Riba, Car Leasing, Insurance & the Stock Exchange
“O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.
And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged. “
(Holy Quran: 2: 278-279)
This is an article of one of the most difficult subjects according to Islamic scholars, past and present. I have discussed following aspects of Riba (Interest, Usury) in this blog:
- Definition and explanation of Riba
- Prohibition of Riba in Holy Books & Sayings of the Prophets (PBUT)
- Types of Riba
- Ruling on Car/House Leasing
- Ruling on Insurance
- Ruling on Musharakah
- Ruling on Stock Exchange
- Views of different Islamic Scholars & reasons for differences among them in this aspect
- Islamic ruling on Insurance, Stock Exchange, Credit Cards etc
‘If I Was the Finance Minister’
(from Islamic Perspective)
For any queries regarding the topic, one may contact me personally :
What is Riba?
‘An addition to, or an increase of a thing over its size or amount’ or
In terminology of the Holy Quran,
‘Increase (profit) at the expense of the wealth of other’
(Holy Quran, 30: 39)
‘Consuming wealth of mankind through means false and wrong (baatil)
(Holy Quran, 4: 161)
‘Increase in capital, at the expense of the wealth of others, through means which are false & wrong’
‘Any unlawful addition, by way of interest to a sum of money or goods lent by one person or body of persons to another’
This is irrespective of the rate of interest & the motivation involved.
It is sometimes difficult to recognize Riba because it is often disguised as legalized theft.
Riba is not business. Riba is Haram (forbidden) while business is Halal (allowed).
There must be element of risk, of profit or loss, in a free & fair market.
In Riba, this free and fair market is bypassed with no element of risk, no loss & only profit can occur.
But such a market, where there is no chance of loss, cannot be a free & fair market for all.
Strict warnings in Holy Quran & Hadith concerning Riba
Prohibition of Riba in the Holy Torah
‘Do not charge interest to the fellow-Israelite when you lend him money or grain or anything else…
(Deuteronomy 23: 19)
This inhibition in the Torah was confirmed in the Holy Quran:
“For wrongdoing on the part of the Jews, We made unlawful for them [certain] good foods which had been lawful to them, and for their averting from the way of Allah many [people],
And [for] their taking of usury while they had been forbidden from it, and their consuming of the people’s wealth unjustly. And we have prepared for the disbelievers among them a painful punishment.”
(Holy Quran 4: 160,161)
Prohibition of Riba in the Holy Bible
Even Jesus (AS) who is told to be the most ‘soft-spoken’ (told to turn the other cheek), did NOT let go of the money changers who were involved in Riba & was extremely ANGRY at them:
“And Jesus (AS) went into the temple of God and cast out all those who sold and bought in the temple, and over-threw the tables of the money-changers (who were illegally ripping off people)”.
(Gospel of St. Mathews 21: 12-3)
Prohibition of Riba in Zaboor (Psalms) of Prophet David (Dawood AS)
“Lord, who may abide in your tent?
Who may dwell on your hold mountain?
….Who keeps an oath despite the cost, who lends no money on interest, and accepts no bribe against the innocent” (Psalm 15)
Prohibition of Riba in the Holy Quran
Riba was prohibited in stages in the life time of the Prophet (PBUH) through various verses of the Holy Quran (like prohibition of alcohol)
‘And man can earn nothing EXCEPT what he strives for’ (Holy Quran 53: 39)
‘Woe to those that deal in fraud; those who, when they have to receive by measure from men, exact full measure; but when they have to give by measure or weight to men, give less than due…..Do they not think they will be called to account (for their theft)?
(Holy Quran 81: 1-3)
“And whatever you give for interest to increase within the wealth of people will not increase with Allah . But what you give in zakah, desiring the countenance of Allah – those are the multipliers.” (Holy Quran 30: 39)
“And do not consume one another’s wealth unjustly or send it [in bribery] to the rulers in order that [they might aid] you [to] consume a portion of the wealth of the people in sin, while you know [it is unlawful].” (Holy Quran 2: 188)
“O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful.” (Holy Quran 3: 130)
“Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.”
But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah . But whoever returns to [dealing in interest or usury] – those are the companions of the Fire; they will abide eternally therein.
Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever.” (Holy Quran 2: 275-76)
“O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.
And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal – [thus] you do no wrong, nor are you wronged.” (Holy Quran 2: 278-279)
What a strict warning at the end! The declaration of war by Allah against takers of Riba is by far the most forceful language used in the Quran against sinners. The believers are also required to wage war to eradicate riba from any society and from any territory whose oppressed people were crying out for help.
And unfortunately our government has been waging war on Allah and his Prophet (PBUH) since a long time:
Prohibition of Riba in Ahadith
‘Hazrat Abu Huraira said that the Messenger of Allah said: Riba is of seventy different kinds, the least grave being equivalent to a man (i.e. having intimate relations with) marrying his own mother.’
(Ibn Majah, Baihaqi)
How groce can that be?
“Hazrat Ibn Masud reported Allah’s messenger as saying: Even though riba be much, it leads in the end to penury, extreme poverty, destitution. “ (Ibn Majah, Ahmad, Baihaqi)
This point has been mentioned that riba leads to poor people becoming more poor
“Hazrat Abdullah ibn Hanzala reported that the Prophet (PBUH) said: A dirham of riba which a man receives knowingly is worse than committing adultery thirty six times” (Ahmad, Ibn Majah)
“The Prophet (PBUH) cursed the one who takes riba, the one who gives riba, the one who records the transaction & the two witnesses thereof. He said: They are all equally guilty.” (Muslim)
This is the basis for which scholars say that working in a bank is not allowed, even as a guard.
Hazrat Abdullah ibn Mas’ud (RA) narrates that the Messenger of Allah (PBUH) said:
“Interest if increases then its punishment move to scantiness (poverty)”
Free & Fair Market
Islam believes in a free and fair market:
For a free & fair market to be established the following are necessary:
- Freedom of access to the market
- Freedom of competition in the market
- Freedom of the market to determine its own prices (i.e. there must be no fixed prices)
- Freedom to produce anything for the market (must be Halal)
- Freedom to buy & sell anything Halal in the market
- Prohibition against stealing and cheating e.g. under-weighing items for sale
- If there is no free and fair market, this will lead to mischief in the land due to the Riba that will result due to the market being unfair
Types of Riba
It remains for the scholars of Islam to use interference & analogy to locate other forms of riba not identified by the Prophet (PBUH) and which may not have appeared as yet in the world at the time of the Prophet, but have now made their appearance, particularly in this evil age.
Following are some major types of Riba prevalent today:
1. Lending Money on Interest (Riba al Fadl)
The Holy Quran describes one form of riba as undue increase i.e. when the rate of interest payments doubles & triples the principal sum borrowed (Holy Quran 3: 130)
Riba includes any material benefit whatsoever, over and above the capital sum lent, which a lender may derive from a borrower).
Banks do NOT lend money for blessings or Sawab (reward from Allah).
Thus interest earned on MOST types of savings accounts is Haram because that is Riba
2. Riba on Items/Articles
Increasing price of an item on deferred payment (Riba Al-Nasiah)
“Hazrat Usama bin Ziad (RA) narrated: The Prophet (PBUH) said: there is no riba except in nasi’ah (waiting).” (Bukhari)
This was the most common form of riba in Makkah. The principle involved was that if you had to wait for your money, you deserved to get an additional amount. A debtor was given an extension in time because he could not pay his debt on time. The amount he owed was increased, however, in consideration for the extension in time.
Thus scholars who declare that interest is only on money & not on items are gravely and illogically misguided as consequences of both types of Riba are equally disastrous upon the society.
3. Hoarding in order to capitalize on the resultant artificially created scarcity in the market
“Hazrat Ma’mar reported Prophet (PBUH) as saying: if anyone keeps goods till the price rises, he is a sinner”. (Muslim)
Hazrat Umar (RA) reported the Prophet (PBUH) as saying: He who brings goods for sale is blessed with good fortune, but he who keeps them till the prices them till the prices rise is accursed. (Ibn Majah, Darimi).
Hoarding results in profit, which is unjust and that is Riba!
4. Monopoly over a commodity which allows unfair control over price of that commodity
Similar to hoarding
This is when a person or company etc take hold (monopoly) of an important item (e.g. wheat, steal, oil etc) and illegally/unfairly controls its price, raising its price whenever it deems fit, for unfair profit and that again is Riba.
5. Employing Deception as the basis of unfair profit; thus compromising the free market; this is known as ‘gharar’
“Hazrat Abdullah bin Abu Aufa (RA) said: a man displayed some goods in the market and took a false oath that he had been offered so much for them though he was not offered that amount. Then the following divine verse was revealed ‘Verily! Those who purchase a little gain at the cost of Allah’s covenant and their oaths……will get painful punishment (3: 77). Ibn Abu Aufa added: such a person is a treacherous consumer of riba.” (Bukhari)
“Hazrat Jabir bin Abdullah said: I heard the Prophet (PBUH) say: If anyone of you does not leave mukhbarah he should take notice of war from Allah & his messenger. Hazrat Zaid bin Thabit said: I asked: What is mukhbarah? He replied: That you have the land for cultivation for a half, a third, or a quarter (of the produce).” (Abu Daud)
7. Artificially bidding up the price in an auction
8. Speculative transactions:
These are transactions in which one buys goods or stocks etc, anticipating that the price would rise. When it does, one then sells and makes a killing (huge profit). Alternatively one may sell goods, stocks, etc anticipating that the prices would fall.
When it does, one buys back and makes a huge profit. Such a profit is unjust. It is, in effect, gambling.
Speculative transactions based on privileged insider information is pure Riba.
This is what mostly happens in the Stock exchange market (discussed ahead)
9. Bribery and corruption:
“And that which you give in Riba’ (the gifts), in order that it may increase from other people’s property, has no increase with Allah.” (Holy Quran 30: 39)
The Messenger of Allah (PBUH) cursed the one who gives a bribe and the one who takes it. (Abu Dawood).
“Abu Hurairah (RA) narrated: Allah’s Messenger (PBUH) cursed the one who bribes and the one who takes a bribe for judgement.” (Tirmidhi).
This maybe in the form of cash or gifts in order to facilitate an unlawful task.
Riba sometimes takes the form of a bribe, or of patronage which is dispense in order to win influence or control over individuals and institutions.
Take the example of a huge prize of 500, 000 dollars which is awarded by a government (Pakistan, Saudi Arabia etc), to a scholar of Islam, chosen by the Saudi or Pakistani government.
After the Islamic scholar accepts the prize, he has, in effect, been imprisoned. He, and the movement which he leads, are neutralized. They cannot participate in any effort towards liberating that country from the influence and control of the enemies of Islam & restoring its freedom. They may not be able to pass any Islamic judgment that goes against the government. This en-slavery is riba.
10. Lottery & Prize Bonds
We now live in an age in which governments around the world are using state lotteries or national lotteries as a means of skimming money from the masses. The principle involved in the scheme called lottery is to exploit greed and fantasy in the human psyche.
The masses pour in their money as the lottery grows in the size of the prize. An example here is the Prize Bonds. Fantasy is stroked when some poor or middle class person wins a lottery and suddenly becomes fabulously rich. Everyone who now purchases a prize bond fantasizes that he or she will win the lottery and similarly become rich.
Becoming rich overnight is rarely acceptable in Islam (e.g. when one inherits a huge amount of money) & mostly constitutes Riba.
11. Paper Money:
This is also essentially a type of Riba & discussed in detail in a separate blog:
It is also illustrated in the example above
Suppose your father died in 1971 & left an estate of 100 gold coins which one inherited. And suppose further, that since you were a baby the money was kept securely stored away for you.
Twenty five years later in 1996, you asked for your money. The box in which it was stored was opened & you were given the same amount of 100 gold coins. Your money had neither increased nor decreased. It remained almost the same. Gold had functioned successfully as money. It had succeeded in performing one of the most important functions of money, i.e. to be a store of value. It has faithfully performed this function for all of recorded human history.
Now, let us suppose that in 1971, those who were entrusted with the 100 gold coins decided to convert them from real money into artificial money. They felt that paper was a more appropriate and reliable form of money than gold.
They were highly impressed by the strength of the American dollar. And they trusted because the American dollar itself proclaimed: In God we trust. And so they converted the gold coins (100 ounces of gold) into American dollars and obtained US $3500 in 1971. They put the money away very securely.
In 1996 you asked for your money and they then brought you the American dollars (3500). You went to the gold market and they gave you only 8 ounces of gold for this amount of money. A great tragedy had occurred during those 25 years. 92% of your wealth had been lost. Paper had failed miserably as money. It did not function as a reliable store of value.
Your loss was someone else’s gain- the modern day money changers or bankers or whatever you would like to call them had ripped you off by deception. That is riba.
There is perhaps no other medium through which more of mankind are touched by riba today than through paper money. It is through the universal prevalence of fraudulent paper currency today (i.e. paper currency) which now dominates mankind, that the prophecy of the Prophet (PBUH) regarding Riba has now been fulfilled:
“Hazrat Abu Hurairah reported that the Holy Prophet (PBUH) said: A time will come over mankind when not a single person will remain who does not consume riba, and if one does not consume it, its vapor (or alternatively its dust) will reach him.”
(Ahmad, Abu Daud, Nasai, Ibn Majah)
This is one of the signs of End Times:
This as a type of riba is discussed ahead.
How much Interest Constitutes Riba?
It matters not whether interest is small or large (0.001 % or 1000%), it would still be riba and would still be prohibited. In this respect riba is like alcoholic beverages. Whether the glass contains small drink of whiskey, or whether you were offered a large drink, it makes no difference, it would still be prohibited
Simple Economic Logic of Prohibition of Interest
Suppose a new bank opens and following people deposit their accounts in the bank:
10 rich people 10 million total deposit in bank (1 million/person)
50 average people 5 million total deposit in bank (100,000/person)
20 poor 100, 000 total deposit in bank (5, 000/person)
20 very poor 0 total deposit in bank
After 1 year with 10% interest rate:
10 rich people 11 million total deposit in bank (1.1 million/person)
50 average people 5.5 million total deposit in bank (1.1 lakh/person)
20 poor 110, 000 total deposit in bank (5, 500/person)
10 very poor 0 total deposit in bank
One can plainly see here that ONLY the rich benefit while the poor do not benefit at all.
This bank may default if it does not have enough cash to pay all the people if they all demand it by the end of the year.
What will the bank do? Claim bankruptcy or…..
Get a loan from State Bank …..
State Bank in turn may ask loan from IMF or World Bank etc…..
(This is a very simplified version, but this is the major reason why State Banks around the world have to print more money and get loans from IMF, World Bank etc (Federal Reserve Banks) and the vicious cycle continues. This may be further complicated if we think about all the people who took loans from the bank but failed to return them in time for some reason or another)
This will lead to inflation……
The average person may now become poor and the poor may now become very poor….
Only the elite rich have become much richer (through interest)!
It involves exploitation of the economically weak by the economically rich people
Economical rape by the rich man of the poor man
The lender, while retaining full ownership of the amount loaned, remains contractually assured of gain irrespective of any losses which the borrower may suffer in consequence of the transaction.
Charitable Loan versus Predatory Loan (Riba)
Lending should be a humanitarian phenomenon in which one helps another person in need. Lending should be spiritualized. When lending becomes a business, the value of charity will vanish. Lenders will become predators preying on the needs or misfortunes; will keep on hounding the poor for giving their interest.
In riba there is only taking with no giving in return. In true charity there is only giving with no taking in return. In charity we give to those in need and take nothing in return. In riba the lender takes from the borrower and gives nothing in return.
Charity brings the society together and cements it as a family, while Riba destroys the family and divides the family.
Thus Riba leads to fitna & fasaad (corruption, anarchy, mischief)
In riba, there is no taking with no giving in return. In true charity we give to those in need-and take nothing in return. In riba the lender takes from the borrower and gives nothing in return
The Inflation Excuse
People and even Islamic banking personnel have given recorded & written statements saying that prices increase due to inflation & that is one reason they also raise the prices. Price increase, because of inflation, is an indication that the value of paper money is falling.
There are even some so-called Islamic scholars who adopt the curious position that bank-interest is justified since it makes up for losses sustained through inflation. The following points refutes this ‘inflation excuse’.
- The fall in value of paper money is itself a form of riba since the one who possesses his wealth in the form of paper-money will suddenly have lost part of his wealth.
- Interest or riba is itself one of the causes of that modern economic curse leads to inflation. So primarily riba leads to inflation & not vice versa. This has been explained in the simple example above
- Inflation is the creature of the modern interest-based capitalist economy. It did not exist prior to the emergence of modern capitalism based on riba.
- Paper Money: This is itself leads to inflation & is a form of Riba & discussed in detail in a separate blog. It is also illustrated in the example above.
Arguments against Islamic Banking:
- Why don’t Islamic banks speak against fraudulent paper money and stress for Quran & Sunnah money (Gold, Silver etc)
- Engage in Murabaha transactions which are forbidden, by which they get most of their earnings (discussed below)
- They lend on interest and disguise it as a sale
- There is no risk; no loss is incurred
- Involved in back-door riba (e.g. hiding interest in lease (Ijarah transaction)
- “Every bank wants people to own more cars and more material goods. Its activities are shrouded in the technical language of finance — derivative products, equity swaps, adjustable mortgages, etc. No one, including top financial experts, can figure out how much usury occurs in such a complex system where everything is interconnected. Sharia-compliant banking has added to the confusion with its particular terminologies. But profit is the real god.
- If the owners and managers of ‘Islamic’ banks were genuinely moral people and concerned about sin, wouldn’t they pay themselves less? The lowest paid bank employee in a Pakistani bank — whether a Sharia-compliant one or otherwise — makes between 100-1,000 times less than his CEO, for whom a seven-digit monthly salary is perfectly normal.” (Facts coming from a liberal secular writer – Mr. Pervez Hoodbhoy)
Bank Leasing – Car, house etc (Wrongly Named Murabaha, Ijarah)
Islamic banks around the world are attempting to by-pass riba through a process of devilish financial engineering.
Most of the alternatives to riba which they offer the gullible Muslim public are nothing more than scarcely disguised forms of riba. For example, they utilize a financial mechanism which they erroneously define as murabaha.
What is Murabaha?
Murabaha is a transaction in which something is sold at a profit and both the buyer and seller know the amount of profit and accept it.
But car or house-leasing is NOT Murabaha because:
The bank purchases an article for cash & then sells it for credit at a higher price than that for which it was bought. This type of Murabaha is called back-door riba by some scholars.
For example, if the bank purchases a car for 15, 000 $ cash and then proceeds to sell that very car for 25, 000 $ in the same market in which it was purchased, the transaction would be of doubtful validity since the market price would be manifestly violated.
Why would anyone pay 25, 000 $ cash for a car when the market price is 15, 000 $ and he knows it! What is the difference between this transaction & a transaction in a conventional bank?
The arguments for Car/House Leasing (So called Murabaha/Ijarah) are:
- Some Islamic scholars like Mufti Taqi Usmani & Javed Ghadi have given permission
- There is an agreement on the new price between buyer & seller
- Does Islam allow someone to buy a car for $10,000 and sell it for $12,000? Yes.
- Does Islam allow someone to make a purchase on a deferred payment basis? Yes.
The Arguments against Murabaha are:
- Many Islamic scholars like Dr Zakir Naik, late Dr Israr Ahmad, Sheikh Imran Hosein, several Saudi scholars etc are against most of the way Islamic Banks are working in Murabaha transactions (described later)
- Let’s analyze Murabaha:
Customer ‘Adam’ has two options:
a) “Cash-Only-Automobiles” will sell him the car for $10,000 but are not willing to wait to receive the full price.
b) The Murabaha Bank will sell him the car for $12,000 and is willing to wait two years to receive the full price.
- Adam’s choice to purchase from the Murabaha Bank reflects his desire to not pay the full price of the car today. In other words, he prefers to pay part of the price today and be indebted with the rest.
- The Murabaha Bank agrees to be owed by Adam the price of his car in return for the amount that it is owed being $2,000 more than the price of the car today.
Now that the picture is complete, let’s discuss whether Murabaha involves interest (Riba) by the definitions & explanations given above.
Interest in Islam is the charging of a predetermined return for the use of money
Now the question we must answer becomes clear: Did the bank charge Adam a predetermined return for the use of its money? Clearly yes. The bank charged $2,000 in return for Adam’s use of it’s $10,000 to buy a car. Whether the bank hands Adam the money or it hands the money to the dealership is irrelevant because in either case Adam is the one who decided where it was spent.
The fact that no penalties are assessed if Adam is delinquent on his payments simply means that the amount of interest in the Murabaha contract is fixed at $2,000.
Still not convinced?
Assume Adam goes to a traditional bank and borrows $10,000 at a % 9.5 annual interest rate (at this rate he will owe $2,000 in interest in two years). Also assume that the interest on the loan is capped once it reaches $2,000. In other words, once Adam pays $2,000 in interest it stops accruing.
Further, if Adam pays off the traditional bank’s loan early he will end up paying less in interest than he would with the Murabaha bank’s financing.
As I mentioned, the Murabaha bank hasn’t eliminated interest at all it just guarantees for itself the amount of interest it will collect.
In conclusion, saying that Murabaha is permissible in Islam is nothing less than an insult to Muslims. It implies that Islam includes pointless commandments that carry no value to the adherent.
3. The Islamic bank thus does not fulfill the qualification of ownership required to enter into a ba’ah (selling/buying) with the buyer (in this case end-user of the car). The bank is not a seller in principle, rather a supplier of the car as a middleman and making profit in a multiplier exchange mode from a product which is produced by another party in the first place.
4. Now this Islamic bank imposes all sorts of conditions to secure this so-called murabaha contract with the car buyer — in fact a consumer of the car, not a worker as per Islamic framework. This includes car price, car rent (another term for mark-up), takaful (name change for insurance), processing fee, binding contract and capping on further usage of the car. Is this murabaha transaction fair to the parties, free of multiplier mode of economic exchange, sharing liabilities and benefits? The answer would be an emphatic ‘no’.
5. An economic transaction would be considered riba-free if it avoids multiplier mode of moneymaking, profit-taking and capital-creation.The vicious cycle of capital accumulation is perpetuated by multiplier mode of economic exchange. No sector of the economy is exempt from this multiplier effect and hence infested with all the attributes of riba.
6. The bottom line is that the reason a customer has to be pay a higher price for a credit sale is because of the time factor or deferred payment. Such a transaction would be one in which money would increase in consideration of time-or money breeds money over time. It is no different from riba al-nasiah described above. It is pure riba!
7. Murabaha is basically a loan which involves an asset. Conventional banks “buy” from the car dealer then sell it to customers at 7% interest. Islamic banks buy from the car dealer and sell it to customer at 7% profit. Is it just me or are these very similar contracts except one gains “interest” and the other “profit”.
8. This is the problem today, because today Riba is so interwoven with trade that it is near impossible to separate the two.This is the same what disbelievers used to say according to the Quran, that Bai (business/Sale purchase) is equal to RIBA , but ALLAH explicitly stated in Quran that Allah has made riba haram and business halal.
9. Now, a Murabaha transaction which is being used by most Islamic banks is insured against loss and is assured of a fixed return
10. If a customer fails to return installments within the mentioned time, then many of these banks keep on increasing the amount to be paid and that is just the same as conventional banks do
11. In case of damage to the car, the customer in most cases pays all damages and not the bank which remains the owner of the car until all payments have been made (Ijarah system-the customer is simply paying a rent.
12. This is unless the car is insured, which is another form of riba, which is discussed ahead. The same Mufti (Mufti Taqi Usmani) who may have allowed Murabaha, has clearly issued another Fatwa that states insurance is haram!
13. It needs no great acuteness to perceive that such agreement is in truth nothing else than a loan … which ought … to be declared usurious. It is very clear that the three pretended contracts comprised in the agreement are only feigned in order to disguise a loan at interest, and that, in truth I had no intention of entering into a partnership with the merchant, but only of getting from him interest on the sum which I lent. And even if, by a misconception, I should have persuaded myself that I really had the intention of entering into three successive contracts with him, this would be an illusion produced by my cupidity, in order to disguise for myself the vice of usury in the loan at interest to which the whole of the agreement resolves itself
14. Islam forbids that which entails zero risk and guaranteed profit. (ie Riba). Islam also forbids that which entails full risk and no guaranteed profit. (ie Gambling).
15. Even Islamic banks do NOT do all this for earning Sawab (reward). Murabaha is thus a deception if all these points are not pointed out to the customer including telling him the actual price of the car in the market
Hazrat Anas (RA) narrated that the Holy Prophet (PBUH) stated that deceiving a mustarsal (someone who is unaware of market prices) is riba. (Bukhari)
16. The person will enter into a long term debt; anyone who studies the Sunnah as it pertains to debt, would understand that it is both very foolish & very dangerous, in addition to being a violation of the economic Sunnah, for a Muslim to enter into a long-term debt.
17. Death can take place any time. Any Muslim who dies with a debt (and bank loan is a debt) and his family does not have the means to pay it off, will die a death in which the Prophet (PBUH) refused to pray the Salat ul Janaza (death funeral) over! Meaning how sinful it is to die in a state of debt.
18. A person who dies will burden his family with debt because even the Islamic banks will NOT waiver the debt off even after his death. If his widowed wife and children fail to keep up with the monthly payment, which is highly likely if they are not earning position, the bank will take over the property.
19. A Muslim who enters into a long term debt may never be able to perform the Hajj with any confidence that his Hajj will be accepted by Allah. The Prophet (PBUH) declared that the one who had the means to pay a debt should NOT delay in paying it.
20. Allah knows the intentions of both the bank administrators and the customers. One cannot fool Allah. Almost all the bank managers and customers, after all the counter arguments & knowing that basically it is a form of riba, simply cite at the end that certain Islamic scholar X, Y or Z has allowed it, therefore it must be Halal. This is the only argument that they can give!
21. If still in doubt, then Islam also says to abstain from things that are doubtful and keep to things that are clear; and has narrated by Hazrat Umar (RA) concerning doubt about RIBA:
Hazrat Umar bin Al Khattab (RA) said: The last verse to be revealed was on riba, but Allah’s Prophet (PBUH) was taken away from us, without having expounded it to us; so give up not only riba (usury), but also reebah (whatever raises doubts in the mind about its rightfulness) (Ibn Majah, Darimi)
22. Famous Hadith of the Holy Prophet (PBUH): “The halal is clear and the haram is clear, and between them are matters unclear that are unknown to most people. Whoever is wary of these unclear matters has absolved his religion and honor. And whoever indulges in them has indulged in the haram. It is like a shepherd who herds his sheep too close to preserved sanctuary, and they will eventually graze in it. Every king has a sanctuary, and the sanctuary of Allah is what He has made haram. There lies within the body a piece of flesh. If it is sound, the whole body is sound; and if it is corrupted, the whole body is corrupted. Verily this piece is the heart.”
Similar argument laid down against IJARAH by Sheikh Imran Hosein & others.
Views of Famous Islamic Scholars on Car/House Leasing
It is interesting to note that almost all highly educated Islamic Scholars are against car/house leasing/muharaba schemes including:
- Late Dr. Israr Ahmad
2. Sheikh Imran Hosein (MA degree in international economics)
Many references on You Tube. He is the most strict against Murabaha & Ijarah, calling it back-door Riba
3. Mr. Orya Maqbool Jan in reference to an Aalim Maulana Saleem Ullah Khan explaining that ‘Islamic’ Banking is similar to ‘ordinary’ banking:
4. Dr. Zakir Naik etc
They have all pointed out that it is just like putting ‘old wines in new bottles’, basic motivation/intention is the same; so whether one fingers the nose directly or from the back, it is the same.
Dr. Zakir Naik states that he is yet to see an Islamic Bank that is 100 % Islamic.
The most referred scholar to have allowed car leasing is Mufti Taqi Usmani and even he has given the following clarification of misuse of his Fatwa:
http://muftitaqiusmani.com/en/?p=213 and this misuse has been clearly pointed out here:
Probably the Mufti had the following conditions in mind before giving the Fatwa:
Requirements for Murabaha/Ijarah transaction to Meet Islamic Standards
There are a number of requirements for this transaction to be a real transaction to meet the Islamic standards of a legal sale.
- The whole of Murabaha transaction is to be completed in two stages.
- In the first stage, the client requests the bank to undertake a Murabaha transaction and promises to buy the commodity specified by him, if the bank acquires the same commodity.
- Of course, the promise is not a legal binding. The client may go back on his promise and the bank risks the loss of the amount it has spent.
- In the second stage, the client purchases the good acquired by the bank AT THE SAME PRICE on a deferred payments basis and agrees to a payment schedule.
- Another important requirement of Murabaha sale is that two sale contracts, one through which the bank acquires the commodity and the other through which it sells it to the client should be separate and real transactions.
- In case of non-payment in time, no increase in price will be allowed.
- Damages beyond control of the customer will be shared according to percentage of ownership. For example, if 50% payment has been made, then damages will be divided by half
- Insurance will not be allowed as discussed ahead
In only these ways risk will be shared i.e. both customer and seller may undergo profit or loss. Such would be a true Islamic bank and this is probably why Dr Zakir Naik has stated that he has not seen any bank which is 100% Islamic.
Why the Differences & Confusion Among Scholars?
- Lack of in-depth knowledge of Economy: For example lack of understanding of consequences of Riba or murabaha on economy of a country as a whole as discussed above.
- Late Revelation and so less information from Sahabah & Prophet passed on
On the authority of ahadith received from both Ibn Abbas (RA) and from Hazrat Umar (RA), we know that the last relevation received by the blessed Prophet (PBUH), shortly before his death, was the passage in surah Al-Baqarah (2: 278-281) which dealth with riba.
Umar bin Al Khattab (RA) said: The last verse to be revealed was on riba, but Allah’s Prophet (PBUH) was taken away from us, without having expounded it to us; so give up not only riba (usury), but also reebah (whatever raises doubts in the mind about its rightfulness) (Ibn Majah, Darimi)
3. Most difficult subject according to Islamic scholars. Many scholars regard riba as one of the most difficult subjects to understand
4. Riba is often disguised; hard to recognize type of legalized theft as explained above and unfortunately some scholars have unable to recognize it.
5. Many scholars also do not have concept of paper money & that paper money is also essentially a type of riba & thus also haram in its essence
6. Unfortunately many scholars are on the payrolls of the bank & it is very easy to get a Fatwa (Islamic ruling) from them
7. Sheer Ignorance: especially of Egyptian scholars and others blindly followed suit: Shaeikh Muhammad Al-Gazzali, the venerable scholar of Islam, visited New York shortly before his death & ruled (OUT OF IGNORANCE) that bank interest was not Riba because banks invested their money and paid interest from the profits realized from the investments.
He therefore equated bank interest with dividends which are paid to share-holders of a company. Banks lend money on interest & do not usually invest money.
8. Lack of Faith: Some scholars out of lack of faith and conviction did not rule against many types of riba, probably fearing a backlash from the government, especially during oppressive regimes of dictators
9. Some scholars wrongly told people to not leave interest in hands of disbelievers; they wrongly guided people (out of ignorance) to accept interest from bank savings and distribute to the poor. This is wrong due to the fact that what is Haram for oneself is Haram for one’s brother
10. Last of all, some scholars (like Sheikh Qardawi of Egypt) accepted some forms of riba (like car/house leasing) on the Doctrine of necessity. One may ask, since when did owning a car or house (or an expensive car or house) become an absolute necessity. There are millions of people living without these luxuries.
Sheikh Yasir Qadhi in USA has this to say on the matter:
“While I do not give an ‘official fatwa’ on this matter, I have always said (and those whom I trust and are more knowledgeable than me in Islamic finance have told me) that these contracts (murahaba/ijarah contracts) resemble ‘hiyal’ (‘tricks’) – it is as if the basic structure of a mortgage remains the same, but some clauses are added here and there to make it appear that it’s legitimate.
Based on this, while I do not agree with Sh. Qardawi’s unconditional fatwa that allows a mortgage loan for one’s personal house, still, if one were to follow his fatwa, it would make more Islamic sense (since he calls it riba, but says that it is a necessity) than these contracts, which give the illusion of not being riba, but in essence appear to be so.
And Allah knows best…”
11. So we may conclude from this discussion, some scholars following Jewish scholars, also embraced Riba. Inna lillahi wa inna ilahi rajiun
12. Ruling without Knowledge: Hazrat ‘Abdullah bin ‘Amr bin Al-‘As (RA) said: “I heard the Messenger of Allah (PBUH) say: ‘Allah will not take away knowledge by snatching it away from the people. Rather, He will take away knowledge by taking away the scholars until, when there is no scholar left, people will turn to ignorant leaders who will be asked questions and will issue Fatawa (rulings) without knowledge. (Bukhari & Muslim)
Insurance (Life, health, car etc)
The insurance of cars or other goods with the traditional Insurance Companies is a commercial transaction in which the person who wants to insure his goods is bound to pay a premium to the company in accordance with the prescribed conditions. This payment is certain and mandatory without which an insurance is not possible.
Following are the reasons why Insurance (car, life, health etc) is not permissible in Islam:
- Most banks directly or indirectly make insurance transactions based on Riba
- This payment is certain and mandatory without which an insurance is not possible. But on the other hand, the payment by the company is not certain. It is contingent upon an event or accident which may or may not occur. If the accident takes place, the company is bound to pay an amount far more higher than the amount of the premium paid by the insured, but if the accident does not take place, the company does not pay to him anything and the premium paid by him goes without any return.
- In other words, the insured is bound to pay in any case while the company may or may not pay. Such kind of transaction is termed as Gharar and Qimar (lottery) and is strictly prohibited in Shari’ah.’
- All kinds of insurance are forms of uncertainty, and transactions which involve uncertainty are forbidden according to many Saheeh Ahadith, such as the hadeeth narrated by Abu Hurayrah (RA):
“The Messenger of Allah (PBUH) forbade transactions determined by throwing a stone and transactions which involved some uncertainty.” (Narrated by Muslim).
All forms of commercial insurance are based on uncertainty of the most extreme kind. So it is a form of GAMBLING involving chance, uncertainty.
- Moreover, if the accident takes place, the amount of insurance is paid to the insured as a consideration of the amount of premium. It is again repugnant to the well-settled principle of Shari’ah that where money is exchanged for money, both the amounts should be equal in quantity. Any increase on either side is ‘riba’ which is clearly prohibited by the Holy Qur’an and Sunnah.
- Also there is element of taking illegal precautionary measure against a possible loss or seeking a safe-guard against an accident
- And the most important point: From where are the banks paying all this insurance money, often over & above what they are being paid? Of course the central banks! Read here: http://drnaumanshad.com/index.php/2015/05/29/why-paper-money-is-essentially-haram-forbidden/
- For more proof one can see many cases of crime as reported in ‘Forensic Files’ series, are due to greed of getting life insurance of close victims, including spouses, parents & children, how groce!!!
- For certain ‘scholars’ who state that insurance is haram, but car insurance is allowed because having a car is a necessity, THIS IS A JOKE & they are surely misguided. Millions of people do not have cars & they are surviving. CAR IS NOT A NECESSITY
- Some ‘scholars’ try to compromise and say well its UK/USA law therefore its okay,
but is this what you will answer to Allah, that it was UK law so i had to do it?
- For more details: https://www.youtube.com/watch?v=yYGdRQ1ndeU
It is for these reasons (riba, gharar and lottery) that all the prevalent forms of commercial insurance have been held by the majority of the contemporary Muslim jurists as prohibited.
Takaful (Cooperative Insurance)
- This is in many ways similar to conventional insurance and prohibited due to the reasons described above
- No matter how noble it may appear to be, it is based on principles and practices that are based on Riba and are haram.
- In essence all other types of insurance banks are offering in the name of Takaful or other names are a deceit in the name of Islam. I asked one banker what is the difference between Takaful and conventional insurance and the person stated that takaful gives less fixed profit than conventional insurance. I exclaimed ‘meaning takaful schemes have less alcohol mixed in them?’
If a group of people, or a company or society, all collect money, say 1000 rupees from every person, monthly or yearly etc and deposit it in non-interest bank account or with a person. If any member suffers an accident, sickness or other mishap, that whole or part of that deposit is given to him/her in compensation for the loss he suffered. Similarly ‘committee collection’ common in Pakistani societies are also justified.
This is the only type of Takaful allowed in Islam.
Ruling on Musharakah
Now a days Islamic banks have introduced another scam of minting money by means that seem halal but is essentially another form of ‘back door riba’. That is ‘Musharakah’. This is when bank offers to buy a house (or car etc) for a person. They initially get shared ownership after the customer pays an initial installment. Then every month he pays rent of ‘percentage share of the house’ PLUS also pays monthly installment.
This continues every month with rent plus monthly installment until the full payment of the house has been made.
This is also a form of riba in several ways. The increased AMOUNT over TIME has just been replaced by monthly RENT.
If he is the owner, why should he pay rent; and if he is the rentee, how can he become the owner. Because normally a person who pays monthly house rent never becomes an owner one day of that house
And then basic difference between Riba and business is that business involves profit OR loss. But in this Musharakah interaction, the bank never goes into loss. In fact Islamic banks have been found by experienced customers to get a large FIXED profit, even more than non-Islamic banks! And FIXED profit is also not permissible in Islam.
Reality is that Banks (Islamic Banks or other banks) are NOT doing any investment in Pakistan since the last 15 years.
The Case Against the Stock Exchange
1. Speculative Transactions Equivalent to Gambling
These are transactions in which one buys goods or stocks etc, anticipating that the price would rise. When it does, one then sells and makes a killing (huge profit). Alternatively one may sell goods, stocks, etc anticipating that the prices would fall.
When it does, one buys back and makes a huge profit. Such a profit is unjust. It is, in effect, gambling.
Speculation is the dominant force in today’s stock market. As mentioned above speculative transactions are riba. Today’s stock market operates on the basis of access to information.
Whoever gets information first can exploit that knowledge and make money. Thus one of the keys to consistent gain in the stock market is access to timely information. Access to information is usually obtained through bribery and patronage which are again leading to riba.
The value of shares so traded does no longer reflect the actual worth of the company and how well it is doing in real terms, but is dependent on speculation, thus becoming a form of gambling.
The Islamic rules governing economics are designed to ensure that all contracting parties know with certainty the factors involved in a deal and the outcome is not left to chance. Thus the trading in futures and speculation on the prospective value of a share irrespective of the assets and turnover of a company are not permissible.
Stock markets today are too open for speculative augmentations/reductions of value. Stock markets generally come under false and misleading fluctuation of prices which are run by either the most powerful several corporations or brokerage firms operating in that country. That’s why most of the scholars consider buying/selling in stock markets as not permitted and not lawful.
2. Change in Interest Rates Affect the Stock Market
Modern economy can never be absolutely free of interest. It is known that change in interest rates do affect the stock market like a ripple effect
Hence it is better to avoid investing in the stock market to be absolutely sure of being free from any type of riba transactions.
And Allah knows best.
Can a Muslim own & use a credit card?
A credit card is a card which permits its owner to borrow a certain amount within a period of time (usually one month). If that loan is repaid within the stipulated period then that loan would be an interest-free loan. If one the other hand, the loan is not repaid within the stipulated time, then interest would be charged on the loan.
A Muslim is prohibited from paying interest and so a Muslim who pays all his credit card debts on time and never has to pay interest, may argue that he has not violated the law in using a credit card.
But consider the following: the agreement with which one acquires a credit card is an agreement with provisions for riba. Such an agreement is Haram for a Muslim. Thus by entering into such an agreement, one has entered into Riba.
Interest is Haram for Muslims Even in Non-Muslim Countries
There was a wrong notion given by some misguided scholars like Dr. Tahir-ul-Qadri that one can take interest in western/non-Muslim countries. Some gave the reason that those areas are Dar-ul-Harb (country with which Muslims are at war).
First of all there is nothing clearly mentioned of such a point in the Holy Quran or Sunnah. A few Hanafi scholars gave an indication & that too from Dar-ul-Harb.
Secondly western countries are NOT dar-ul-harb; no Muslim ruler has announced war against any western or non-Muslim country. Muslim countries have peace & business contracts with them, so they are actually Dar-al-Ahd (lands with which Muslims have contract).
Thirdly, strictly speaking there is no Dar-ul-Islam on Earth, where Islam is being practiced in totality; so what to talk of Dar-ul-Harb?!!
So interest is Haram for American, Canadian, English or any other Muslims living in Non-Muslim countries just as it is Haram in a Muslim country.
I end this discussion on such a sensitive and difficult subject. May Allah forgive me if I have made a mistake.
Major source is from books & lectures by Sheikh Imran Hosein, Dr Zakir Naik, Dr Israr Ahmad & some others available on You Tube.
And Allah knows best.