Bank interest and an acceptable arrangement

Q56 :There is no doubt about the fact that usury is forbidden. However, Qur'anic reference to usury speaks of doubling and multiplying the capital as a result of usurious transactions. The Hadith suggests that such transactions lead to feelings of greed, selfishness, laziness, etc. on the part of the lender and misery on the part of the borrower. Nowadays, banks lend at a fixed rate of, say, 10-12 percent and give a slightly lower rate to depositors. If it is ascertained that the bank does not use certain deposits for lending to others with interest, is it permissible to use such deposit accounts and receive the fixed interest given on such deposits.

A56 : It is true that the Qur'an refers to usury as doubling up the money lent to someone in need, or even multiplying it. However, this does not mean that usury must reach a rate of 100 percent or more before it is forbidden. If you refer to the verses dealing with usury in the second surah of the Qur'an, "The Cow", you will see that the injunction is very clear: "Believers, fear Allah and waive what remains outstanding of usury, if you are truly believers. If you do not, then take notice that you are at war with Allah and His messenger. If you repent, you may have only your principal loans, neither inflicting nor suffering injustice." (2:278,279) The Qur'anic verse is clear in requiring a lender to get back only what he has advanced. [It takes into account all usury, regardless of the extent; whether nominal or exorbitant.] The Prophet has disapproved of selling two measures of low quality dates for one measure of high quality dates, because he considered that as usury. He told his companions to do each transaction separately for cash, so that there is no element of usury in the deal. In the light of the foregoing, all scholars agree that even the smallest amount of usury or increase on the principal amount advanced to anybody, is forbidden. When you deposit money with a bank, you are certainly not in a position of a lender and the bank is not a borrower. You have defined the relationship in a way which means that any returns given to you by the bank are legitimate earnings. As you realize, banks use the money they receive from their clients to lend it to borrowers, charging them interest, which means that they actually receive more than they give, in return for the loans they advance. Such transactions are forbidden in Islam. However, if you arrange with the bank that it invests your money for you in some way which does not involve lending to others with interests, then the return from such an investment may be legitimate to take. Some banks invest in shares and unit trusts. If the share they invest in are those of companies which do not trade in something forbidden, then such an investment is lawful. Quite recently, the Mufti of Egypt published a ruling stating that such an investment is lawful, even if the rate of returns is fixed at the outset. He makes it clear, however, that straightforward bank transactions of borrowing and lending, which involve interest are unlawful. If you wish to make use of the services provided by banks, you should bear in mind that any interest given on deposits used for lending is unlawful to have. If you give instructions in the bank to invest your money in a lawful way, as in a profit-loss sharing account, then the money you receive on your investments is perfectly legitimate.

Our Dialogue ( Source : Arab News - Jeddah )