender more than he received, if that is at all possible. The Prophet paid loans he had borrowed with an increased amount. That increase is a gift by the borrower to the lender to indicate his gratitude for the help he had received.

It must be stated very clearly and without any equivocation, such an increase should be only at the initiative of the borrower. There should never be any discussion of that between the lender and borrower. Nor can there be any implicit or tacit agreement between the two, at the beginning of the transaction, that the lender should receive more than he has given. We have to differentiate here between two situations. They are similar in practice because they involve an advance of money given by one person to another and an increased repayment by the other after some time.

In the first situation, the increase is stipulated in advance, and the lender pays out the money knowing that he will receive more. In fact, he may take that as a business and get an income from lending money to people. This is totally forbidden, because it exploits people's needs. The other situation is that the money is lent without any expectation on the part of the lender that he would receive anything over and above the amount he lent. However, the borrower repays it with an increase in order to express his gratitude. He is under no obligation to do so, but he puts it out of his own accord, without any pressure. That is perfectly permissible.

In our modern times, where inflation systematically erodes the value of money, borrowers should always try to compensate lenders for any loss of the value of money they had borrowed from them, by giving such an extra amount which at least offsets the drop that results from inflation. Suppose one borrows one thousand dollars from another for a period of one year. After a year, figures are published which show that inflation has eroded the dollar value by ten percent. If the borrower pays the lender back 1100 dollars, then he is actually paying him the value of his loan. When inflation is very small and the value of a particular currency drops only marginally, it may not be a problem with either lender or borrower to repay only the same amount advanced.

However, in cases where there is a severe drop of value in a particular currency, as happened, for example, in Lebanon during the civil war, when the Lebanese lira settled at about 1700 for one dollar, if you had borrowed, say, 10,000 liras for a period of 10 years and repaid it in the same currency, you would actually have borrowed the equivalent of $ 4,000, and repaid only six dollars. That is totally unfair.

It is not right to say that this is only the lender's "tough luck". In the case of Lebanon, people with keen sense of religious duty were happy to discuss the situation with their lenders and compensate them for the value of the money they had borrowed from them. In many cases, a compromise was sorted out when both parties were happy. We should remember that in such a situation, both parties are in a different position. Therefore, a compromise that ensures for both a reasonable deal is perfectly acceptable. Fairness is the mark of Islamic transactions.

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9. CREDIT CARDS (VISA CARD) FROM ISLAMIC BANKS

Question :

What is the ruling on credit cards (visa card) from Islamic banks, knowing that they are free of interest? Even if one does not pay at the end of the permitted time. They only take yearly fixed fees for this service.

Answer :  Praise be to Allah.  

It is permissible to use credit cards that are free of things that are forbidden in sharee’ah, such as charging interest for late payments, or charging a percentage of the money withdrawn, because that comes under the heading of riba which is haraam. But if the bank charges a set fee when issuing or renewing the card as a fee for the services offered, and covering only the cost of those services, there is nothing wrong with that. 

The Islamic Fiqh Council has issued a statement – no. 108 (2/12) – concerning non-covered credit cards (i.e., a card covered by money pre-deposited in the card account), and the ruling on the fees charged by the banks.  

There follows the texts of this statement: 

The International Islamic Fiqh Council, belonging to the Organization of the Islamic Conference, in its eighteenth session in Riyadh, Kingdom of Saudi Arabia from 25 Jumaada al-Aakhirah 1421 AH to the beginning of Rajab 1421 AH (23-28 September 2000 CE). 

Based on the statement of the council no. 5/6/1/7 on the subject of financial markets and credit cards, it was decided to give a definitive answer on the shar’i way of dealing with credit cards and the ruling on these cards in a subsequent session. 

And in reference to the statement of the council in its tenth session no. 102/4/10 on the subject of non-covered credit cards. 

And after listening to the discussion on this subject by fuqaha’ and economists, and referring to the definition of non-covered credit cards as given in statement no. 63/1/7, according to this definition the non-covered credit card is a financial document given by the issuer (the issuing bank) to an individual or company (the card carrier) on the basis of a contract that enables him to buy goods or services from companies who accept it without having to pay on the spot because the issuer of the credit card has to pay according to the contract, and the payment comes from the account of the issuer, then this payment is demanded from the card-carrier at regular intervals. Some of them (card issuers) charge interest on the unpaid balance after a certain amount of time from the date of the bill, and some do not charge interest. 

(The council) has decided the following: 

Firstly: It is not permissible to issue non-covered credit cards if interest is stipulated, even if the card applicant is determined to pay within the free period. 

Secondly: It is permissible to issue non-covered cards if there is no condition of paying interest on the original loan. 

Based on that: 

(a) It is permissible for the one who issues the card to charge set fees when issuing or renewing a card, because these are fees to cover actual services

(b) It is permissible for the issuing bank to take commission from the company that accepts this card and sells on that basis, provided that the company sells the product by credit card for the same amount as it sells if for cash. 

Thirdly: Cash withdrawals by the card carrier are a loan from the issuer, and there is nothing wrong with that from a shar’i point of view so long as it will not result in interest. Set fees that are not connected to the amount or length of this loan are not regarded as interest. 

Any charges in addition to the set charges, such as if the charges exceed the amount required to cover the services offered, are haraam because that is riba which is forbidden in sharee’ah, as was stated by the council in its report no. 13 (10/2) and 13 (1/3). 

Fourthly: It is not permissible to buy gold and silver or currency with the non-covered card. End quote. 

And Allah knows best.

Excerpted, with some modifications, from: http://islamqa.com/en/

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10. USING CREDIT CARDS,  EVEN IF YOU PAY WITHIN TIME

Question :

I heard that using credit cards is haraam, but if I am sure that I am going to pay the bank within the time limit, so the bank will not charge any interest, is this also regarded as haraam?

Answer :  Praise be to Allah .  

Using them is haraam even if the user is certain that he will pay the bank within the time limit. 

They are haraam because the bank lends money to the user in return for interest, and this interest is the price of the annual subscription to the credit card, as well as other interest charges which are to be paid to the bank if the user is late in paying. 

The cost of the card is a kind of riba which the user pays to the bank, and this riba is paid by the user whether he pays on time or not.  

Also, the user enters into a contract with the bank which means that he is obliged to pay interest if he delays payment. This is also haraam, because it is not permissible for a Muslim to commit himself to doing something that Allah has forbidden. 

The user may think that he can pay up on time, but then something happens to him that prevents him from doing so, so he pays riba to the bank. 

Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) said concerning this kind of contract: 

A contract of this type is not permissible, because it involves riba which is the price of the card, and it also means committing to pay interest if payment is delayed. 

In another fatwa he said: 

This transaction is haraam, because the one who enters into it, commits himself to paying riba if he does not pay on time. This is an invalid commitment, even if he believes or thinks it most likely that he will pay it before the time is up, because circumstances may change and he may not be able to pay it off. This is a matter that is in the future, and no one knows what will happen to him in the future. So dealings of this type are haraam. And Allah knows best.

Excerpted, with some modifications, from: http://islamqa.com/en/
 

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11. STUDENT Loans

Question:

Are we allowed to take out a student loan at university where we will have to pay back more than we borrow, but I don’t think its interest even if you can not get money from elsewhere?

Answer:
 
It’s well known that a Muslim should steer clear of dealing in Riba unless there is a real dire need that requires him to obtain an interest-based loan. If one is seriously seeking that which is Halal, Allah Almighty will guide his steps and grant him what he/she wants. Allah Almighty says,
“…And whosoever putteth his trust in Allah, He will suffice him…” (At-Talaq 65:3)
 
In his response to the question, Dr. Monzer Kahf, a prominent Muslim economist and counselor, states the following:
 
"Riba is forbidden in the Qur’an and in the Sunnah. It refers to any conditional or customary increment in a loan contract.  
 
Although the Qur’an in verse 2:275 talks about taking Riba you should note that verses 2:278-279 talks about usurious deals. Obviously dealing in Riba covers both parties as well as other persons involved such as the writer, the witnesses. This verse alerts to a war waged by Allah and His Messenger, peace and blessings be upon him, on those who do not quit dealing in Riba. It also defines the meaning of quitting Riba, i.e. taking back only your principal without addition or reduction.  
 
That is why the Prophet, peace and blessings be upon him, mentions that
“the Wrath of Allah is on the taker, the giver, the writer and the two witnesses of Riba.”  
 
Obviously, any ruling is subject to an exception, in case of necessity; that is when life, religion, mind, posterity and property are threatened by destruction or heavy damage. In this case a ruling is relaxed to protect any of these things.  
 
Applying the rule of necessity here, we can notice that there is no necessity in taking Riba or writing or being a witness to its contract. In other words, a necessity, if it happens, applies only to giving or paying Riba.  
 
To claim that it is necessary to take interest-based loans from banks cannot be justified by real life. What supports this argument is also the fact that many people survive without taking interest-based loans or getting involved in usurious deals. In fact, banks do not give loans to those who desperately need money for their survival or for the protection of any of the five things mentioned above. As it is usually said, banks give you the umbrella only on clear days but when it is rainy, banks tend to withdraw their umbrellas.  
 
We are in an age in which Islamic banks and Islamic financial cooperatives exist in many countries in the world. This does not mean that the case of necessity ceases to apply in our time. For those who live in areas that do not have Islamic banks, resorting to loans from conventional banks, only for necessity and similar cases becomes permissible."

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