Mu' meneen Brothers and Sisters,

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One of our brothers/sisters has asked this question:

There is no doubt in my mind that Interest (Riba) is strictly prohibited in Islam and has no intention to go near things Allah has forbidden us.

But just for knowlledge I would like to have your comments on Islamic Banking/leasing offered by Islamic banks in some Islamic states, claim to be free of Interest (Riba). They have introduced a concept of Ijarah and Mudarbah as they call their products, designed according to Sharia`h (as claimed by them).

For instead if one want to lease a car, in Ijarah scheme the procedure they describe is as follows:

- Bank does not lend any cash money to client but buy a product (ie Car or mechenary etc) on bank`s name.

- Bank will remain the real owner of the product/car but would rent it to the client on fixed advance security fee (say 20% of the car price) and fixed agreed monthly rent. Rent is defined as fixed amount. Thus according to them this is simply a trade deal where client has simply rented a vehicle from bank, which is the property of bank.

- Under banks policy, bank is suppose to sell the vehicle after 5years (Rent is fixed in such a way that Bank recovers the car price within 5years). Here the client who is using the vehicle for 5years be given a choice whether to return the car to the bank and receive back the security deposit paid by clint at the beginning or to purchase the vehicle at a price as low as the security deposit.

These Islamic Banks claim this system an interest free; as in their view (1) No cash money is lend to someone (2) There is no fixed incremental amount taken by bank, it takes security amount as profit or fixed amount as profit in monthly rent, or in other case the amount gain by selling the vehicle is the banks profit.

Please clear if such deal is realy an interest free (Riba free) or only a game of words. Ref: http://www.mcb.com.pk/IslamicBanking/fund_car.htm . http://www.albaraka.com.pk/glossary/index.html

Best Regards.

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Answer:

Is Islamic banking legal?

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is no one (no idol, no person, no grave, no prophet, no imam, no dai, nobody!) worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

Allah says in the Holy Quran Chapter 2 Surah Baqarah verse 274-276: But those who devour ‘riba’ become like the one whom Shaitaan has bewitched and maddened by his touch. They have been condemned to this condition because they say, “Trade is just like ‘riba”, whereas Allah has made trade halaal and ‘riba’ haraam. Henceforth, if one abstains from taking ‘riba’ after receiving this admonition from his Lord, no legal action shall be taken against him regarding the ‘riba’ he had devoured before: his case shall ultimately go to Allah. But if one repeats the same crime even after this, he shall go to Hell, where he shall abide for ever! Allah deprives ‘riba’ of all blessing and develops charity, and Allah does not like an ungrateful, sinful person.

Beloved Brother in Islam, all the good Islamic banks and financial institutions have a Shariah Board of eminent scholars who are proficient in the laws of Islamic Economics and approve the principles behind every transaction or dealing of these banks. If an Islamic Bank or Islamic Financial Institution which is approved by the Central Bank of a Muslim Nation is offering a service, it would be safe for the believers to assume that their products would be halaal and permissible in its essence.

Your Question:Please clear if such deal is realy an interest free (Riba free) or only a game of words.

Most people are so used to the conventional interest-based banking system, that in their ignorance of the laws of Islamic Economics they may at times accuse the Islamic Financial Institutions of dealing in interest or ‘riba’ with just a different name.

A simple example can be cited to make the concept of ‘haraam’ and ‘halaal’ clearer. If one marries a woman and satisfies his pleasure, it is considered ‘halaal’ and is a virtue in Islam. But if one does not marry a woman and satisfies his pleasure with her, it is considered ‘haraam’ and a huge sin in Islam! Both satisfy the carnal pleasures of man, but the difference between them is a one-page or a simple verbal legal contract of marriage!! I have heard some people say, what is the difference? But you and I both know, there is a huge difference in the reward and sin between the two acts, although both can be termed similar in some qualities. But Allah has made marriage ‘halaal’ and fornication and adultery ‘haraam’.

Similarly, although it may seem to some who are ignorant of the laws of Islamic Economics that because the Islamic Bank charges a ‘fee’ or ‘profit’ instead of ‘interest’, there is no difference in the permissibility of the transaction! But the truth is that because of the nature of the contract made by the Islamic Bank their transaction would be interest-free, and thus halaal in the sight of Shariah and Allah Subhanah, and the interest-based transaction of a conventional bank would be considered absolutely illegal and haraam.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your Brother in Islam,

Burhan