Fatawa Islamic Banks

FATAWA ON ISLAMIC BANKS
I. RATIONALE AND OPERATIONS OF ISLAMIC BANKS
SUBJECT: How do Islamic banks work and make profit?
From: Islam on line

Date: 1/30/2002
Name of Questioner Gender Age
education Date Submitted 1/19/2002 Email
country of Origin User Ref. No. 43SFRF country of Residence
Question
Assalamu Alaikum. I have a question about the Islamic banking system. I was reading
about an Islamic bank in my area that gives loans for houses and cars yet they don’t ask
for any interest in return. And the savings accounts also don’t collect interest. So my
question is, how do these Islamic banks make profit? Especially if they give loans to
people without asking for interest in return?
My Answer:
Dear Br. questioner,
Assalamu Alaykum wa Rahmatullahi wa Barakatuh.
Al Hamdu li Allah wa al Salatu wa al Salam ala Rasuli Allah.
Islamic banks provides finance on the basis of equity sharing, sale (buy cash and sell to
customer at higher deferred price) and lease (buy cash and lease to customer to recover
principal and some extra during the period of the lease) contracts; and they make money
in all three forms of financing.
I don't know about the Islamic bank in your that you described. But all Islamic banks give
return to depositors in investment accounts. The system is a bit different from
conventional banks. Islamic banks take deposits in accounts they call them investment
account because depositors enter into a partnership agreement with the bank that the
latter uses their funds to conduct its business and share with them the net return. Islamic
banks also accept demand deposit in current accounts, no return is given.
You may find some reference to review in the several websites available on the subject.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------------
SUBJECT: What is the alternative to the interest-based banking system?
From: Islam on line

Date: 2/18/2002
Name of Questioner Nowshad Gender Male Age 21-30
Education Post Graduate Date Submitted 1/30/2002 Email
country of Origin Bangladesh User Ref. No. S8C8G3 country of Res. Bangladesh
Question
Assalamu Alaikum. I am facing some queries with presently available BANK interest.
All these are: 1) Is the present Banking system OK in respect to Islamic Jurisprudence?
2) If we say present Bank-interest is HARAM, we have to think about all the Muslims in
our countries who are engaged as employees in Banks as they work with Haram. So, let's
be careful about our comments. 3) If we take loan, that is nice in the eyes of present
situation. But if we take bank-interest, we feel like taking Haram. 4) Fixed-deposits etc.
should also be our point of discussion. So, please help us with your understanding or
knowledge. Some banks claim they work on Islamic rules (like Al-Baraka etc.). Can we
accept them? If positive, advise us about how we can get those banks' facilities in remote
places (Do they allow Internet banking? etc.).
My Answer:
Dear Br. Nowshad
My dear brother your questions are only half a century late! In the early 1950s these
issues were subject of discussion.
YES, conventional (i.e., those that work on the basis of interest) banks are Haram
because interest is the same Riba that is prohibited in the Qur'an (Verses 2: 279-280).
They are Haram to establish, Haram to own their stocks, and Haram to take interest-based
loans from and to deposit fund for interest at, Their CDs (Certificates of Deposits) are
also Haram. Over the last 39 years the word has been witnessing the establishment and
expansion and increase of Islamic banks at an annual rate that is more than 10%.
Bangladesh has at least four Islamic banks the oldest of them is more than 20 year old.
Please check the Islamic bank at the website of Islam on line and find out more info
about them and whether any of them has Internet banking.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
----------------------------------------
SUBJECT: Islamic Banks and the new Fatwa of al Azhar
From: Islam on line

Sent: Thursday, March 06, 2003
Name of Questioner Qureshi Gender Male Age Above 60
Education Date Submitted 2/27/2003 Email
country of Origin User Ref. No. RU91K5 country of Residence
Question
Assalamu Alaikum: RIBA: Al-Azhar Fatawa say modern fixed bank interest is not Rib-
aj-jahliya. Here in Pakistan the devaluation is about 18%p.a banks pay only 12% which
they call profit. We officially have no Riba bank accounts are profit/loss accounts but in
reality its interest as offered by any other bank. I don’t have a job right now and I am
unable to enter a business and I need constant income my savings are eroding as I am
living on my savings for the past 13 months. Please suggest. Is this PROFIT Riba? Can I
take this profit for a certain period of time till I’m able to earn some money through a job
or a business?
My Answer:
Bismi Allah al Rahman al Rahim
Al Hamdu li Allah Rabb al 'Alamin
wa al Salatu wa al Salamu 'ala Sayyidina Muhammad wa 'Ala 'Alihi wa Ashabihi Ajma'in
Dear Br. Qureshi
I don't want to dwell on the new Fatwa of Azhar, it is political and instigated by the
Shaikh of al Azhar who expressed the same Fatwa before and was banned from the OIC
Fiqh Academy in 1995 because of it. This Fatwa has no base in Shari'ah on two grounds:
1-the contract of bank deposits is a loan contract, it is not investment. Shari'ah defines
any increment in a loan as Riba and Riba al Jahiliyyah as prohibited in the Qur'an itself.
2- the conventional banks' activities is mainly to give loans to businesses on the basis of
interest, hence depositing with a conventional bank is tantamount to giving it money to
give interest-based loans and the source of the banks income is from interest
You case is very typical my dear brother. What conventional banks in Pakistan give on
deposits is interest even if they call it profit. Pakistan has several private Islamic banks
you can deposit in them what they give to depositors is a share of profit and they give to
businesses on the basis of Shari'ah-compatible financing contracts. You can deposit in
these banks or make a business with a friend or relative.
Wa Allahu A'lam
Wa Alhamdu li Allah Rabbi al 'Alamin
Wassalam
Sincerely,
Dr. Monzer Kahf
---------------------------------------
SUBJECT: Differences about Islamic banking
From: Islam on line

Sent: Monday, March 04, 2002
Name of Questioner Samir Gender Male Age 46-60
Education Graduate Date Submitted 2/6/2002 Email
country of Origin Egypt User Ref. No. 7MJJ9X country of Res. Egypt
Question
How come that there is some accept the non Islamic banks and some does not accept that
My Answer:
wa al Salatu wa al Salamu 'ala Sayyidina Muhammad wa 'Ala 'Alihi wa Sahbihi Ajma'in
Dear Br. Samir
Our responsibility is to explain the Shari'ah to women and men and it is each person's
responsibility toward God to implement what pertains to her/him.
Islamic banks make their contracts within the limits of Shari'ah and from that point of
view they differ from non-Islamic banks, but the matters of management and efficiency
depend on factors other than the Shari'ah permissibility of contracts. Those who reject
Islamic banks because their contracts are Rib and other Haram-free are wrong and they
commit a serious sin.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------------
SUBJECT: Islamic banks in UAE
From: Islam on line

Sent: Wednesday, March 27, 2002
Name of Questioner JASSIM Gender Male Age 31-45
country of Origin UAE User Ref. No. 8WCE5V country of Res.
Question
I have an account with Islamic bank in UAE and that bank gives profit yearly. On this
profit some Muslim brother are commenting this is also a kind and different of interest
but Islamic banks have termed as profit instead of telling Interest. Kindly make me clear
in this regard.
My Answer:
Dear Br. JASSIM
The Islamic banks in UAE (Dubai Islamic Bank, Abu Dhabi Islamic Bank and recently
the National Bank of Sharja if the latter completed its transformation to Shari'ah rules)
abide by the rules of Shari'ah and have respected Shari'ah boards. They make financing in
accordance with Shari'ah and the profit they distribute is a Halal profit. It is not interest.
And those who accuse them of gaining and distributing interest under name of profit are
wrong and must be questioned for such false accusations. Be assured of this my dear
brother.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------------
SUBJECT: Can banks operate without interest (Riba)
From: Islam on line

Sent: Sunday, September 08, 2002
Name of Questioner Nassor Gender Male Age 31-45
Education Diploma Date Submitted 8/20/2002 Email
country of Origin Tanzania User Ref. No. HBJBGT country of Res. Tanzania
Question
1. I know that Riba is a sin. But how should banks operates if they don't take interests? 2.
I was planning to start my business but the only way of acquiring capital at the moment is
by taking a bank loan. I decided not to the loan for I know that Riba is against the
Shari’ah. Does it mean that it is very difficult for us poor Muslims to start our own
business or is there another way of getting business loan according to Shari’ah? Thanks.
My Answer:
Dear Br. Nassor
As you rightly said Riba is a great sin. God in the Qur'an (2: 279) declares a war from
God and His Messenger on those who do not quit and abstain from dealing in Riba. Bank
interest is Riba.
Banks can run without Riba. They take money from depositors on profit sharing basis
and they give financing on either profit sharing, leasing or deferred sale basis. This is the
Islamic way of running banks and there are more than two hundred banks in the world
today that operate according to these principles.
I know it is difficult for Muslims who live in countries that do not have Islamic banks to
get financing in accordance with the Shari'ah. Such Muslim communities are required by
our religion that they should establish financing institutions that operate according to
Shari'ah, Islamic banks, Islamic finance cooperatives, etc. It is a religious obligation on
all such Muslim people. And until then we still must abstain from Riba unless in case of
necessity for housing or to save a business, but the rule of necessities do not allow a
relaxation of a prohibition for the purposes of promoting a business of to start one.
Wa Allahu A'lam
Wa al Hamdu li Allah Rabb al 'Alamin
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------
SUBJECT: Main motive for establishing the First Islamic investment bank in
Malaysia
From: Islam on line

Sent: Friday, January 03, 2003
Name of Questioner Om-Samir Ref No 525MQ Age 46-60
Country of Origin United States Country of Citizenship United States
Question
My husband and I are less than well-to-do so we just manage to pay our bills. We also
help our daughter go to college. Abo-Samir dreams of going to Hajj. I think that if we
had a dedicated savings account we could save for such a trip, but we don't want to open
a typical USA bank savings account because they earn interest. If we eventually were to
open this kind of account, we will not want the interest it earns. What is the best thing to
do? Open one? Not open one? And if we do, what do we do with the interest? We would
want to give it away in a Halal manner so that our Hajj money would be Halal. So what is
the best thing to do with this interest? Saving money is the only way we could do this as
we have no rich friends or relatives that would give such a wonderful gift, nor would we
expect it.
My Answer:
Dear Sr. Om-Samir
Your case is quite typical of most Muslim families. This was the main motive behind
inventing the first Islamic bank in Malaysia in the early 1960s. People save for several
years to make the trip to Hajj, many of them under their own mattresses. The Idea of this
bank, called Tabung Hajji, is to use these savings in Shari'ah permissible investments and
distribute dividend, thus helping account holders accumulate the needed money in a
faster way. Unfortunately we don't have an Islamic bank in America that helps us do the
same. If opening a saving account helps you accumulate the amount of savings you need
while protect the money from loss and theft, go ahead and do it and give away the interest
to a Muslim charity. You don't have to tell the charity that the money is interest but it is
permissible to tell them. You must not add the interest to your own money, not for use in
Hajj nor other needs, because according to Shari'ah this is not yours, but given
voluntarily in an invalid contract (from Shari'ah point of view) but you do not return it to
the payer to avoid helping it make more interest-based transactions.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------------------
SUBJECT: We need to be educated about Islamic banks
From: fatwae@islam-online.net
Sent: Tuesday, January 21, 2003
Name of Questioner Rizwan Gender Male Age 31-45
country of Origin Pakistan User Ref. No. PYFT3U country of Res. Saudi Arabia
Question
DEAR SCHOLAR,ASSALAM-O-ALAIKUM I KNOW THAT INTEREST IS
PROHIBITED IN ISLAM.EVERY MUSLIM SCHOLAR IS SAYING THAT TAKING
INTEREST IS HARAM AS WELL AS DOING JOB IN A BANK IS ALSO
HARAM,BUT WHERE AND WHAT IS THE ALTERNATE SYSTEM?IS THERE ANY
ALTERNATE SYSTEM AVAILABLE IN THIS WORLD.AS FAR AS I KNOWALL
BANKING SYSTEM IS BASED ON INTEREST.HOW CAN A PERSON SURVIVE IN
THIS MODERN WORLD WITH OUT BEING INVOLVED IN THIS SYSTEM.I AM
LIVING IN SAUDIARABIA BUT HERE ALSO THE BANKING SYSTEM IS BASED
ON INTEREST.IT IS THE RESPONSIBILITY OF ALL MUSLIM SCHOLARS TO
DEVICE AN INTEREST FREE BANKING SYSTEMWHICH CAN TAKE UP THE
PRESENTLY INTEREST BASED BANKING SYSTEM AND THIS TRANSITION
WILL BE GRADUAL NOT ABRUPTLY. I WANTED TO INVEST SOME MONEY
BUT I HAVE NO KNOWLEDGE OF ANY BUSINESS, AND IF I GIVE THIS MONEY
TO SOMEBODY FOR BUSINESS HE WILL GIVE SOME PROFIT FOR SOMETIME
AND THEN HE WILL SAY THAT ALL THE MONEY HAS BEEN LOST IN
BUSINESS.I HAVE SEEN THIS THING HAPPENING MANY TIMES. IF A PERSON
HAS RETIRED FROM HIS JOB AT THE AGE OF 60YRS AND HE IS GIVEN SOME
MONEY FROM HIS DEPARTMENT AT THE TIME OF
RETIREMENT(GRADTUITY) AND HE HAS 5 DAUGHTERS TO MARRY,AT THE
AGE OF 60 HE CAN NOT DO ANY WORK.NOW IF HE WILL NOT INVEST THIS
GRATUITY IN SOME SCHEME IN A BANK THIS MONEY WILL FINISH IN LESS
THAN 5YRS,THAN WHAT WILL HE DO?IF EVERYONE WILL STOP INVESTING
IN BANKS THAN WHOLE ECONOMY WILL COLLAPSE.IF YOU HAVE ANY
SOLUTION FOR THIS PROBLEM,PLEASE TELL ME.
My Answer:
Dear Br. Rizwan
There are many Islamic banks in the world today. They live and operate without interest.
Please go the nearest bookstore and make some reading on Islamic banking. Your
question has been answered hundreds of times over the past forty years. Islamic banks
started forty years ago and they are growing at more than 10% every year.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------------
SUBJECT: Most workers in conventional banks are bad sources of
information about Islamic banks
From: islamonlinenet@hotmail.com
Sent: Sunday, February 02, 2003
Name of Questioner RIZWAN Gender Male Age 31-45
country of Origin Pakistan User Ref. No. XGHHE9 country of Res. Saudi Arabia
Question
DEAR SCHOLARS,ASSALAM-O-ALAIKUM.I SUBMITTED A QUESTION
REGARDING INTEREST ,MY REFERENCE NUMBER IS "PYFT3U".SORRY SIR I
AM NOT SATISFIED WITH YOUR ANSWER,YOU SAID THERE ARE SO MANY
BANKS WHO ARE DEALING IN INTEREST FREE BANKING.I DON;T HAVE
ANY KNOWLEDGE ABOUT THEM.RIGHT NOW I AM RESIDING IN
SAUDIARABIA.ONE OF MY UNCLE IS ON A HIGH POST IN SAUDI HOLLANDI
BANK ,HE TOLD ME THAT IN SAUDI ARABIA THERE IS NO BANK WHICH IS
DEALING WITHOUT INTEREST,WE HAVE LOT OF SEMINARS DICUSSING ON
THE MATTER,BUT NO SOLUTION.AS REGARDING YOUR PREVIOUS
ANSWER,PLEASE GIVE ME THE NAMES OF BANKS WHO ARE DEALING IN
INTEREST FREE BANKING BOTH IN PAKISTAN AND SAUDIARABIA.I WILL
BE HIGHLY GREATFUL TO YOU.
My Answer:
Dear Br. RIZWAN
Your uncle works in an interest-ridden bank, he is in this sense under the influence, he
does not know the difference between interest-based financing and financing the makes
profit but does not deal with interest. In the bank where your uncle works they call
interest commission, but changing the name does not change substance! Interest-free
financing takes sale, lease or partnership as bases for financing. It makes profit and
distributes return to depositors, who put their money with the bank on the basis of
partnership too instead of the basis of loans as in the bank where your uncle works. If you
live in Riyadh go and visit, the Shari'ah advisory office of "Sharikat al Rajihi al
Masrafiyyah li al Istithmar" and meet Dr. Abd al Rahman al Atram, give him my
personal Salam and ask him how this bank works without interest. In Pakistan there is a
Faisal Islamic Bank, and a Barakah or TAwfiq Islamic Bank (both private). I requested
you to do some reading homework and instead of that you asked a person who is
involved in an interest-based bank! In Egypt there are three of these banks. In Jordan,
Kuwait, Bahrain, Emirates, Qatar, Algeria, Tunisia, Bangladesh, Malaysia, Indonesia,
and in Europe and USA there are Islamic banks and financial institutions too. But
acquiring knowledge needs effort on your part not dependence on you uncle!
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
----------------------------------------
II. DEALING WITH ISLAMIC OR CONVENTIONAL BANKS
SUBJECT: Depositing in conventional banks
From: scitech@islam-online.net
Date: 9/12/00
My Dear Brother who did not give his/her name

Al Salamu Alaikum WA Rahmatullah wa Barakatuh,
your question is about putting money in banks, you did not mention where and under
what circumstances.
My Answer:
Al Hamdu li Allah wa al Salatu wa al Salamu ala Rasuli Allah,
Any conventional bank certainly uses money deposited in it to its own benefit. However
these deposits cost the bank money to maintain their accounts and transactions, Several
points should be made clear:
1) if you are in a Muslim country and there is, at least one Islamic Bank that provides
services, generally of the same qualities as the conventional banks , at that Islamic bank
is accessible to you without much additional effort and cost, (a little additional effort and
cost is always tolerable), it is then Haram to place funds with the conventional bank,
whether in current deposits (that does not generate interest) or in timed deposits and
saving accounts (that generate interest).
2) If you are in a Muslim country that does not have an accessible Islamic bank , or in a
Muslim community , as a minority, and there is no Islamic bank too, and if you need the
convenience of having a bank account for the deposits of your income checks and the
payment of bills and for safeguarding the funds, as our case here in the United States,
We MUST first always make sufficient efforts to establish an Islamic bank that allows us
to have the convenience we need without having to deal with a Riba-ridden business
establishment (a conventional bank) , this is a Fard Kifayah , i.e., all Muslims who are
able to do it are required personally and each one of them is required by Shari’ah to
cooperate with others to establish such an Islamic banking institution, and whose of us
who do not undertake this responsibility are sinful as long as they can do it and it is not
yet done. Second, until an Islamic bank is established, we are permitted, out of this
general need that stands equal to individual necessity, to make necessary transaction with
a conventional bank , and we keep our seeking the forgiveness from Allah, the almighty,
we keep our relation to minimum that we need and if any interest comes out of such
transaction, we MUST give it away for charity, preferably through the Islamic center, and
we do not consider this giving part of our Zakah, nor it is a Sadaqah, it is in fact nor our
money because interest is Haram and it is not an earning to Muslim, we give it away
because we have to keep our own money pure from it.
3) if you can keep your money is a safety box without having to bear the inconvenience
of needing to write checks and cashing checks of income and receipts and having salary
transfers come directly to your account, and you are willing to make the payment of he
fees of the safety box, you may then do that, but remember that this is a serious
inconvenience for most other Muslims, hence do not object to their having current
accounts with these banks.
Wa Allahu A'lam
Wa al Salam
Dr. Monzer Kahf
------------------------------------------
SUBJECT: Banking with non-Islamic bank
From: live fatwa on Islam on line

Date: June 20, 2001
Name JUMA country United Kingdom Profession Student
Question
Assalamu Alaikum. As a Muslim, am I allowed to invest my money in a stock market? If
not, why? And am I allowed to bank with non Islamic banks and if not why?
Answer
Wa 'Alaikum Assalam wa Rahmatu Allah
Al Hamdu li Allah wa al Salatu 'ala Rasuli Allah
First, investment in the stock market: Stocks are documents that represent shared
ownership in a company. It means you are a partner in that company. If the management
produces anything that is forbidden, it is producing it on behalf of you the owner because.
The implications of this are:
1) A Muslim must not produce anything (commodity or services) that is prohibited.
2) Any income generated to the owner that mingled with prohibited earnings needs to be
purified by giving away to charity that part that is not permitted in Shari'ah.
Based on that companies are classified into three categories:
a) Companies whose main business is prohibited in the Islamic Shari'ah such as
interest based banks, casinos, and porno or alcoholics production.
b) Companies whose main function are permitted and at the same time their
management abide by the rules of Shari'ah. The example of this category is Islamic banks
and Islamic Insurance companies. Buying their stocks and trading them are permissible
within the known rules of sales contracts in Shari'ah.
c) The third covers the very large majority whose main business is permissible
such as computer or technology, but its management make some prohibited transactions
such as taking loans from banks or depositing cash against interest. Buying stocks in
these companies may be considered forbidden because it is forbidden for any Muslim to
do any prohibited transaction, no matter how little it would be in relation to the total
amount of transactions he/she makes. This is the opinion of many Muslim scholars.
However, there is a group of very learned scholars that consider this opinion very
restrictive and very difficult to implement in our contemporary time. This group is lead
Shiekh Taqi Uthmani from Pakistan and by Abd al Sattar Abu Ghuddah of Syria. These
group argues that if you buy the stock for investment (with the objective of looking at
profit in dividend and growth) and you have no way of imposing on the management to
abide by the shari'ah rules, it is permissible within certain criteria to invest in the stocks
of this third category of companies. The criteria are that the percentage of non-
permissible transactions to total business of the company must be small and they suggest
a small is not to reach, with regard to interest transactions, 10 to 15 percent. They put a
few criteria around that idea of small percentage. These criteria are implanted by the Dow
Jones Islamic Market Index under the supervision of a group of Learned Islamic scholars.
This is available via the Internet.
The second criterion is the necessity of cleansing ones income the stacks of these
category of companies. One must give for charity a portion of ones gains from
investment that equals the estimated percentage of returns generated from prohibited
transactions made by the management. The objective of these cleansing criteria is to keep
ones own money pure from the prohibited and unlawful income according to Shari'ah.
Dealing with banks in UK: It has become very cumbersome and inconvenient to stay
away from dealing with banks in our contemporary world especially for the Muslims
living in the west. The rule is that where there are no Islamic banks it is permissibly to
deal with non-Islamic banks or Riba based bank as long as the transaction is not
forbidden in Shari'ah. This means you may have a checking account; you may change
currency, do transfer, and other non-interest related transaction with a conventional bank.
If it happens that interest is generated to your account, you have to give away that amount
of interest to charity.
Wa Allahu A'lam
Monzer Kahf
-------------------------------
SUBJECT: Depositing in interest-based banks in Egypt
From: Islam on line

Sent: Friday, March 15, 2002
Name of Questioner Shereen Gender Female Age 31-45
country of Origin Egypt User Ref. No. CPVUTG country of Res. Egypt
Question
Please I wanted to ask about bank's interests for a woman like me who can not work as I
have 2 kids at the same time I know no one who could invest for me this money. My
question is also please what to be done when my husband also is like me doesn’t know
anything? Thank you sooo much
My Answer:
Dear Sr. Shereen
Depositing funds on interest basis in banks is Haram, no doubt about it in spite of what
may be said by some people that these are investment. They are loans to banks. You find
this definition in the Egyptian Law of the Central bank, please read it.
Moreover, in areas that have Islamic banks, many Fuqaha argue that it is forbidden to
deposit even as checking accounts in interest-based banks. You have Three Islamic banks
in Egypt, please ask about a branch close to you and place your funds, and tell your
husband to do the same, in Mudarabah accounts with one of the Islamic banks.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-----------------------------
SUBJECT: Buying a house with a bank loan while there are Islamic Banks
From: Islam on line

Sent: Monday, February 24, 2003
Name: Hiba Country of Residence: Jordan Gender: Female
Reference No.: 5RZ9FM Email Age: 21-30
Question
in the name of god Dear sir; Thank you very much for this opportunity, I need to ask if it
is Halal to take a loan from a bank to buy a house for the family, knowing that me and
my husband work and we live in a rental house, if we don't take a loan we will never be
able to buy a house since we pay rent. . If we take a loan we will be paying almost the
same amount as rent for the installment. Awaiting your answer. Thanks and jazakum
Allah kheir
My Answer:
Dear Sr. Hiba
If you are in Jordan, there are two Islamic banks you should try to deal with them and
find a good way to finance your residence in Jordan. Besides in the Muslim countries
there are families and friends that may help and always help. You know Riba is forbidden
and a house loan from a conventional bank is Riba-based.
If you live in non-Muslim countries that have no Islamic banks, the matter is different.
That doesn't mean that the prohibition doesn't exist any more. No, the prohibition is as is
no differences between countries and places. But because there is a great deal of hardship
for Muslim families who live in the West in finding suitable housing without mortgages
and there are very few, and only recently, institutions that offer Islamically acceptable
contracts, the prohibition is circumstantially relaxed. If you live in the West and your
family need the housing for reasons that include, but not limited to: children education,
tax considerations, equity building consideration, neighborhood security, safety and
services, etc., and you don't find, at competitive cost, Islamic contracts for financing your
house, you may then use conventional mortgage.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
------------------------------
SUBJECT: No necessity to bank with conventional banks in Pakistan
From: Islam on line

Sent: Sunday, March 17, 2002
Name of Questioner umer Gender Male Age 31-45
country of Origin Pakistan User Ref. No. DBJUT country of Res. Pakistan
Question
I am a small businessman need financial help to survive a business recession. I have no
property to sell. Problems could be solved by loan from bank.10 years before under same
situation obtain bank loan and discontinued the loan facility after improvement. Under
the law of necessity is it permissible to obtain loan from bank. Please advise.
My Answer:
Dear Br. umer
Pakistan has Islamic banks allover; there is no law of necessity that requires you to deal
with interest-based banks in Pakistan.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
---------------------------
SUBJECT: Getting loans from banks while there are Islamic banks
From: Islam on line

Sent: Tuesday, March 19, 2002
Name of Questioner Abdulrahman Gender Male Age 31-45
country of Origin U A E User Ref. No. TXX1B6 country of Res. UAE
Question
I am a partner in a commercial transport company. The other partner is not Muslim. The
company has been using bank loans with interest to finance purchase of vehicles. What I
have to do to avoid Shari’ah violation? For your information Islamic finance is more
expensive and will not be accepted by my partner.
My Answer:
Dear Br. Abdulrahman
working in partnership with non-Muslims is controversial in the classical Fiqh, exactly
because of the reason you mentioned. A non-Muslim partner may undertake actions and
make contracts, for the partnership and in its name, that are prohibited in the Shari'ah.
Ulama agree however, that such partnerships are permitted if you are sure that no
violation of the Shari'ah may be done in the decisions of the partnership.
Interest is Haram, no doubt about it, it is in the text of the words of Allah Ta'ala: You
shall get your principal alone, no injustice you do an do injustice done to you. Verse
2:279.
I know in some countries that have only one Islamic bank, dealing with it may be
sometimes more expensive, but in the UAE you have three Islamic banks: Dubai IB, Abu
Dhabi IB and National Sharja IB, are you sure that all of them are more expensive than
conventional banks? It seems to me they shouldn't, they should be somehow in the
middle of conventional banks from cost point of view. I know some businessmen who
found Islamic banks cheaper. Any way if they are more expensive, you should negotiate
with them and try to involve some members of their Shari'ah advisory boards and make
such a complain to their Shari'ah boards that unless they really provide quality service
they must certainly be competitive with conventional banks.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
------------------------------
SUBJECT: House-purchase loans in Pakistan
From: Islam on line

Name of Questioner Omar Gender Male Age 31-45
country of Origin Pakistan User Ref. No. L6Y71J country of Res. Pakistan
Question
Currently I am looking for a house to buy. Since it is virtually impossible to have the full
price of the house in cash, and mortgages involve interest, what would you recommend I
do in order to properly pursue this objective? I am not even sure if this type of interest
(mortgage) is acceptable in Islam or not, although my inclination is that it's not. I have
also inquired about Islamic Banks, but it is hard to find reliable information about them
so far. Thank you much, Assalamu Alaikum, Omar
My Answer:
Dear Br. Omar
To the best of my knowledge, there are several private sector Islamic banks in Pakistan,
in fact, I believe all banks follow the Shari'ah principle if the last ruling (1999) of the
Pakistan Supreme Court has been implemented. Moreover, the Pakistan house Investment
Corporation offers several form of Shari'ah compatible contract for house purchase.
Accordingly I find no reason for going to interest-based mortgage. Interest is obviously
Haram for housing as well as for any other deals. I find no reasons for necessities in most
Muslim countries, especially Pakistan.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------------
SUBJECT: Borrowing from conventional banks
From: Islam on line

Name of Questioner lyazd Gender Male Age 31-45
country of Origin Algeria User Ref. No. 9BRU6R country of Res. France
Question
Assalamu Alaykum I live in London my parents live in Algeria, they do not have a place
were to stay so we hired a place for them but it is too much I want to buy a house for
them but I do not have enough money, is it possible to borrow money from the bank here
in London, as you know they take interest. Thank you for your time and May Allah
reward you inchaa Allah asalem alykoum
My Answer:
Dear Br. lyazd
There is an Islamic Bank in Algeria, why going to a Riba-based bank? I don't see a
reason for needing to borrow on Riba in such a case.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
------------------------------------
SUBJECT: Interest-based loans for housing in Pakistan
From: Islam on line

Sent: Wednesday, March 27, 2002
Name of Questioner khalid Gender M Age 31-45
country of Origin Pakistan User Ref. No. 3BFV2S country of Res. Pakistan
Question
I am interested in buying a house and for this I have to finance it thru a bank. As we all
know banks charge interest on the loan they provide and as Muslims we have to stay
away from interest. So could you guide me if I am right in my understanding that we
have to stay away from any kind of interest. Jazaka Allah.
My Answer:
Dear Br. khalid
Yes, Dear Brother, you are fully right. Interest is one of the most grave sins in Islam, it is
associated with believing in partnership with Gad and it is the only sin on those who do it
Allah, Ta'ala, declared a war from Him and His Messenger, The Qur'an Verse 2:279.
To my knowledge, Pakistan has several Islamic banks, private and public. It also has a
house financing public company that uses Islamic contracts. Why dealing with interest
for housing in Pakistan?
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-----------------------------------
SUBJECT: Interest-based deposits in the Muslim countries
From: Islam on line

Sent: Monday, April 15, 2002
Name of Questioner Z Gender Male Age 31-45
country of Origin User Ref. No. GYDKAL country of Residence
Question
I live in a Muslim country. I have kept my savings in that particular category of accounts
on which interest is not paid. However I rarely draw any money, as I am saving it for
some future plan. The question I would like to ask is should I deposit my money in an
interest paying account, and pay the interest money to some poor person, or that would be
contrary to spirit of Shari’ah. Best Regards
My Answer:
Dear Br. Z
Many Muslim countries have Islamic banks. First, search for an Islamic bank and deposit
in it. Second, I wouldn't advise to deposit in an interest earning account, especially in
Muslim countries. If it happened that you earned interest, you dispose of it for Muslim
charity, to poor and needy, etc.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------------------
SUBJECT: Transactions of conventional and Islamic banks in Egypt
From: Islam on line

Sent: Tuesday, April 30, 2002
Name of Questioner Asser Gender Male Age 21-30
country of Origin Egypt User Ref. No. N8P1NY country of Res. Egypt
Question
Al Salam Alaykum I’ve read about considering banks interest as Reba. And I’m asking
you to give me clear vision on this issue that would help me to make the right decision
InShaAllah. Banks in Egypt claims to give varying interest which is around 9.5%:10.5%
these days. I’m not sure if the bank invests all its money in loans with fixed interest or it
invests money also in projects that profits the bank. I would like to know what specific
transaction of the bank that is considered Reba. I’m an Egyptian studying in USA, I’ve
no fixed income right now, and I’ve some money in a bank in Egypt that inherited from
my family. The interest of this money represents my main source of income that helps me
to cover my living expenses. If banks are based on Riba, then what is the alternative,
please advice me if there is Islamic banks that I can invest my money in, I understand that
solidifying the money in gold or other fixed assets would not be a right thing to do.
jazakom Allah kheir Alsalam alykom
My Answer:
Dear Br. Asser
For the first part of your question: Conventional banks in Egypt make most of their
transactions on interest basis and interest is Riba, exactly as prohibited in the Qur'an.
Verse 2: 279 mentions that any increment above the principal is Riba. This is exactly the
definition of interest in the banking world. Conventional banks in Egypt are not permitted
by the banking law to own real estates, stocks or inventories other that their own offices,
furniture and stationary. Their sources of money are from either equity of shareholders or
deposits in current accounts or other types of deposits that give depositors interest. the
use of their funds is only in giving loans on interest basis. They cannot invest in project
on the basis of equity and what they call investment in projects is done only on interest-
based lending contracts.
Banks, all banks, have several other transactions that may not be forbidden: opening
checking accounts, payment of bills, cash currency exchange, transfer of money from one
place or country to another, etc. There are other non-lending transactions that are
also prohibited in conventional banks such as letter of credits because it involves interest
too and future currency transactions because the prophet, pbuh,
specifically prohibited currency exchange unless it is all cash.
One more thing: any increment in a loan/deposit contract is Riba whether it is fixed or
variable. Variability of the rate of interest does not make it permissible. Please notice too
that Interest (Riba) is one of the worst sins in Islam, Allah, Ta'ala, in the Qur'an declares
a war from Him and from His Messenger on those who do not quit all and any remainder
of Riba.
For the second part of the question: There are 2 or 3 Islamic banks in Egypt: The Faisal
Islamic Bank, The International Islamic Bank for Development and the al Ahram bank (I
am not so sure about its exact name but it was a small conventional bank and Shaikh
Saleh Kamel of Saudi Arabia bought it and converted it in an Islamic Bank. You can
deposit your money in any of these Islamic banks, the largest is Faisal IB, and they use
the funds in providing finance on the basis of Murabahah and equity. Why: because these
bands were established by special laws that permitted them to buy goods and
contribute on equity basis to projects.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
---------------------------------
SUBJECT: Avoiding Riba for a person living in Pakistan
From: Islam on line

Sent: Saturday, June 08, 2002
Name of Questioner Mehtab Gender Male Age 21-30
country of Origin Pakistan User Ref. No. G1W84Z country of Res. Pakistan
Question
Assalamu Alaikum Dear Sir, (1) If installment price of a commodity is more than its cash
price, can one purchase that item on installment basis as the installment price contains an
element of interest. (2) Is there a difference between interest and Riba? (3) What is the
definition of Riba? (4) How can we avoid it as the entire banking system is based on
Riba?
My Answer:
Dear Br. Mehtab
Let me begin with your third question: what is the definition of Riba? As mentioned in
the Qur’an, Riba is any contractual increment, in kind or in money, determined or will be
determined later, above the principal of a loan. The Verse 2: 279 puts as Zulm or injustice
(Riba) any thing above the principal. There is another kind of Riba that is mentioned in
some Sayings of the Prophet, pbuh, and some Ulama explain that it is a kind of putting a
barrier or a fence to make the Riba that is mentioned in the Qur’an more inaccessible.
This is called Riba al Buyu’ i.e., Riba in sale contracts. Essentially it is the prohibition of
trading currency for currency (gold, silver and other currencies) without effecting the
delivery of both subjects immediately at the time of contract and/or trading different
quantities of same item (wheat, barley, date, raisin, gold and silver).
Question 1: If Riba is an increment in a loan, a deferred/installement sale contract is not
Riba based if the price is higher that what it would be had the contract was cash. There is
no lending here as you notice. You may say it is similar because it amounts to the same
thing. Look closely and you notice differences: 1) a sleer is an owner and owner are free
to contract their sale at any price and dates of payment as they can agree with buyers. 2)
in such a sale, default in any periodical payment does not generate interest for the delayed
period, it does in an interest-based loan. 3) a sller is reposible for hidden deffect/impurity
of the sold merchandize, a lender has nothing to do with merchadize. 4) sale creditcan
only be given to a maximum amount of the value of the merchandize, it does not pile nor
accummulate in the economy to huge monetary assets since discounting debts is also
Riba (though it looks in reverse, but look at it from the angle of the giver of cash who
waits until maturity to get larger sum). Therefore in a Riba-free economy debts-based
assets are reduced to a maximum of the value of commodity transactions, no more. 5)
prohibition of Riba is the only way to prevent spillover of lending for commodity
financing to lending for lavish spending and for piling up debts assets.
Now, it becomes apparent that installment sale cannot be made Haram because of the
similarity of having to pay higher sum anyway because this sum is a price and the
increment in a loan is not a price. Some economists called it a price of waiting or of
preference for cash, but can you imagine waiting or preference for cash as other than a
thin air?! Do you have a bunch of them to sell, and how about selling waiting at a gas
station? Ar at a bus stop? Or for a friend to come?
Question 2: you notice from the definition that every interest is Riba but there are other
kinds of Riba that goes beyond interest, those mentioned in the Hadith.
Question 4: Pakistan is previleged with many Islamic banks and you certainly can avoid
Riba in Pakistan. The problem is for those Muslims who do not have Islamic banks or
similar financial institutions that provide financing through contracts that are compatible
with the Shari’ah. It is certainly difficult. And when there are pressing needs or
necessities, and there are no other ways to avoid a prohibited contract, the Shari’ah
certainly looks at such necessities and relax as much of a prohibited matter as needed to
remove the hardship provided Muslims make excerted efforts and strive to establish the
proper rules, as described in the Qur’an and the Sunnah.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------------------
SUBJECT: Replacing interest financing by Islamic financing
From: Islam on line

Sent: Wednesday, September 25, 2002
Name of Questioner Asma Gender Female Age 21-30
country of Origin Tunisia User Ref. No. W5PSA country of Res. Tunisia
Question
My parents are divorced since I was 4 years old and I have been living with my mother in
my grand-fathers house with my aunts and cousins. Today, after about 25years, my
mother can no longer bear this life especially that she has continuous problems with my
aunts and that the house is small. My mother started taking tranquilizers and is crying all
the time. Then my father decided to buy for us a house.. And after we agreed with the
seller and I can not describe to you the happiness of my mother, my father mentioned
something about bank loan but I did not take it seriously because my father is rich and
also because at that time I was not praying and did not understand that it was not allowed
by Islam. I signed the contract, but formalities took one year, and I was praying in FAJR
Prayer that he will not take a bank loan and that God will not let us down (my mother &
me). And whenever I try to mention to my mother that we might to not have the house,
she breaks down. Unfortunately, He did take a bank loan interest based. And now I can
not describe to you my fear of God and my despair because the loan is in my name even
though I am not paying it. And it is useless that I talk to my father, because my father
(May God forgive him) does not pray, and will not listen to me. Yesterday I cried all
night, I don’t want to live in a house acquired by "Riba". What can I do so that God
forgives me?
Notes
please reply to this long question, because this sin is too heavy on my heart and kills me.
JAzakom Allahou Khairan.
My Answer:
Dear Sr. Asma
You are now a mature woman that can make decisions for yourself and what you said of
the prohibition of Riba is certainly correct. The sin of the decision on buying the house is
not yours although the house is in your name and you signed the purchase agreement.
Your father took a loan from the bank to finance the purchase and gave you the house
as a gift. You got the house and the loan is his not yours although the lien is put on the
house to the benefit of the bank as a guarantee of the loan. In other words, your signature
on the bank's papers does not change the fact that your father made the purchase and the
loan.
However, to get out of this conscience pain you have two options: 1) Since everything is
in your name you can go to the Saudi Tunisian Finance House, it is an Islamic bank, and
you can substitute this bank loan with Islamic financing that is compatible with Shari'ah.
You may have to get your father to agree to change payment to the new bank instead of
the current one, or to guarantee the payment from your own income. 2) You can vacate
this house and rent on your own or buy through the Islamic Bank and live in a new house
that is pure of any sin of Riba.
Always pray for the guidance of your father. He can benefit from your prayer and your
kind advice with the help of God and do not disturb your mother who apparently had
suffered a lot and need now your help as a natural tranquilizer!
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------
SUBJECT: Depositing with Islamic Banks
From: Islam on line

Sent: Saturday, November 30, 2002
Name of Questioner farnaz Gender Female Age 15-20
country of Origin Bangladesh User Ref. No. YCU1UG country of Res. Bangla
Question
Assalamu Alaikum. I want to ask you about Islamic banking system. Bangladesh is a
Muslim majority country. But her government doesn't follow Islamic laws. As a result
there is interest system in our banks. Some of the families of our country deposit some
money in banks and they get some monthly interest from there. That is the only income
source of those families. As government is allowing the interest system so should general
public be punished in Islamic laws?
My Answer:
Dear Sr. farnaz
The situation you described is unfortunate. in fact most Muslim countries allow interest-
based banks and permit payment and receipt of interest.
Interest is forbidden in the Islamic law, Shari'ah. There is no doubt about that. But
Bangladesh is in fact lucky in this regards, because it has several Islamic banks. Muslims
in Bangladesh can deposit their money in any of these Islamic banks and collect
dividends (profit) instead of interest. This is permissible in the Shari'ah.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
---------------------------------------
SUBJECT: Depositing in Islamic banks when available
From: Islam on line

Sent: Monday, January 13, 2003
Name of Questioner M H Gender Female Age 21-30
country of Origin Canada User Ref. No. 82CW7M country of Res. Canada
Question
Assalamu Alaikum, dear scholars, my first question is regarding interest that one
accumulates on their savings account...my father has a savings account in Pakistan, on
which he accumulates interest...the reason he has an account there is so that he can
provide directly for his family there who are in constant need of money to fulfill their
basic needs. If my father did not have an account there, then every time a family member
would need money, my father would have to have it wired over which is time consuming
and quite costly...it just isn’t feasible, especially if the family member needs it right
away. As a response to a question posed by another fellow Muslim on this website, the
advice given regarding bank interest was that the interest money earned should be
regularly taken out and given to charity. In our case, all of the money in the account is
going towards charity since certain members of my family are quite poor and the money
my father puts into the account helps them meet their basic needs. In light of the
information mentioned above, is what my father doing Halal or Haram?
My Answer:
Dear Sr. M H
Your question is interesting. It needs certain details that you did not mention; these are
regarding the relations to the family members in Pakistan. If they are persons of the close
extended family such as your grandparents, parental aunts and uncles, maternal aunts and
uncles if your mother shares in the giving, your family may be required by Shari'ah to
spend on their basic needs and then what is given them is not considered charity but
obligation exactly like spending of you and your siblings. In this case you cannot give
them the interest that is forbidden to you because it amounts to keeping it for yourself as
it reduces your obligation toward them. This is one point.
The second point is a direct one. Pakistan has several Islamic banks that maintain
deposits in saving and investment accounts. They use the funds and distribute return in
ways compatible with the Shari'ah. If this alternative is available, it is then FORBIDDEN
to put deposits in interest-generating saving accounts in conventional banks. It is always
better to give charity out of Halal money than earning Haram and give it as charity!
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------------
Subject: Financing when you don’t have Islamic banks
From: Live Fatwa on Islam on line

Date: Feb 19,2002
Name: Salih
Question:
Dear Sheik, We're living in an economy that runs through the function of interests. We
don't have an Islamic bank in this country yet. Although we have some Islamic
institutions assisting us to acquire a house through what they called "the Islamic way",
they claimed to file to the government the conventional way. That means that they must
assign a rate to the amount of loan they gave to clients. Therefore, what's the difference?
Please shed some light in this matter. Thanks.
My Answer
In the name of Allah, Most Gracious, Most Merciful.
May Allah's peace and blessings be bestowed on Muhammad (PBUH).
Dear Salih
Assalamu Alaikum
There is a difference between home financing through institutions that give Shari’ah
compatible contracts and institutions that give financing on interest basis. What matters
to the homeowner is the contract that establishes her relationship with the finance
provider. Worrying about what the finance provider does with the government is outside
that relationship. Even in those cases that require such an institution to give you a
certificate called interest paid rather then rent or part of the price (as in Murabah) to be
used for tax deduction, the contract remains the framework of the relationship between
the Muslim home owners and the finance providing institution and not this certificate.
Allah knows best.
Monzer Kahf
-------------------------------------------
III. WINDOWS AND ISLAMIC BANKS IN THE WEST
SUBJECT: Establishing Islamic banks in the West
From: live Fatwa Session on Islam on line

Date: June 20, 2001:
Name Fahad - United States Profession Student
Question
Assalamu Alaikum. What practical steps can Muslims take to begin to create Islamic
financial institutions in the West? How can these institutions be integrated with the
interest based system that currently exists?
Answer
AssalamU Alaikum wa Rahmatu Allah
Al Hamdu li Allah wa al Salatu 'ala Rasuli Allah
This question, brother Fahd, is not a fatwa question. However, the fatwa is that Muslims
who live in the West are required to establish financial institutions like all other needed
institutions that confirm with Islamic Shari'ah wherever they live. In the US we are
required to create Islamic financial Institutions. The steps to create them may depend on
the time and place. Obviously we have to follow the legal steps for incorporating and
licensing such an institution. Easier institutions to establish would be Credit Unions and
house financing Cooperatives.
The first and most important condition is to have the will and reasonable number of
people and resources. Then, you consult the department of financial institution to create a
legal entity. Wee have some examples, the Islamic house finance cooperative in Toronto,
Canada and the Islamic Credit Union in Philadelphia, PA. Both groups would be helpful
with their experience.
Wa Allahu A'lam
Monzer Kahf
------------------------------
SUBJECT: Islamic windows in conventional banks
From: Islam on line

country of Origin User Ref. No. IJYRJC country of Residence
Question
Assalamu Alaikum Learned brother in Islam I live in a small African country, where a
local financial institution is intent on opening an Islamic Banking Division. I have joined
this institution and am involved in the setting up of the department. I have a number of
questions In the absence of any other Islamic alternatives, is an Islamic Banking Division
acceptable, as the bank is listed on the local stock exchange and is not owned by
Muslims? Due to a very limited range on possible investments, is it possible to invest
depositors funds in Treasury Bills (One view is that Government Interest and taxes can be
offset, as in my country taxation is the second highest in the world and can exceed 40-
50%) Are TB's acceptable? And is it allowed to offset the taxes against the proceeds of
Government interest-bearing instruments? I do want to ensure that ALL aspects are
perfectly Islamically acceptable, and if unavoidable, these are disclosed to the public,
where Muslims are a very small minority. jazaaakalah. May Allah Taala guide and
protect the Ummah at large. Ameen.
My Answer:
Dear Br. Questioner
A) - It is certainly permissible to make a window or department for Islamic financing in a
conventional bank with a very basic condition: full disclosure.
Several alternatives can be made:
1) Offer Shari'ah compatible financing; it is giving financing to business using the
contracts of Murabahah, Musharakah and Mudarabah, and leasing, certainly without
putting any interest clause or penalty in any of these contracts.
2) A window that offers financing and receive deposits. Deposits must be obtained on the
Mudarabah basis or in checking accounts with no return (having checking accounts in
this department support the department and gives it a little more liquidity) and all use of
funds must be in Islamic financing both in contract and in the projects financed, e. g., you
do not finance cigarettes or alcohol. This alternative requires autonomy within the bank,
at least in accounts, projects and financial statements.
B) - Investment in treasury bonds is Riba based it is not permissible in Shari'ah.
C) - All tax reduction practices are permissible as long as they are legal and do not put a
person in violation of Shari'ah. This may include having two legal entities owned by
same person or company and make interest deal between them in such a way that ends
reducing the total tax burden of both, as long as they are owned by same person.
D) - You cannot use Mudarabah deposits for any thing prohibited, even with full
disclosure. These are given on the condition of their Islamically approved use.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
------------------------------
IV. COLLATERALS ON ISLAMIC BANKS’ FINANCING
SUBJECT: Liens on lease debts in Islamic banks
From: dialogue@islam-online.net
Date: 7/30/2001
Name of Questioner siraj Gender Male Age 31-45
country of Origin Sri Lanka User Ref. No. RB1G3K country of Res. Sri Lanka
Question
Dear Sir, this is regarding leasing systems. Can Islamic bank mortgage a property for
leasing of vehicle? Please give me the answer. If the Islamic bank not available then what
we should do for our business and financial help. Best regards.
Answer
Al hamduliAllah wa alSalat 'ala Rasul Allah
Dear Br. Siraj
1- Leasing is permissible in Shari'ah, and one may lease a car, a home or any other asset
that may last for a relatively long time. Lease creates a debt on the lessee for the rental
amount for the whole period of the lease. This debt may be supported by a lien, a
mortgage or any other security. All these are permissible.
2- When a Muslim community doesn't have an Islamic bank, it has to create one, it is a
kind of "Fard Kifayah" and until it is established, we should always realize that Riba is
forbidden, it is one on of the worst sins, and the Shari'ah provides for the cases of
necessities, the rule is that necessities relax the restriction.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
We are explaining the situation more.

Assalamu Alaikum. In Sri Lanka, we have an Islamic bank called Amana Investment
Ltd. When we go for a leasing agreement with them to purchase a vehicle like car or any
other for a value of one million normally they ask for us to mortgage an asset of two
million worth (Market Value) and they value for the particular asset to be 1.5 million
worth. on this they approve 75% as official value And also this will take a two months
time to purchase the car. This is a very difficult procedure for small businessmen like us.
On the other hand, the other leasing companies in the island, it is convenient to purchase
assets in leasing terms, that is, they normally ask for just two guarantors and within two
days time the car could be bought. But the only barrier is that, they include a clause in
their contract, that, when the payment is delayed an interest of 2 percent has to be paid. In
this situation what is the solution to be arrived at? In Islamic bank, they take no any risk
in this connection and at any time from the start date of agreement to the end of it, they
hold with them our mortgaged asset, its value is two times more than the car to be
purchased. But in other leasing companies, they are taking more risk on this, and they say
that they normally do not charge any interest even though the payment is delayed, but
they compel us to sign on the agreement that contain the afore said clause. I need to buy a
car. But I am not a position to go to Amana Investment in Sri Lanka. What should I do.
Please answer my question.
My Answer:
Dear Br. siraj
Two points should be kept in mind: 1) - When we say that one has to deal with Islamic
banks, if they exist in her/his area as a first priority, we always mean Islamic banks that
provide similar services and similar products. If the Islamic bank in one's area provides
services that are way below standards, we would be then comparing apple and oranges.
our Muslim financing services users are not required to tolerate higher prices, or
substandard services because someone established and Islamic Bank and he/she does not
know how to manage it. In other words, if an Islamic bank maintains inefficient
management, charges higher prices and rates of markup or provides low caliber services
in terms of customer relation, paper work requirement, conditions for financing, or time
frame for a transaction, one may act as if such an Islamic bank does not exist at all and
the Fatwa of general need (Hajah 'Ammah) applies. 2) - there is a distinctive difference
between a penalty interest clause in an otherwise Shari'ah-compatible contract and an
interest charging clause, and this difference affects the Shari'ah ruling on it. The
example of a penalty interest clause in an otherwise Shari'ah-compatible contract is a
clause that imposes interest on delinquent payments in a lease contract. A lease contract
may be sound from Shari'ah point of view once it determines the period of lease, the
amount of rent (that may include a lump sum and periodical payments). An option given
to lessee to return or purchase the leased asset (say a car) at the end of the lease whether
at a given price or at the market price at the time the lease ends, is permissible.
Conventional leasing companies usually add a penalty interest clause to the effect that if
the lessee fails to stand to any of her/his obligations, she/he is required to pay interest for
the delay. True, a Muslim lessor must not put such a clause in a lease contract and
normally we don't accept to sign a contract with such a condition in it. But it is also true
that when we deal with conventional lessors, we are subject to certain conditions that are
to them essential to the contract and they do not accept to offer a lease without such a
penalty clause for obvious reasons. such a penalty clause in not similar to an interest
clause in lending since the latter is basic to the contract, the contract itself is based on
Riba, while the penalty clause is only protective to the lessor, it does not make the
essential substance of the contract, and the lessee has always the choice of abiding by the
contractual time schedule, which he/she is required to do anyway, and hence avoid
invoking the penalty clause. This certainly make the penalty clause lesser of an evil and
for those persons who know of themselves that they are both keen and able to abide by
the payment schedule, it is not forbidden to sign such a contract because it only gives
them a choice between a Halal and a Haram and we are always exposed to such choice all
our lives, Dunya itself is a home of tests and choices are always given throughout our
passing between taking what is Halal or committing what is Haram.
With that in mind, I would say that for those persons who know that they are able and
keen to be always on time, so they do not expose themselves to the penalty clause, it is
not Haram to sign a contract with such a choice giving penalty clause in an otherwise
Shari'ah-compatible lease contract, especially when there are no lease institutions that
offer contracts without such a clause.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------
V. RETURNS ON DEPOSITS IN ISLAMICBANKS
SUBJECT: Telling the profit on deposits in advance in Islamic banks
From: Islam on line

Sent: Monday, February 24, 2003
Name: Muhammad Country of Residence: Bangladesh
Gender: Male Reference No.: TMEGHD Email
Question:
Some Islamic Banks in Bangladesh counts the share of profit in advance. How is it
possible when the business has not yet been started? How can I be sure that this does not
fall within the purview of interest? Please educate me briefly about Islamic banking
system and its system of making profit.
My Answer:
Dear Br. Muhammad
Islamic banks take deposits on investment basis, that is the depositor becomes a sleeping
partner with the bank and they share profit. this is except for current account that are
taken on loan basis and do not get any profit. They provide financing on the basis of sale
at a price higher than the cash price, leasing, or equity sharing with companies.
Distribution of predetermined amount (dividend) to depositors or charging such
predetermined amount to companies in partnership may be done during the year, these
are considered as prepayment of profits. They are subject to adjustment at the end of the
year when closing accounts are made and actual profit becomes known. If dividends to
depositors or charges on companies on funds given on equity sharing, are paid final, i.e.,
not subject to adjustment when accounts are made, they are then a prohibited interest.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
---------------------------------------
Subject: Returns on deposits in Islamic banks
From: Islam on line

Sent: February 24, 2003 8:05 AM
Question
Don’t Islamic banks give interest like other banks?
My Answer:
Dear Br. Naveed
Omar bin al Khattab, may God be please with him, advised that whoever want to sit and
deal in our market must first learn our Fiqh (law). Please brother call things their exact
names. Islamic banks do not charge interest and mark up is not interest. If you think that
Islamic financing means that people are going to give you their money with nothing to
them except your prayers (Du'a), you are certainly wrong! Islamic financing is the
provision of money through Shari'ah compatible contracts that give the financier a return
otherwise she will not give up her money. That is not interest, even if it is calculated on
the basis of the prevailing interest rate (as a result of Islamic banks being a small portion
of the market that compete with conventional banks). Interest on deposits in conventional
banks is the same Riba that is prohibited in the Qur'an, it doesn't matter whether it is in
Pakistan, Kuwait or the USA, and it doesn't matter whether the taker or giver can or
cannot work. In Pakistan
----------------------------------------
SUBJECT: Profit distributed by Islamic banks
From: Islam on line

Sent: Tuesday, May 28, 2002
Name of Questioner Haroon Gender Male Age 31-45
country of Origin Pakistan User Ref. No. G6RF1N country of Res. Pakistan
Question
The interest given by banks on the deposited amount, is it Riba & unlawful in Islam?
My Answer:
Dear Br. Haroon
Interest given on deposits by conventional banks is the same Riba that is prohibited in the
Qur’an. Verse no. 2: 279 mentions that any increment above the principal is a forbidden
Riba as it is unjust. Islamic banks give profits to their depositors because they take the
money on investment basis as agents of the account owners on the basis of Mudarabah
contract in which the fund owner becomes a sleeping partner of the bank in investing
these funds in accordance with the Shari’ah.
Interest earned from conventional banks must be given to Muslim charities and not
allowed to mingle with one’s own money.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------
SUBJECT: Islamic banks may distribute pre-determined profit subject to
adjustment
From: Islam on line

Sent: Thursday, January 16, 2003
Name of Questioner Gender Female Age 31-45
country of Origin Egypt User Ref. No. LIKC9B country of Res. Egypt
Question
I put my savings in an Islamic bank in Egypt (al Masraf al Islami al Dawli - Intenational
Islamic bank for investment and development). When I put my savings they made me
sign on the rules that guide their investment which say that I will share with them their
gain and loss. They say that they will pre-specify an average interest rate and at the end
of each term they will update it according to whether they made more or less money. The
problem is that I feel this is a fake since they always end up with the same average rate
that they pre-specified every time. This has been the case for the past 10 years. I asked
about other Islamic banks and they all do the same thing. Is this Riba or not? My other
concern is that I heard that these Islamic banks give loans to investors and apply
compound interest (under implicit names) on them which is definitely Riba. Is that true?
If so, what should one do with his/her money? If I put it in checking account (whether
Islamic or non-Islamic banks) then I will get no income back but they will still be
investing it in Riba if they actually do compound interest. What should one do with
his/her savings?
My Answer:
Dear Sr.
To my best knowledge, the two Islamic banks in Egypt (Faisal Islamic and International
Islamic) do not deal with Riba in all their transactions. For deposits, it is permissible to
distribute a predetermined amount subject to accounting of actual gains at the end of an
accounting period. But are you sure they do not make reconciliation in the accounts each
year? I doubt that the actual rate has always been fixed! Besides several Islamic banks
attempt to make the actual distribution quasi fixed or at the market interest rate through
adjustments in the reserves they build up for investment risks, which is also permissible
and does not mean it has become Riba, it is just a smart way, within the Shari'ah to cope
with rough and highly competitive market. Notice that these banks compete with in a
market that is dominated by interest-based banks! They do not act free in a market that is
all based on Islamic practices.
For their investment, they use the mode of Murabahah very often. It is close to Riba but
on the other side of the dividing line, on the permissible side. It is not Riba. Please notice
that God in the Qur'an (2: 275) did not deny such similarities but added "And God made
Sale permissible and prohibited Riba"
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------------------------
VI. COMPETITIVENESS OF ISLAMIC BANKS
SUBJECT: Customer services in Islamic Banks
From: Islam on line

Sent: Monday, March 04, 2002
Name of Questioner Hussain Gender Male Age 31-45
country of Origin U A E User Ref. No. G6CW6P country of Res. UAE
Question
I have an import business, where I import the goods using L/C facilities (Letter of Credit)
provided by Reba Bank. I deal with this bank due to many restrictions & limitations exist
with the only Islamic Bank in my country in order to provide me with L/C facilities. My
question is, is it allowed in Shari’ah to deal with Reba bank as far as I deposit the cash in
my company's account before the due date in order to avoid interest charges. The reason
behind my question is that I heard from a friend that my L/C contract with the bank is
"AQD SAHIH", but the clause which state the interest charges after specific dates is
"SHART FASSED", & makes the whole contract "FASSED". Please advise.
My Answer:
wa al Salatu wa al Salamu 'ala Sayyidina Muhammad wa 'Ala 'Alihi wa Sahbihi Ajma'in
Dear Br. Hussain
Are you sure you did not find in the three Islamic banks in UAE (Dubai, Abu Dhabi and
Sharja National), any branch that gives as good of a service as that of the Riba bank?
Because I believe that if an Islamic bank provides similar services dealing with non-
Islamic bank is not permitted, because of a trace of Riba that will reach you there no
latter what you do to avoid it! While if Islamic banks charge more or give lower or
limited services, then dealing with other banks is permissible.
What you are told is correct. The condition of Riba makes the contract all Fasid. I add
however, that if the condition is completely optional, e. g., you pay interest if you do not
deposit the amount due within one day, and you are sure of yourself that you shall deposit
during that period, the contract is permissible to sign from your side and it is Haram for
the other party to whose favor such a condition is put. This becomes like credit cards we
use in the west. for those of us who are sure they will not withdraw cash and will pay
during the grace period, the contract is not Haram because the activation of the interest
condition is left to you and you know you are going to opt for no interest. The contract is
Haram from the point of view of issuers of the credit card, and an Islamic bank must not
issue a contract with such a condition.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
---------------------------
SUBJECT: Competitiveness of Islamic banks
From: Islam on line

Sent: Sunday, March 17, 2002
Name of Questioner Mstafa Gender Male Age 31-45
country of Origin Iraq User Ref. No. IRTUBB country of Res. Iraq
Question
Assalamu alaikom I live in UK and I want to buy a house. The Islamic banks is asking
for higher deposits which I can not afford. Can I take a mortgage. assalamu-alaikom
My Answer:
Dear Br. mustafa
If Islamic banks do not offer competitive transactions to conventional banks, it means
they are not providing the same service, as if they do not exist! The Fatwa does not mean
that Muslims have to submit to a monopolistic treatment by Islamic financial institutions.
Hence, if other conditions of the Fatwa about house financing through conventional
mortgage are satisfied, yes, you may take a conventional mortgage.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-----------------------------
SUBJECT: Overdraft facilities from conventional banks
From: Islam on line

Sent: Tuesday, March 19, 2002
Country of Origin User Ref. No. B5K8FV country of Residence
Question
I have a problem with Riba in the bank. We are getting a lot of facilities in the bank. over
draft and loans but i want to escape all this to clear my self after that, what is going to
happen for Islamic bank they can’t give me a loan or over draft it will take long time to
get all the facilities so shall I stay with the same bank where I am now or I should I clear
my self and then I will get same facility in Islamic bank? I am very sorry I took long to
explain. Thank you, jazaka allahu kheyran. I will be happy if u could answer me as soon
as u can, plz and give me an idea on what to do? I asked about this aya saying fa’ thanu
biharbin mina allahi warasulihi. shukran wasalamu aleikum warahmatullahi
wabarakatuh...that my question it shouldn't put on the browse area
My Answer:
Dear Br. Questioner,
All interest-based transactions with banks are forbidden in the Shari'ah. Sorry I can't help
you in giving you a course of action because it is only you who can select your own
course of action. But I can tell you what is the rule of Shari'ah in this regard. Overdraft
facilities and conventional banks' lending, if they are interest-based as it is normally the
case, are forbidden in the Shari'ah. The bank's interest is the same thing as the Riba that is
clearly mentioned in the Qur'an and Allah Ta'ala give note of war declaration form Him
and His Messenger to those who deal in Riba (interest) and the Prophet, pbuh, says that
the wrath is on the payer of Riba, its recipient and its writer, and in another Saying
the Prophet describes Riba as the worst sin, he said: Riba has thirty six kinds, the least of
them is as (bad as) a man making adultery with his own mother." These Sayings are
correct and authentic. The Ulama say that even non- interest accounts with conventional
banks may be Haram when there exists an Islamic bank that provides similar services,
because the bank will benefit from the balances in your checking any way and a
conventional bank benefits from them through forbidden contracts, in a sense you helped!
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-----------------------------------
VII. OBTAINING FINANCE FROM ISLAMIC BANKS
SUBJECT: Getting financing from Islamic Banks
Date: 2/19/2001
Name of Questioner Dina Gender Female Age 21-30
Education Post Gradute Date Submitted 2/2/2001 Email
User Ref. No. YHN6TK
Question
Al Salam Alaikum. Is it acceptable to deal with Islamic Bank for finishing our home
which is under construction and in this Economic situation we live in Palestine we can
not finish it? So I heard that the bank will buy construction materials and we pay in
installments. Please tell me if this is acceptable or not.
Notes
Islamic Bank which I mention is called Islamic Cairo Amman Bank, or other Islamic
Banks in Palestine. We are in need to complete our house as we r living in rented old
house, and since 8 months we did not do anything in our new house.
My Answer:
Dear Sr. Dina
Yes it is certainly permissible to deal with Islamic Banks in Filisteen. The transaction you
described is called Murabahah. It is permissible. The Islamic Bank buys the materials
from their seller on cash basis and you buy the same from the bank on installments basis.
It usually begins with mutual promises that you request the Islamic bank to buy the
materials and promise to buy them from the bank after it gets them.
This is the standard form of transaction all Islamic banks deal with.
But are you sure, Sister, that the Cairo Amman bank is Islamic, I never heard of it as
Islamic, I know you have the Islamic Bank of Palestine in Ghazza which was established
a few years back. I ask this because I know all Islamic banks have Shari'ah Boards that
supervise their transactions from Islamic point of view, so you do not worry when you
deal with any Islamic bank. Does the Islamic Cairo Amman Bank have a Shari'ah Board?
Is it a bank that converted to Islamic recently? Or is it a conventional bank that opens a
window or a branch for Islamic transactions? In the latter cases just be sure it has a
Shari'ah Board and if not you need to be sure that the contract format has been seen and
approved by a respected Shari'ah scholar. I say that because some conventional banks in
some Arab countries offer "Islamic transactions" that are not really screened by any
Ulama and consequently they may have some serious errors from Shari'ah point of view.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
-------------------------------------
SUBJECT: A student loan from an Islamic bank
Date: 3/26/2001
Name of Questioner Suleiman Gender Male Age 21-30
country of Origin Somalia User Ref. No. DFECES country of Res. Somalia
Question
I GOT AN EDUCATION FINANCE LOAN FROM ONE OF THE ISLAMIC BANK.
BUT FOR 15000 DHS. I HAVE TO PAY 2000 EXTRA IF IT IS FOR ONE YEAR
AND ABOUT 600 IF PAID WITHIN 6 MONTHS. PLS. TELL ME IS THIS HALAL
(MURABAHA) AS THEY CALL IT IN THE BANK.
My Answer:
Dear Br. SULEIMAN
The way you described this contract does not seem to me as any of the contracts of any of
the Islamic banks. If you got cash from the bank and you are required to return cash plus
an extra 2000, this is not a deal Islamic banks do! Could it be a bank in a Muslim
country? The way you described the contract, it is not Murabahah.
Murabahah contract is permissible and practiced in Islamic banks. The bank buys a
commodity on your request, or a service such as renting an apartment, after it gets
possession of the commodity or receive the key for the apartment it sells it to you at
higher and deferred price or rent for the service. It may work in education if it can be
arranged with a university that a bank buys its credit courses and sell them to students at
deferred payments, but to my knowledge no Islamic bank practices that yet because it
requires arrangements with education providers and certain governmental control and
supervision.
Br. Suleiman, are you sure about the contract and the entity you are dealing with?
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
----------------------------------
VIII. ISLAMIC BANKS MAY ISSUE CREDIT CARDS
SUBJECT: Islamic banks may issue credit cards
From: Islam on line

Sent: Tuesday, May 28, 2002
Name of Questioner muhammad Gender Male Age 31-45
country of Origin Bangladesh User Ref. No. ZLA19Z country of Res. Bangladesh
Question
In what sense credit cards are Halal, while you take money as a credit from a Riba based
bank, even though you pay them in full (so called grace period), while Islam forbade
involvement of a third person in a transaction, because every time you make a
transaction, there is a third party getting paid, because of that transaction, and that is
Haram, we still see some Shaikhs say it's Halal, can you define that in the light of Qur’an
and Sunnah???
My Answer:
Dear Br. Muhammad
I certainly can define it in the light of Qur’an and Sunnah. Qur’an prohibited Riba and
Sunnah prohibited many immoral and or unjust transactions, but my dear Brother, there is
no prohibition on transactions that involve third party! Did you get that from the Qur’an
or Sunnah. Of course there are certain transactions that involve a third party which are
forbidden not because they have three persons but because the essence of the transaction
falls in the boundaries of prohibition. Example giving a discount from creditor to debtor
is permissible but discounting a promissory note by the creditor at a third party, a bank,
and the bank gets the face value on maturity is forbidden because this is interest.
On the other hand, a transfer of money and or debts from one person to another at the
face value is permissible, so is a guarantee given by a person to a third party to guarantee
a debt or liability of another. And there are many examples of this kind.
The credit card is a new invention and Muslim scholars define it as either a guarantee by
the issuer to the seller who accept it or as a transfer of the debt by the debtor to another
party, the issuer. Hence, it falls within the permissible transactions. However, there are
two problems, one for the issuer and the other for the user because its contract usually
contains an interest article if payment is delayed and if cash is withdrawn. Issuing such a
card with this interest condition is not permitted in Shari’ah. Islamic banks can’t issue it
with such a condition.
Accepting it and using it is not the same, especially that it has become very convenient
and it remove hardship, for instance in most countries you can’t get into a hotel room or
rent a car or make a plain reservation without a credit card. Notice that the interest
condition is not essential in the credit card, it has an “if”: if you don’t pay with the not so
called but believe me it is real grace period, then the condition is invoked; and if you
withdraw cash from a machine it is also invoked. If a user knows for sure that she is not
going to allow the interest condition to take place, it is for such a user redundant. We
certainly wish it is not there, but unfortunately in most countries there are no Islamic
institutions that issue them and even those cards issued in some countries are not really
satisfactory because they are limited in scope and usability. In other words you are not
signing a loan contract with interest but you are signing a contract that gives you the
choice to make it carry interest or not. Consequently if you know for sure that you can
use it without incurring any interest you make the interest clause useless and it is
permissible to sign such a contract and use the card.
Wa Allahu A'lam
Wassalam
Sincerely,
Dr. Monzer Kahf
--------------------------------

Fatawa Islamic Banks

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How do Islamic banks work and make profit?

How do Islamic banks work and make profit?

What is the alternative to the interest-based banking system?

What is the alternative to the interest-based banking system?

FATAWA ON ISLAMIC BANKS

I. RATIONALE AND OPERATIONS OF ISLAMIC BANKS

SUBJECT: How do Islamic banks work and make profit?

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

II. DEALING WITH ISLAMIC OR CONVENTIONAL BANKS

SUBJECT: Depositing in conventional banks

My Dear Brother who did not give his/her name

From: live fatwa on Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

From: Live Fatwa on Islam on line

III. WINDOWS AND ISLAMIC BANKS IN THE WEST

SUBJECT: Establishing Islamic banks in the West

From: live Fatwa Session on Islam on line

From: Islam on line

SUBJECT: Liens on lease debts in Islamic banks

We are explaining the situation more.

V. RETURNS ON DEPOSITS IN ISLAMICBANKS

SUBJECT: Telling the profit on deposits in advance in Islamic banks

From: Islam on line

From: Islam on line

From: Islam on line

From: Islam on line

VI. COMPETITIVENESS OF ISLAMIC BANKS

SUBJECT: Customer services in Islamic Banks

From: Islam on line

From: Islam on line

From: Islam on line

VII. OBTAINING FINANCE FROM ISLAMIC BANKS

SUBJECT: Getting financing from Islamic Banks

SUBJECT: Islamic banks may issue credit cards

From: Islam on line

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