Current Legal Issues
- BANKING AND FINANCIAL SERVICE
- Banks are of three kinds:
- National bank, whose capital is owned by one or more persons.
- State owned bank, whose capital is raised by government funds.
- Company bank, whose capital comprises government stake and
public money in the form of share holdings.
- (1) It is not permissible to take loan from a national bank on
a condition of earning interest, because it is usury that is haraam.
If one took loan as such, the loan is in order, but the condition is
Payment of interest [by the bank] and receipt [by the customer]
thereof in fulfilment of the condition is haraam.
- However, to avoid involvement in usury transactions, you may
resort to one or more of the following ways:
- Purchase something from the owner of the bank, or its
agents, at the rate of, say 10% or 20% higher than the
market value, so that the bank may give you some money by
way of a loan for a specified period. It may, then, be said
that this loan is permissible and is free from usury.
However, it is not free from ishkal.
Avoiding it is, therefore, recommended as a matter of ihtiyat
luzumi. The same goes for the gift, hiring, and
mutual agreement of loans concluded with strings attached.
The same rule, of making the loan conditional on
preferential treatment, applies to making delay in repayment
- Exchange the loan for sale. Suppose the bank sold a sum of
money, say a hundred Dinars for a hundred and twenty, that
you must pay back in two months' time.
However, though this is not a usury loan per se, yet
its validity is a question of ishkal.
Of course, there is no objection to the bank selling an
amount of money, say a hundred Dinars, to be paid back in
two months' time. The deferred sum would then be made into a
different currency, the value of which is larger than the
hundred Dinars according to the exchange rates in a measure
commensurate with that portion constituting the difference
between the hundred and the hundred and twenty Dinars. At
the end of the stipulated period, the bank may take from the
customer the specified currency or its equivalent in Dinars,
so that the debt could be settled not in kind.
- The bank may sell goods to the customer for a certain
amount, say a hundred and twenty Dinars, to be paid back in
two months' time. The bank will then buy it back from the
customer for a cash price that is lower, say a hundred
Dinars. This, too, is not in order if a provision is made in
the first transaction of sale that the bank shall buy back
the goods for a cash price that is lower than the credit
price, even with the contract implicitly taking into
consideration such an understanding. Yet, there is no harm
in entering into such a transaction, if the contract does
not contain such a provision.
It is noteworthy that even though these ways are in order,
they do not materialise for the bank its fundamental
objective, i.e. having the right to demand from the debtor
an increase over and above the original extra amount payable
at the end of the specified period. Such an increase be
spiral in proportion to the period of excess delay in
repaying the original debt. Taking interest for the delay or
repayment is usury and is, therefore, haraam,
albeit in a form of making it a condition in the sale
agreement, for example.
- (2) It is not permissible to obtain loan from a state owned
bank subject to a condition of payment of interest, irrespective of
whether or not it is obtained by mortgaging some property. If such a
loan was obtained, however, it is invalid and so is the condition,
because the bank does not own the money under its disposal to give
it to the debtor.
- To avoid such a problem, it is permissible for the customer to
receive the money on the basis of majhoulil malik, not
with the intent of taking loan. As a matter of ihtiyat,
obtaining such a loan must be with the permission of the Marji',
who can authorise the recipient as how to go about spending it.
However, the person obtaining the loan should not pay attention
to the fact that, whether he likes it or not, the bank will
charge some additional amount from him, and even though he will
have to pay the additional amount when the bank demands it.
- (3) It is permissible to deposit money with national banks, in
other words loaning the banks.
- This, however, must be done without making a provision for
charging interest on the money deposited, meaning not
stipulating that the banks should give an undertaking to pay the
interest on the loan. The opposite of this is that the depositor
reaches a conclusion that if the bank was not going to pay the
interest, he would not demand it. The intent to demand the
interest does not contradict the non-stipulation. Similarly, the
intent not to demand the interest does not contradict
stipulation. That is because each of which is alien to the
- (4) It is not permissible to deposit money with national banks,
that is to say lending it, with the condition of obtaining interest.
- If the transaction has been concluded, depositing the money per
se is in order, but not fulfilling the condition. If the
bank paid the interest, the depositor should not assume
ownership of the interest money. However, it is permissible for
him to have the right of disposal over it, if he was sure of the
acceptance of the owners [of the bank], even with the assumption
that they know of the invalidity of the condition, and that he
was not entitled to the interest from a shari'a
viewpoint, as it happens.
- (5) It is not permissible to deposit money with state owned
banks, that is to say by way of loan, with the proviso of obtaining
interest. It is usury that is haraam.
- From an Islamic shari'a law standpoint, depositing the
money in the bank, albeit without attaching conditions to
receiving interest, amounts to wasting it. The justification for
this ruling is that whatever money could be retrieved from the
bank is not the bank's money per se. Rather it is from
that which is majhoulil
malik. Accordingly, profits and interest yielded by the
depositor during his [religious] tax year, before setting aside
is a matter of ishkal.
This is because he has the right of disposal over it for his
living expenditure, and is not permitted to waste it. If he
caused it to be wasted, he should compensate its owners.
- (6) The rulings contained in the preceding five paragraphs
apply to both kinds of accounts.
- These are deposit [or saving] accounts with a specified time
lag, i.e. the bank is not bound to give the customer access to
his money immediately [only when notice is given by the customer
and after the stipulated duration has elapsed, otherwise penalty
is due]. Current account is the second type of such accounts
where the bank is bound to put the deposited money at the
disposal of the customer whenever he requires it.
- (7) National and state owned banks are also covered by the
rulings outlined in the preceding paras (1-5).
- This is because the money deposited with such banks should be
treated as majhoulil
malik. Thus, it is not permissible to have the right of
disposal over it, except after consulting the Marji'.
- (8) The rulings just discussed pertain to banks in Islamic
countries. As for the banks that are financed by the unbelievers,
whether national [private] or otherwise, it is permissible to
deposit money with them with the condition of earning interest.
- This is because, alal
adhhar, obtaining usury from them is permissible.
As regards obtaining loan from these banks, subject to payment of
interest, it is haraam. Avoiding such a usury transaction could
be achieved by receiving the money not with intent of obtaining a loan,
rather by way of istinqath.
Only then, one should have the right of disposal over it without
consulting the Marji'.