Islamic Bank Vs Riba-Based Bank

Islamic Bank Vs Riba-Based Bank

Question:

1. Islamic Bank. Are Islamic banks halaal or haraam?.

2. Prohibition of selling bills of exchange to the bank.  Some businessmen are owed money by their customers, so they go to the bank and sell the bill of exchange to them for an amount that is less than the amount specified in the bill of exchange. Then the bank collects the debt for itself when it becomes due. What is the ruling on this?.

3. Depositing money in riba-based banks out of necessity, in order to protect the money. I read some of your answers about riba, and I found a contradiction that left me confused about my situation. You said to the one who wants to rent out a building to a riba-based bank that this is definitively haraam, but you said to one who deposits his money in a riba-based bank for fear that he may lose it that this is permissible, although the latter will come under the heading of one who pays riba and of cooperating in sin and transgression. I hope that you can explain it to me, as I put my money in a riba-based bank because there are no Islamic banks in my country and I am not sure whether this money is halaal or haraam.

4. Ruling and Buying and Selling Shares. What is the ruling on buying and selling shares in the Islamic Bank?

5. How could the Islamic states allow the development of riba-based banks?  I have read many fatwas which forbid dealing with banks that engage in riba, but I have a question: If these banks are haraam and dealing with them is haraam, how can they have been allowed to develop in the Islamic states?.

6. Can he sell an item to someone who pays for it with a cheque from a riba-based bank? 

  

Answer: 

1. Praise be to Allaah.

If these banks really operate according to Islamic sharee’ah, and they do not deal with riba which is haraam, and they do not take what is called interest in return for deferring payment, which is in fact the riba (usury) of the Jaahiliyyah, even if they call it by some other name, and they do not engage in transactions which are not acceptable in sharee’ah, such as selling what one does not possess, or ‘aynah sales or other kinds of transactions that are not permitted by sharee’ah – then undoubtedly a bank that does not do these things is halaal and dealing with it is acceptable according to shari'a. But if these banks are Islamic in name only and they deal with riba and other forbidden transactions, then dealing with them is haraam, even if they call themselves “Islamic banks”, because what counts is what really happens, not mere names.  

The Standing Committee for Issuing Fatwas was asked: Is it permissible to deal with Islamic banks, even though some of them go against shari'a and engage in kinds of transactions that are forbidden? 

They replied:  

It is permissible to deal with banks and financial institutions that do not deal with riba. But if they deal with riba then it is not permissible to deal with them, and they are not Islamic banks.  Fataawa al-Lajnah al-Daa’imah, 13/310.  And it also says in Fataawa al-Lajnah (13/365): 

If the Islamic bank does not deal with riba, and rather it invests money according to shar’i principles, then it is permissible for you to deposit your money with them for investment purposes.

 2. Praise be to Allaah.

This transaction is one of the transactions that are haraam, and it is a form of riba (usury, interest). 

Because selling a bill of exchange – for example – which mentions a debt of one thousand riyals to be paid in one month’s time to the bank for nine hundred riyals to be paid immediately, is riba. The scholars are unanimously agreed that this haraam transaction is both riba al-nasee’ah and riba al-fadl combined, because it involves exchanging currency available immediately for currency of the same kind to be paid later, plus an extra amount. 

If currency is exchanged for currency of a different kind, the physical exchange must be done in the same sitting where the agreement is made. If they are of the same kind, then they must be equal in value and the physical exchange must be done in the same sitting where the agreement is made. This is not the case in this scenario; so it involves riba al-fadl because the amounts exchanged are not equal and it also involves riba al-nasee’ah because there is no mutual exchange in the same sitting. 

The Standing Committee was asked about that and they replied: 

Selling the bill of exchange to the bank in return for an amount of money and leaving the bank to collect the amount stated in the bill of exchange from the purchaser of the product is haraam because it is riba. Fataawa al-Buyoo’, p. 352 

The Fiqh Council issued the following statement: Selling bills of exchange to the bank is not permissible according to shari'a, because it amounts to riba. And Allaah knows best.

3. Firstly: 

Renting out a store or house to one who will use it for sinful purposes is not permissible; that includes renting out a building to a riba-based bank, because that is clearly helping in sin and transgression, because the owner of the building knows that the bank is renting this place in order to engage in haraam transactions such as riba etc. 

Al-Bayhaqi said in Sharh Muntaha al-Iraadaat (2/358): it is not valid to rent out a house to be used as a church, synagogue or monastery, or for the sale of alcohol or for gambling etc., whether that is stipulated in the contract or is known by other means, because it is a haraam action and it is not permissible to rent it out for that purpose. End quote. 

Secondly: 

Depositing money in a riba-based bank is haraam, whether one earns interest or not, because the bank will take the money and lend it in return for interest. 

But the scholars made an exception in one case, which is when a person fears for his wealth and there is no safe place to protect his money. In that case it is permissible for him to put it in a riba-based bank, based on the principle that in cases of necessity, forbidden things become permissible. In that case, he must put it in a current account that does not bear interest, because in cases of necessity, things are only permitted as much as is needed; he needs to protect his money, but he does not need to deal in riba. And Allaah knows best.

4. Praise be to Allaah.

If this bank is calling itself “Islamic” in order to deceive people, and it is dealing in riba or other haraam transactions, then it is not an Islamic bank, and it is not permissible to buy shares in it, or to buy and sell its shares, because that is cooperating in doing something haraam. Allaah says (interpretation of the meaning): 

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

But if this bank is really Islamic, and organizes its dealings in accordance with the Qur’aan and Sunnah, and does not engage in haraam transactions, then there is nothing wrong with buying shares in it and trading in its shares. Rather that should be done, because it will encourage it and help it to deal with the challenges it faces as a result of the spread of riba and haraam transactions. 

In Fataawa al-Lajnah al-Daa’imah (13/506) it says:  If banks are based on riba and deal in riba, then it is not permissible to buy shares in them, because this is cooperating in sin and transgression, which Allaah has forbidden when He said (interpretation of the meaning): 

“but do not help one another in sin and transgression” [QS al-Maa'idah 5:2]. End quote. 

It also says (13/507): 

It is permissible to buy shares in banks that do not deal with riba, and to take the profits that come from buying shares in the bank, because this is the result of a transaction that is not haraam and there is nothing wrong with it, so it is halaal. End quote. 

It also says (13/508): 

Buying shares in banks or companies that deal with riba is not permitted. If a subscriber wants to get rid of his riba-based shares, he should sell his shares at the current market value but only take his capital; the rest should be donated to charity. It is not permissible for him to take any of the interest of his shares or riba-based profits. But if the shares are in a company that does not deal with riba, then their profits are halaal. End quote. And Allaah knows best.

5.  Praise be to Allaah.

What is haraam is that which has been forbidden by Allaah and His Messenger, and what is halaal is that which has been permitted by Allaah and His Messenger. 

Riba is haraam according to the Qur’aan, the Sunnah and the consensus of the ummah. Every institution or bank which is based on riba is subject to the declaration of war from Allaah and His Messenger, whether it is in a Muslim state or a kaafir state. Allaah says (interpretation of the meaning): 

“O you who believe! Be afraid of Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.

 And if you do not do it, then take a notice of war from Allaah and His Messenger” [QS al-Baqarah 2:278-279]

The fact that governments approve of the riba-based banks should not be taken as proof that these banks are permitted. The Prophet (peace and blessings of Allaah be upon him) has told us that there will come a time when the people will permit that which Allaah has forbidden, such as adultery, alcohol and musical instruments. That does not mean that these haraam things will become permissible thereby. 

The scholars have issued many warnings against these banks, and issued many fatwas stating that it is haraam to work in them without paying any attention to the fact that they are allowed by the state. They have often advised the governments of Muslim countries to ban these riba-based banks. 

It says in Fataawa al-Lajnah al-Daa’imah (15/51): “Riba is haraam according to the Qur’aan, the Sunnah and scholarly consensus… working in banks that deal with riba is haraam… The fact that the government may approve of them or allow them to open banks or remains silent about that does not mean that it is permissible for the Muslim to deal with them. It is not permissible to work in these banks because the government does not possess legislative authority; rather legislative authority belongs to Allaah alone in His holy Book, or the Revelation that He sent to His Messenger (peace and blessings of Allaah be upon him).” 

And it also says (15/55): “Working in banks that deal with riba is haraam, whether that is in a Muslim state or in a kaafir state, because it involves cooperating in sin and transgression, which Allaah has forbidden as He says (interpretation of the meaning): 

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

Shaykh Ibn Baaz said, after quoting some of the evidence from the Qur’aan and Sunnah that riba is haraam: 

“This is some of the evidence from the Book of Allaah and the Sunnah of His Messenger (peace and blessings of Allaah be upon him) which explains that riba is haraam and the danger that it poses to the individual and to the ummah. Whoever deals in it enters into a state of war against Allaah and His Messenger. My advice to every Muslim is to be content with that which Allaah and His Messenger have permitted and to refrain from that which Allaah and His Messenger have forbidden. What Allaah has permitted is sufficient so that we have no need of that which Allaah has forbidden. We should not be deceived by the large number of riba-based banks and the spread of their dealings in every place. Many people no longer care about Islamic rulings, rather they care about making money by any means. That is only because of their weakness of faith and lack of fear of Allaah, and because of their love for this world. We ask Allaah to keep us safe and sound.” Majallat al-Bukhooth al-Islamiyyah, 6/310.  And Allaah knows best.

6. Praise be to Allaah.

What is haraam is that which has been forbidden by Allaah and His Messenger, and what is halaal is that which has been permitted by Allaah and His Messenger. Riba is haraam according to the Qur’aan, the Sunnah and the consensus of the ummah. Every institution or bank which is based on riba is subject to the declaration of war from Allaah and His Messenger, whether it is in a Muslim state or a kaafir state. Allaah says (interpretation of the meaning): 

“O you who believe! Be afraid of Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.  And if you do not do it, then take a notice of war from Allaah and His Messenger” [QS al-Baqarah 2:278-279]

The fact that governments approve of the riba-based banks should not be taken as proof that these banks are permitted. The Prophet (peace and blessings of Allaah be upon him) has told us that there will come a time when the people will permit that which Allaah has forbidden, such as adultery, alcohol and musical instruments. That does not mean that these haraam things will become permissible thereby. 

The scholars have issued many warnings against these banks and issued many fatwas stating that it is haraam to work in them without paying any attention to the fact that they are allowed by the state. They have often advised the governments of Muslim countries to ban these riba-based banks. 

It says in Fataawa al-Lajnah al-Daa’imah (15/51): 

“Riba is haraam according to the Qur’aan, the Sunnah and scholarly consensus… working in banks that deal with riba is haraam… The fact that the government may approve of them or allow them to open banks or remains silent about that does not mean that it is permissible for the Muslim to deal with them. It is not permissible to work in these banks because the government does not possess legislative authority; rather legislative authority belongs to Allaah alone in His holy Book, or the Revelation that He sent to His Messenger (peace and blessings of Allaah be upon him).” 

And it also says (15/55): 

“Working in banks that deal with riba is haraam, whether that is in a Muslim state or in a kaafir state, because it involves cooperating in sin and transgression, which Allaah has forbidden as He says (interpretation of the meaning): 

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

Shaykh Ibn Baaz said, after quoting some of the evidence from the Qur’aan and Sunnah that riba is haraam: 

“This is some of the evidence from the Book of Allaah and the Sunnah of His Messenger (peace and blessings of Allaah be upon him) which explains that riba is haraam and the danger that it poses to the individual and to the ummah. Whoever deals in it enters into a state of war against Allaah and His Messenger. My advice to every Muslim is to be content with that which Allaah and His Messenger have permitted and to refrain from that which Allaah and His Messenger have forbidden. What Allaah has permitted is sufficient so that we have no need of that which Allaah has forbidden. We should not be deceived by a large number of riba-based banks and the spread of their dealings in every place. Many people no longer care about Islamic rulings, rather they care about making money by any means. That is only because of their weakness of faith and lack of fear of Allaah, and because of their love for this world. We ask Allaah to keep us safe and sound.” Majallat al-Bukhooth al-Islamiyyah, 6/310 . And Allaah knows best.

8. Praise be to Allaah.

There is nothing wrong with accepting the payment from the purchaser in the form of a cheque, even if it is from a riba-based bank, and there is nothing wrong with dealing with riba-based banks in cases of necessity to protect money if there is no Islamic bank, subject to the condition that the money is put in non-interest-bearing accounts in those banks.

Engaging in transactions with people who deal with riba or put their money in riba-based banks is permissible. That is indicated by the reports which prove that the Prophet (blessings and peace of Allah be upon him) and his Companions engaged in transactions with the Jews in Madinah although they, as Allah, may He be exalted, has told us, consume unlawful wealth and take riba. 

It is permissible with you to sell to this customer who deals with riba, even if he pays from his riba-based account or with a loan that he took from a riba-based bank. 

Giving the cheque to the accounts department and transferring the money to the company or to the bank used by the company is not regarded as recording or writing down riba; rather it is writing down and recording the price that was taken in a permissible and Islamically acceptable manner. It makes no difference whether the purchaser pays for it in cash or with a cheque. 

Shaykh Ibn ‘Uthaymeen (may Allah have mercy on him) said: It is permissible to engage in transactions with a person who deals with riba, but those transactions should be done in a proper manner. For example, it is permissible to buy from this man who deals with riba, if the product is bought from him in return for money, and it is permissible to take a loan from him, and there is nothing wrong with that. The Prophet (blessings and peace of Allah be upon him) used to engage in transactions with the Jews even though they consumed haraam wealth, and he accepted gifts from them and he accepted their invitations. He sold to them and bought from them. He accepted their gifts, as in the story of the Jewish woman who gave him a (roasted) sheep on the day of the conquest of Khaybar. And he accepted their invitations, as he accepted the invitation of a Jewish boy in Madinah. And he bought food for his family from a Jewish man and gave him his shield in pledge, and he died when his shield was still being held in pledge. 

To sum up, if a person earns money from haraam sources, and you engage in a permissible transaction with him, there is nothing wrong with you doing that. End quote from Fataawa Noor ‘ala ad-Darb . And Allah knows best.

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(Source: https://islamqa.info/index.php/en/answers/ ). Question answered by Islam Q&A Team Supervised by Sheikh Muhammed Salih Al-Munajjid. Questions ware combined on the related matters. 

Editor: Ustaz Sofyan Kaoy Umar. Email: ustazsofyan@gmail.com