Considering Bank Interest

بِسۡمِ ٱللهِ ٱلرَّحۡمَـٰنِ ٱلرَّحِيمِ

The following is by Shaykh Nur ad-Din Abu ‘Ubadah ‘Ali ibn Juma’ah.  Since the emergence of banks in the modern age, jurists have disagreed on how they conceive the nature of banks.  Their differences parallel the disagreement between scholars of conventional law and economists over whether the relationship between banks and their clients is one of lending as held by scholars of conventional law, or one of investment as held by economists.  Built upon this difference in taswwir, conception, is of difference in takyif, legal formulation. 

The jurists who consider this relationship to be financial lending formulate it as a loan which has brought benefit to the lender.  Thus, its ruling would be based on it being unlawful usury.  But then, the fatwa differed, because some considered this a matter of necessities that are permissible for a Muslim to undertake whenever he is forced to, and is thus based upon the principle that necessity renders the forbidden permissible, which in turn is deduced from the All-Encompassing Words of Allah (s.w.t.): 

سُوۡرَةُ البَقَرَة

... فَمَنِ ٱضۡطُرَّ غَيۡرَ بَاغٍ۬ وَلَا عَادٍ۬ فَلَآ إِثۡمَ عَلَيۡهِ‌ۚ ... (١٧٣) 

… But if one is forced by necessity without willful disobedience, nor transgressing due limits ― then is he guiltless ... (Surah al-Baqarah:173) 

Other jurists maintain that this does not fall under the heading of necessities since necessity is legally defined as something without which one would perish or come close to perishing.  Some of the jurists amongst this group maintain that it is permissible, based upon the principle of need being given the status of necessities - whether those needs are common or individual. 

As for the jurists who followed the formulation that the relationship between banks and clients is a relationship based upon investment: some of them consider it an invalid mudharabah, profit-sharing venture, that can be rectified by combining it with a lease.  Other members of this group maintain that it is a new transaction, and a new type of contract which has no name in traditional Islamic law.  Thus, they studied the matter in depth, just as the legists of Samarqand researched bay’ al-wafa’ out of considering it a new type of contract.  Likewise, the Shaykh al-Islam Imam Abu as-Su’ud Muhammad ibn Muhammad al-Ghumari (r.a.) researched ‘aqd al-mu’amalah and ruled in favor of its lawfulness – just as the former scholars ruled with the lawfulness of bay’ al-wafa’. 

They arrived at this judgement because they took into account the interests of the people and their dire need for these types of contracts; and because it was a means for market reform, and the masses depended on them for their livelihood.  Moreover, it suited the demands of the age’s new developments in transportation and communication, and modern technology; population growth; weakened social relations; the development of accounting sciences and bookkeeping; and separation between legal entities, and individuals, and many other novel matters. 

In brief, there is a difference of opinion concerning the issue of working in bank transactions, and transacting with banks: how it is conceived and formulated, and its legal ruling in theory and in application.  The established legal maxims are as follows: 

Firstly, objection is reserved for omitting what is agreed to be a requirement, and performing something that is agreed to be unlawful.  Objection is not for issues where there is a difference of opinion. 

Secondly, it is recommended to remove oneself from controversial issues. 

Finally, whoever is afflicted with something controversial must follow the opinion of those who permit it. 

It is necessarily known in Islam that usury is prohibited.  This is because its prohibition has been stated explicitly in the Qur’an and Prophetic hadits, and because of the unanimous consensus of the Muslim community.  Allah (s.w.t.) Says: 

سُوۡرَةُ البَقَرَة

ٱلَّذِينَ يَأۡڪُلُونَ ٱلرِّبَوٰاْ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيۡطَـٰنُ مِنَ ٱلۡمَسِّ‌ۚ ذَٲلِكَ بِأَنَّهُمۡ قَالُوٓاْ إِنَّمَا ٱلۡبَيۡعُ مِثۡلُ ٱلرِّبَوٰاْ‌ۗ وَأَحَلَّ ٱللَّهُ ٱلۡبَيۡعَ وَحَرَّمَ ٱلرِّبَوٰاْ‌ۚ فَمَن جَآءَهُ ۥ مَوۡعِظَةٌ۬ مِّن رَّبِّهِۦ فَٱنتَهَىٰ فَلَهُ ۥ مَا سَلَفَ وَأَمۡرُهُ ۥۤ إِلَى ٱللَّهِ‌ۖ وَمَنۡ عَادَ فَأُوْلَـٰٓٮِٕكَ أَصۡحَـٰبُ ٱلنَّارِ‌ۖ هُمۡ فِيہَا خَـٰلِدُونَ (٢٧٥) 

Those who devour usury will not stand except as stands one whom the Evil One by his touch has driven to madness.  That is because they say, “Trade is like usury”, but Allah has Permitted trade and Forbidden usury.  Those who after receiving Direction from their Lord, desist, shall be Pardoned for the past; their case is for Allah (to Judge); but those who repeat (the offence) are companions of the Fire: they will abide therein (for an age). (Surah al-Baqarah:275) 

The Messenger of Allah (s.a.w.) said, “Allah Curses those who take usury, those who give it, those who witness it, and those who record it.”  This is recorded in Swahih al-Bukhari and Swahih Muslim. 

However, the controversy revolves around the true nature of what is derived from banks: whether it is an instance of usury, which is unlawful, or invalid contracts, which are unlawful; or a new form of contract which would be permissible if it achieves the interests of the parties involved and is free of anything which is legally prohibited. 

Based on the above, every Muslim must realise that Allah (s.w.t.) Prohibited usury and that there is unanimous consensus concerning its prohibition.  He must realise that concerning bank transactions, scholars in all parts of the world differ in conceiving, formulating, and arriving at its legal status in theory and in application.  He must also realise that it is recommended to remove oneself from controversial issues.  Nonetheless, he may follow those who permit it; in such a case, there is no prohibition involved in any form of banking activity: depositing or borrowing money, working in or transacting with them, and so forth.