Islamic Finance

 

Question:

It is said that “Interest” cannot be avoided in today’s world. Is this true?

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa rahmatullāhi wa barakātuh.

Ribā, or interest, is strongly prohibited in Islam. Consider the following verses and ahādīth:

 

Allah Ta‘ālā says:

وأحل الله البيع وحرم الربا

“Allah has permitted sale and prohibited ribā (interest/usury).” (Qur’an, 2:275)

Allah Ta‘ālā also says:

 

يا أيها الذين آمنوا اتقوا الله وذروا ما بقي من الربا إن كنتم مؤمنين، فإن لم تفعلوا فأذنوا بحرب من الله ورسوله

“O you who believe, fear Allah and leave out the remains of ribā, if you are (true) believers. If you do not do so, then let it be an announcement of war with Allah and His Messenger.” (Qur’an, 2:278-9)

 

Allah Ta‘ālā further says:

يا أيها الذين آمنوا لا تأكلوا الربا أضعافا مضاعفة

“O you who believe, do not consume ribā, doubled and multiplied.” (Qur’an, 3:130)

The hadiths of Rasūlullāh (sallallāhu ‘alayhi wasallam) are equally strict on the prohibition of all forms of ribā.

Rasūlullāh (sallallāhu ‘alayhi wasallam) cursed the one who receives interest and the one who gives it. (Sahīh Muslim; Mishkāt al-Masabīh, 2807)

 

Rasūlullāh (sallallāhu ‘alayhi wasallam) said:

درهم ربا يأكله الرجل وهو يعلم أشد من ستة وثلاثين زنية

 

“One dirham of ribā a man consumes knowingly is worse than thirty three acts of illicit intercourse.” (Musnad Ahmad; Mishkāt al-Masabīh, 2825)

 

There are many reasons for the strict stance Islam has taken against usury. In an economy infested with usury, we are in a better position to understand the strict stance of Islam. Interest favours the rich and impoverishes the poor. The major imbalance in the distribution of wealth in today’s world is a direct consequence of the capitalist economy, which is based on usury. Hence, interest is a great source of injustice and oppression, referred to as such in the Qur’an (2:179). As Muslims, therefore, we must make all effort to avoid interest.

 

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Since Allah Ta‘ālā has ordained that interest is harām, it entails that interest is avoidable. Allah Ta‘ālā would not ask us to do something impossible. The Qur’an says:

لا يكلف الله نفسا إلا وسعها

“Allah does not task a soul beyond its capacity.” (2:286)  

 

We understand that the world today is infested with interest. In fact, this situation was prophesised in a hadith reported from RasūlAllāh (sallAllāhu ‘alayhi wasallam):

ليأتين على الناس زمان لا يبقى أحد إلا أكل الربا فإن لم يأكله أصابه من بخاره

“A time will come on the people when none will remain but he consumes interest, and if he does not consume it, its vapours will reach him.” (Ahmad, Abū Dāwūd, an-Nasā’ī, Ibn Mājah; Mishkāt al-Masābīh, 2818)

 

Indeed, it is a great challenge in today’s time to stay clear of interest.

 

Allah Ta‘ālā says:

أَحَسِبَ النَّاسُ أَن يُتْرَكُوا أَن يَقُولُوا آمَنَّا وَهُمْ لَا يُفْتَنُونَ

“Do people think that they will be left alone only on their saying, ‘We believe,’ and will not be put to any test?” (29:3)

 

The test of īmān is to face the challenges that Allah Ta‘ālā has set for us. Although interest is prevalent and the economy is infested with interest, as Muslims we must ensure that all our dealings are free of usury. In doing so, we must trust in Allah, and have faith that He will take care of our provisions. Allah Ta‘ālā says:

ومن يتّق الله يجعل لّه مخرجا، ويرزقه من حيث لايحتسب، ومن يّتوكّل علي الله فهو حسبه

“Whosoever fears Allah (by observing His commandments), He will make a way out for him. And he will provide him from where he did not imagine. And whosoever puts his trust in Allah, then He will suffice him.” (65:3)

 

If the whole world practised nudity, should Muslims stoop down to their level and also practise nudity?

 

Rather, Muslims must take all precautions to ensure that this practice is avoided and does not infiltrate their communities. In the same way, Muslim communities should not succumb to the pressure of accepting the current usurious economy. Instead, they must make their own financial arrangements that are free of interest and anything that does not conform to the Shari‘ah.

 

And Allah Ta‘ālā Knows Best

Zameelur Rahman

Student Darul Iftaa
UK

Checked and Approved by,
Mufti Ebrahim Desai.

www.daruliftaa.net

 

Are your Transactions Shari'ah Compliant?

 

 

Miscellaneous Etiquettes of Transactions:

 

The mutual consent of all the parties is vital for the validity of the transaction

All transactions that contain a form or an element of Interest or gambling are prohibited in Islam

The price, the commodity and the time should all be specified and should not be unknown or uncertain

The deal must not involve any excessive ambiguity or deception

Any of the parties should not stipulate a condition which advantages simply any one of them

The seller should not deceive, lie or breach the trust of the customer

Neither of the parties should stipulate a condition which binds one transaction to another or to a loan

 

The following commodities should not be sold:

  • which are termed in Shariah as Haraam
  • which are used exclusively for Haraam purposes
  • which are not in the possession or the control of the seller
  • which have not yet arrived

 

Selling Goods

 

No one may dispose of the property of another without the latter’s permission

The seller must not conceal the faults in the goods being sold

What is prohibited to take, is prohibited to give

A purchaser must not resell a commodity prior to taking possession of it

The trader should not give the customer than what the customer is paying for; but rather he should give a little extra.

 

Loans

It is permissible to claim from a debtor only that amount that was initially lent to him.

 

Pawns

It is not permissible for a creditor to take any benefit from the pawned item since this will constitute interest.

 

Mutual Partnership

In a mutual partnership: Profit is based on the agreement of the parties, but loss is always subject to the ratio of investment.

 

Employers

The employee should be paid his wages “even prior to his perspiration drying”.

 

Credit Sales

It is permissible to deal in cash or credit sale. However, in a credit sale, the amount and the duration of the credit must be specified at the time of the transaction.

 

Written by: Hanif Patel, Student Darul Iftaa - UK

The severity of interest in the Quran and Ahaadith

 

By: Mufti Faraz al -Mahmudi (Student of Mufti Ebrahim Desai Saheb)

 

 

Allah states in the Quran:

“Those who consume interest shall not stand up on the Day of Resurrection except like him who shaytaan has driven mad by his touch. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have that (amount) which has passed, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.” (Surah al-Baqarah (2): verse 275)

“Allah destroys interest and increases charity. And Allah does not like every sinning disbeliever.”(Surah al-Baqarah (2): verse 276)

A question may arise that by giving charity one’s wealth seemingly decreases  and by receiving interest, one’s wealth, apparently seems to increase.  For example, Zaid had £100, he gave £20 in charity, so he is now left with £80.  Steve also had a £100, he received £20 in interest, so he now has a balance of £120.   So then what does this verse mean?

 

What is meant by ‘destroys interest’ is that Allah deprives interest money of all blessings.  Allah will create such circumstances for the recipient of interest that his money will diminish in front his very eyes.  Despite owning hundreds and thousands, his needs will not be fulfilled.  He will be forced to pay where he doesn’t desire to do so.  On top of that, the calamities of this world will be let loose upon him, as interest money invites depression and misery.  Most terrifying is what awaits him in the hereafter….words fail to explain the torment awaiting the recipient of interest.

With regards to charity, Allah showers His blessing on the one who spends in charity.  Thus with little provision and means, Allah will fulfill all his needs.  In addition to that, Allah will avert the calamities of this world that would’ve befallen him.  Finally and most importantly, the charity will be a means of salvation in the hereafter.

In another verse Allah the almighty announces,

“O you, who have believed, fear Allah and give up what remains [due to you] of interest, if you are believers.  And if you do not, then be warned of war [against you] from Allah and His Messenger. But if you repent, you may have your principal amount – [thus] oppress not and you shall not be oppressed.”(Surah al-Baqarah (2): verse 278-279)

Jabir (Allah be pleased with him) narrates that the Prophet (Allah’s peace and blessings be upon him)cursed the receiver and the payer of interest, the one who records it and the two witnesses to the transaction and said: “They are all alike [in guilt].” (Narrated by Muslim)

In another Hadith he said,

 

“A dirham of riba which a man receives knowingly is worse than committing adultery thirty-six times”(Narrated by Ahmed)

Bayhaqi has also reported this Hadith with the addition,

“Hell befits him whose flesh has been nourished by the unlawful.”

 

The Prophet (Allah’s peace and blessings be upon him) said,

“On the night of Ascension I came upon people whose stomachs were like houses with snakes visible from the outside. I asked Gabriel who they were. He replied that they were people who had receivedinterest.” (Narrated by Ibn Majah)

 

He is also reported to have said,

“God would be justified in not allowing four persons to enter paradise or to taste its blessings: he who drinks habitually, he who takes riba, he who usurps an orphan’s property without right, and he who isundutiful to his parents.” (Narrated in Mustadrak al-Hakim)

 

Report on Shariah Compliant Business Campaign from an Alim in Zambia

 

 

 

The Darul Iftaa conducted a beautiful Shariah compliant business campaign program in Lusaka. This was the first of its kind in Zambia which generated a great interest in the community and was well attended. The program had a tremendous impact on all those who attended. From the response we could gauge that brothers who were unable to attend felt they missed out on a great opportunity.

 

The one very important observation which i made and was appreciated by the crowd was Hadhrat Mufti Saheb explaining modern day transactions and providing the practical alternatives for it for e.g. Mufti Saheb stated the issue of taking deposits is an Amanah, and therefore in principle the lessor cannot use it. Thus, Mufti Saheb gave an alternative that the lessor could insead take advance rent which would enable him to use the deposit. Most importantly the public realized that there is a practical alternative to the conventional system. There were a number of questions after the program, however due to lack of time we were unable to complete them. We hope Hadhrat Mufti Saheb accepts our invitation in the future so that the community in Zambia may benefit much more.



 

Hereunder is a brief on the topics discussed

 

  • Islamic Economic System & interest –Mufti Saheb discussed an Islamic system as opposed to a conventional system (i.e. the socialist and capitalist system). Hadhrat Mufti Saheb gave same thought provoking examples which was noted by one of the senior ulema.

 

 

 

  • Training Children in Financial Issues- Mufti Saheb stated the importance of teaching our children how to manage their affairs. The theme in short was to teach our children how business is conducted in an Islamic and responsible manner.

 

 

 

  • Pitfalls in Business Issues – This topic is quite evident, however, the unique manner in which these pitfalls were discussed exemplified  Mufti Saheb’s experience of dealing with Islamic business and commerce at a practical level.

 

 

  • Financial Issues between husband and wife – Mufti Saheb emphasised the point of a woman having the right to own something. However, Mufti Saheb stressed the importance of understanding between couples whilst keeping ones right in mind. It was a discussed from a unique angle.

 

  • Assisting and Empowerment – Mufti discussed the very important point of Muslims assisting one another. Discussing the issues of competition, monopoly etc in relation to the Islamic viewpoint.

 

  • Regulating Family and Business Succession Plan- Mufti Saheb discussed the difference between the mindset of the youth and elders. Importantly how they can work in tandem was discussed.

 

  • Internet transactions – This was a very unique discussion regarding auction sites which the youth were very interested in.

 

  • Investment Schemes – Mufti Saheb mentioned some schemes which the Darul Iftaa has drawn up which is importantly a practical alternative to conventional investment schemes.

 

 

 

  • BEEP – This was explaining the emails which the Darul Iftaa sends out regarding modern day transactions.

 

  • Prescription of Barakah –  Mufti Saheb explained in a nutshell that the Islamic way is to conduct our Mu'amalat (dealings) according to Shariah.He also explained reading Surah Waqiah every night and urged the  people to consider two questions which will be asked by Allah on the day of Qiyamah:

 

 

 



Where did you earn your money?



Where did you spend it?



 

 - (Moulana)Mohammed Patel, Zambia

 

 

Question:

I have a question about house financing. Due to my income, I can't get an approval from one of the Sharia financing companies here in USA, like Guadance, LaRiba or Ijara, but I can get an approval from other banks.

The question I have is, what if I go with another bank with 30 yrs financing and tell them to calculate the interest rate for 30 yrs and add it to the purchase price of the house and it'll be the same amount of monthly payment every month if I pay more than the minimum payment and also it will not be a problem if I pay the loan off early or 30 yrs, the loan amount will be same for paying it off with in 1 year or 30 years. If I go that route my monthly payment would be less than renting a house since I'm married and have 4 kids.

Guidance and other sharia banks won't approve me since my pay don't meet their requirements. Lots muslims here in USA do that when they buy cars, they buy down the interest rate and it's added with the purchase price, so the purchase price stays same. So I want to know if it's permissible to buy down the interest rate if I go with any other bank?

 

      Answer:

 

 

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 

There are many fundamental as well as procedural differences between Islamic Banks and Conventional Banks.

 

The issue is not about the final amount. Adding the interest amount to the purchase price in a conventional bank will not make the transaction Shariah Compliant as the full amount will still be regarded as a loan with interest.

 

In an Islamic Bank, the Bank purchases the business and after assuming full ownership, sells the house to the purchaser with a profit. In this case, the purchaser pays for the house and not simply towards a loan.

 

Accordingly, the arrangement with the Conventional Bank to add the interest amount to the loan is not permissible. If this procedure is used in the purchase of motor cars, then that too will not be permissible.

 

And Allah Ta’āla Knows Best                                       

 

Ismail Desai,
Student Darul Iftaa
Durban, South Africa

 

Checked and Approved by,
Mufti Ebrahim Desai.

 

KHARWASTAN

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