6. THE CONCEPT
Question 270 Riba in the Qur’an
What is the riba that is prohibited by the Qur’an?
Fatwa
All of the verses in which riba is mentioned are unqualified (in terms of their meaning), such that they do not differentiate between one form of riba and another. Therefore, recourse must be had, in interpreting their meanings, to the commonly accepted legal meaning that was derived from the collectivity of verses and hadith texts on the subject.
Perhaps the most reasonable definition of the riba (prohibited) in the Sharp ah is that it is excess for which no compensation is given in the contract. This definition comprehends both riba for consumption and riba for planting (investment).
At the other end of the spectrum of opinions regarding the definition of riba is what is ascribed to Ibn ‘Abbas. In the sale of dates, or other commodities, he is reported to have allowed riba of excess or their sale for greater or lesser amounts of the same commodity, if possession of the same was taken before the contracting parties left each other’s Company. This, however, is the sort of transaction that occurs only rarely. Even so, the Companions clearly disapproved of Ibn “Abbas position because of what had been reliably communicated to them by the Prophet of Allah, upon him be peace. These have been preserved in a multiplicity of traditions with similar wording that were reliably narrated and included the most authentic collections of hadith.
The Prophet, upon him be peace, said, “Gold (may be exchanged) for gold, but only in like quantities, and only hand to hand. Any excess will be riba. Silver (may be exchanged) for silver, but only in like quantities, and only hand to hand. Any excess will be riba. Wheat (may be exchanged) for wheat, but only in like quantities, and only hand to hand. Any excess will be riba. Dates (may be exchanged) for dates, but only in like quantities, and only hand to hand. Any excess will be riba.”
It is true that the jurists differed among themselves as to whether (the meaning of) riba was to be limited only to the commodities expressly mentioned in the hadith texts (there were six commodities), or whether the prohibition would extend beyond them (to other counter values)?
The literalist school of jurisprudence, and certain of the Hanafi and Hanbali jurists, held it to be limited to the commodities mentioned in the texts of the hadiths. All eise they held, prima facie, to be lawful.
The great majority of jurists, however, held that the prohibition extended further; though they differed on the ratio legis. The details (of their positions and arguments) may be found in the classical manuals of fiqh.
What concerns us here is the Statement that riba is prohibited in all of its forms. Moreover, the opinion differentiating between riba (in commodities) for consumption and riba for planting is a later innovation without any textual indication to Support it. Even so, certain authors have rushed to take this position, stating that the prohibition extends only to the sort of riba for consumption, and that if it is for planting it will be lawful. This, by my life, is a lie against Allah and His Prophet! And personal opinion with no basis in truth, and nothing even resembling a basis!
The evidence that this is true is that when riba was prohibited, another door for lawful earnings was opened, one in which we may invest our wealth. This door was (the transaction known as) mudarabah, with its well-known conditions. Likewise, beneficent loans were encouraged, as these indicate a sense of humanity. At the same time, severe rebukes were directed toward dilatory debtors. It is authentically related that the Prophet of Allah, upon him be peace, said, “The finder2 is mine! His honor becomes lawful and his punishment.” This hadith was related by Ahmad, Abu Dawud, al Nasa’i, Ibn Majah, and al Hakim on the authority of al Shurayd ibn al Suwayd. Dhabi held it to be authentic. All of the above, in support of the lender and the borrower, goes to prove the care of Islam in its legislation.
Question 271 Legal Outlets
What does the SharFah consider to be a legal way out? And how does the SharFah view such outlets?
Fatwa
1. A ShaiT ah outlet is anything that brings about release from what is sinful or prohibited, and leads to what is lawful.
2. From the papers presented at the Seminar on the subject ofSharFah Outlets, it is clear that Muslim jurists have expended a great deal of effort on writing on this subject, so as to facilitate the transacting of business for Muslims. It is equally clear that those who resort to SharFah outlets in their business, either come close to or move away from getting things right in proportion to the degree with which they adhere to the principles of SharFah derived from the Qur’an and the Sunnah.
3. It is widely agreed that the SharFah of Islam represents a way oflife for all times and places. It is therefore necessary that every researcher turn to the texts of the Qur’an and the Sunnah in Order to arrive, by means of their indicators, principles, and higher purposes, at an understanding of SharFah categorizations and rulings. Scholars should benefit from Shari’ah outlets, especially in applying the law to the Operations of Islamic banks, while giving due consideration to the constraints and methodologies employed by the classical jurists who wrote on the subject.
4. The sorts of outlets employed in the field of transactions and in other fields as well may be divided into two major categories: SharP ah outlets (which are acceptable), and non-SharPah outlets (which must be rejected).
5. The latter sort is invalid, blameworthy, and prohibited. This is because such outlets overlook Sharp ah principles, or go contrary to acceptable Sharp ah interests, or become a means to tampering with the higher purposes of the Lawgiver by dispensing with obligations, or legitimizing the prohibited, or turning truth into falsehood and falsehood into truth. Acceptable outlets never overlook SharIah principles, or go contrary to its interests. Instead, when these are employed, the purposes of those who do what Allah commands and refrain from what He prohibits will be realized. Likewise, rights will be upheld, injustices will be undone, and there will be release from tyranny.
6. Care should be taken not to go to excesses in the employment of these outlets. Otherwise, there is a possibility that these may become a means for legitimizing the prohibited or dismissing the obligatory. Thus, any outlet that is proposed must first be submitted for the approval of the Islamic Bank’s Sharp ah Supervisory Board.
Question 272 Dealing Both Ways
Is it lawful for the Islamic bank to deal in both ways, in interest and interest-free, if the government regulators of a country require that? And in order to convince those regulators of the applicability and efficacy of the interest-free system? The basis on which this could work would be that interest-free accounts would be opened apart from accounts for those who want to deal in interest. Also, the bank would pay brokerage fees to its colleagues on the basis of current bank interest rates. Even so, the bank would invest its depositors’ money in ways that comply with the Shari’ah. The bank would assume the bürden of paying the difference resulting from its payment to depositors of profits from its Islamic investments and the amounts of interest it owes.
Fatwa
It is unlawful from a Sharp ah perspective to deal in riba. The jurists attending the Forum suggest that the Islamic banks should work together to establish one or more Islamic banks outside the Islamic world, and to work together and cooperate with any Islamic bank presently existing or planned for the future. Likewise, the jurists commend the efforts made by Shaykh Salih ‘Abd Allah Kamil in establishing an Islamic bank in Europe that is completely interest-free.
Question 273 Purchasing Shares in Companies Dealing in Riba
Is it lawful to purchase with the holdings of the Islamic Bank shares of companies which do not engage in riba as their primary business? It should be explained that the sources of income for such companies, and their liabilities, include interest paid to them and interest that they pay out to others.
Fatwa
It is the unanimous opinion of the Board that it is not lawful for the Islamic Bank to invest any portion of its holdings in the sort of companies mentioned in the question.
Question 274 Fees for Transfers
Bank transfers are among the means employed to pay cash amounts in return for the meeting of obligations, or for making payments for the same to another. There are a number of ways that transfers are accomplished. Among the most important of these are the use of bank drafts (banker’s checks) and bank transfers (bank giro credit; BGC), as well as others.
Commercial banks perform these services for fees. Generally, the fee will be listed in the bank’s tariffs. The basis for the fee is a percentage of every thousand Pounds [transferred]; and on the basis of this percentage a fee is calculated for every amount that is transferred.
When we estimated the cost to the Bank of performing these sorts of services, we considered the time and effort expended, the paper and supplies used, and the like. The figure we arrived at was about two Pounds Sterling for each transfer.
Since the estimated cost for such transfer does not change with differences in the amounts that are actually transferred, will it be lawful for the Islamic Bank to raise its fee for this service in proportion to the amounts transferred? For example, the Bank may charge a set fee for the first thousand transferred, and a similar fee for every thousand thereafter?
If this is not lawful, then what is the accepted SharFah method for establishing such fees? It appears less than reasonable for the Bank to charge one amount as a fee for transferring one thousand Pounds and the same amount for transferring one million Pounds.
Fatwa
Transfers are among the banking services provided by the Islamic Banks for those who seek them. These are lawful from a Shari’ah perspective regardless of whether the transfer is made locally or abroad. This is because the bank transfer is a (new) transaction that clearly serves the interests of people; and because there is nothing in the texts of either the Qur’an or the Sunnah to prevent it. Furthermore it is of no matter if I understand the bank transfer to equate to the Islamic concept of a loan, or a transfer of debt, or a contract of agency, or a lease, or a combination of these.
Since the Service provided by the Bank is a lawful Service, it is therefore lawful for the Bank to perform it without charge, or to perform it for a fee. Furthermore, a fee is what the two parties to a transaction set in return for a benefit, and the only condition regarding it is that it be made known (to those contracting) in such a way that erases any ignorance on the subject that might lead to a dispute. The benefit in return for which the fee is set may be benefit from something concrete, or it may be benefit derived from the actions of a doer, such as is the case in relation to services performed by the Bank for its customers seeking transfers.
When the Bank has a right to a fee in return for the services it provides, the fee should be in proportion to those services, either great or small. Based on the foregoing, it is lawful for the Bank to raise the fee for the services it provides in accordance with the increase in the amount for which transfer is sought, on condition that the services required for transfer also increase. In such a case, there is nothing to prevent the calculation of the fee on the basis of a percentage from each thousand transferred, or on any other reasonable basis, as long as the fee is made known.
If, however, there is no difference in the services required for transferring different amounts, it is then not lawful for the Bank to increase the fee for increases in sums transferred. This is because the Bank would then be charging [more of] a fee in return for nothing [more], This is the general ruling on the subject which, if we were to apply it to the Situation described in the question, would result in an answer to the effect that, no, it is not lawful for the Bank to charge more than two Pounds for the transfer of any amount. This is because the costs estimated by the Bank for these services do not differ with differences in the amounts transferred. This is what is stated in the question.
Even so, the Board would like to request the specialists at the Bank to review the contents of the question, particularly in regard to the notion that the costs do not differ with differences in the sums to be transferred. This is because it appeared to the Board, during its discussion of this issue, that costs would indeed increase with increases in the sums to be transferred. In fact, the difference is apparent at the very first step in the transfer process. Suppose two people approach a teller at the bank, one wanting to transfer one hundred Pounds and the other ten thousand. Clearly, the time spent in counting the second amount will greatly exceed the time it takes to count the first. How, then, can it be stated that the costs do not differ with differences in the sums to be transferred?
If the Bank’s specialists conclude that costs do differ with differences in the sums to be transferred, there will be no legal impediment to the Bank’s increasing the fee with increases in the sums to be transferred. If, however, they conclude that the costs do not differ, then there will be no reason to charge higher fees for the larger sums because the excess will then amount to consuming the wealth of others without justification.
Question 275 Savings Incentives
Certainly saving is one of the virtuous habits encouraged by our religion, and one that we have been commanded always to consider in our personal dealings. Today, the same matter is emphasized by modern economic studies, especially in relation to the poorer and developing countries such as those in which the Islamic peoples reside. It is for this reason that t h e Islamic Bank considers i t essential to expend extra effort in the development o f financial products and incentives that encourage growth in this area in ways that accord with our beliefs.
In this connection, we will like to mention the following:
The Sudanese Post and Telegraph Authority has developed its own program for savings activities through the sale o f savings bonds to the public a t uniform and publicly announced rates. These bonds may be redeemed for their value a t any time by their holders. In addition, during certain periods of time, the Authority randomly selects bond holders and grants them prizes of differing value as incentives to them to continue buying savings bonds, and to encourage others to buy the bonds. In view of all this, we would like to ask if there is anything dubious about this sort of savings activity? Especially since the bondholder knows about the prizes in advance and often expects to become a winner.
We would likewise question you i n regard to whether it is lawful for the Bank to offer prizes to those who save with it? However, when the Bank’s customers open savings accounts they will not be informed about t h e offer and will therefore have no expectations.
Fatwa
It will be lawful for the Bank to offer incentives to its holders of savings accounts without informing them in advance, and by whatever means the Bank decides to offer them, so long as these are several and differ each time that they are offered. A further condition for such incentives is that they should not be offered regularly, lest they become the only reason for saving. It is likewise not lawful to offer prizes to savings account holders through advertisements or on a repeating basis, even if these are not stipulated in the contract of deposit. This is because, with the passage of time, the practice will become
customary and, in turn, take on the ruling of benefits stipulated in a contract (in this case) of deposit. Since the depositors gave permission to the Bank to dispose of their money, and the Bank guaranteed its return to them, the agreement becomes subject to the same rulings as a loan; and it is not lawful to stipulate benefit to a lender.
In view of the desire on the part of the Bank’s management to attract savings on the one hand, and to assist savings account holders in obtaining consumer goods and goods for production on the other, the Board is therefore of the view that there is nothing to prevent the Bank’s initiating a short term investment account on the basis of an unqualified mudarabah. In this, the following matters will be taken into consideration:
1. The sale may take place through regulär or discounted prices, for cash or on installment, and the deposits may also be invested in any other prudent investment vehicle that is consistent with the goals of the project.
2. The deposit will be for a short term (three months, for example) and may be stipulated in the contract that the term will be renewed automatically if the depositor does not withdraw the deposit.
3. It may be stipulated that the depositor has a right to withdraw his/her deposit or any part of it at any time and without previous notice.
4. The year may be divided into regulär periods (quarters, for example, if the deposit period is to be three months). It may then be stipulated that the right to share in profits will only belong to those whose deposits remain with the Bank for a complete period, or to those whose deposits have remained for a certain amount of time, after which the profits may be calculated and distributed at the end of each period.
5. The Bank’s portion will be a percentage of the profits earned from investing the deposited sums in mudarabah projects, in return for its bearing the administration expenses.
6. It is not lawful for the Bank to borrow funds from mudarabah projects for the purpose of using these funds in its own investments.
7. It is lawful for the Bank to permit anyone with a regulär savings account to specify, at his/her own choice, a certain percentage of the balance for transfer to a short term investment account in accordance with the conditions specified above (such that the Bank need not issue new account books for this purpose).
8. The Bank may set minimum and maximum levels for the sums placed in short term investment accounts.
9. Holders of short term investment accounts may be given priority in the purchase of consumer goods and goods for production.
10. A draft application form for short term investment accounts should be prepared and then delivered to the Shariah Supervisory Board for review.
Question 276 Linking a Loan to Inflation
Is it lawful to link repayment of a beneficent loan to a specified purchase value? For example, it may be linked to an inflation index for consumable goods?
Fatwa
A loan is a debt for which a liability is guaranteed in kind. Repayment in kind is not to be waived in favor of repayment in value unless it becomes impossible to find a match for what was loaned. Thus, in the repayment of loans, what is important is the return of what was borrowed in kind, without linking this to the value of something eise.
This applies, of course, if the loan is for gold or silver or for some other fungible, regardless of whether the price rises or falls. Otherwise, the door to riba would be opened wide.
Question 277 Paying Taxes with Bank Interest
A person owns property in a European country and pays (real estate) taxes on it. The person also has money earning interest in a European bank. Is it lawful for this person to take the interest and use it to pay the property taxes?
Fatwa
It is an established rule that interest earned from deposits in riba-based banks must be disposed of by charitable means, other than the construction of mosques or the printing of the Qur’an. No Obligation may be discharged with the interest; so it may not be used to pay taxes or debts.
By Yusuf Talal DeLorenzo.
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