7. BANKS
Question 278 Deposits in Conventional Banks
To what extent was it lawful for the Finance House to deposit sums in commercial banks without interest, if there is an understanding that these banks will agree to deal (with the Islamic Finance House) in the same way?
Fatwa
Despite our personal dislike of dealing with conventional banks, even when those dealings are free of riba, and in view of the widespread nature of the affliction and the general necessity to deal with such banks, there will be no legal impediment to extending them beneficent (interest-free) loans, and to borrowing from them on the same terms. The hope here will be that by dealing with them in this manner, they may be encouraged to deal in the same (interest-free) way.
Question 279 Spending Earnings from Interest
What i s the Shari’ah position i n regard to an Islamic Bank making deposits in foreign banks, and then using the interest that accrues from such deposits for purposes like training or research and development?
Fatwa
A Muslim may not deposit money i n a foreign bank. However, if necessity leaves no other recourse, or if circumstances otherwise compel him/her to do so, and then the deposits earn interest, the interest may not be benefitted from by the individual Muslim, or by the Islamic bank (if the bank makes the deposits). Nor may such earnings, if spent in charity, reduce one’s Zakah liability. Nor may they be used to settle debts. At the same time, however, the earnings should not be left at the disposal of the foreign banks so that these may grow stronger in Opposition to Islam and Muslims. Rather, such earnings should be withdrawn and then spent on the general welfare of Muslims. Such earnings may not, however, be spent on the construction of mosques because only pure and lawful earnings may be used for that purpose. The reason for this is that leaving those earnings to the banks may become a factor in strengthening the enemies of Islam. At the same time, it is unlawful to destroy the earnings because the destruction of wealth is unlawful.
Regarding the proposal to use the earnings for a research and training institute, that may certainly be considered to be in the interests of the general Muslim public, and is therefore a lawful recipient of those earnings. This is certainly better than leaving the money to the foreign banks, or destroying it.
Fatwa
If it is certain that the institution deals in riba, and that the goods it buys from the Islamic bank become the basis of its dealings in riba, then it is unlawful to deal with that institution. If, on the other hand, the institution’s dealings are mixed, such that some are lawful and some are unlawful, while all of its dealings with the Islamic bank are sound from a Shari’ah perspective, then there is no impediment to dealing with it. Prudence, however, dictates that it will be better to refrain from dealing with such an institution.
Question 281 Murabahah Deals with Conventional Banks
Certain banks and finance companies come to us seeking to deal with us in the purchase of goods from abroad, by means of murabahah sales that are completely free of riba. Then, when the deal between us has been closed, in the manner we sought, they sometimes go and dispose of the goods they have received in their customary manner, including riba-based dealings. Is it lawful, then, to have dealings with these banks and companies?
Fatwa
To deal with such businesses in our (interest-free) way is lawful. They will have to bear the bürden of their (riba-based) dealings with others. It will, however, be necessary to take every precaution necessary to keep the Finance House free of dubious practices and losses. There is nothing to prevent these banks and finance companies from sending their clients to the Finance House for the closing of deals; and these should be dealt with directly and just like anyone else. Likewise, there is no impediment to paying brokerage fees to these banks and finance companies.
Question 282 Interest-free Dealings with Conventional Banks
To what extent is it lawful for the Islamic Bank to purchase from a riba-based bank goods which its client was unable to continue paying for, and then to seil those goods either to the same client or to another?
Fatwa
Following study and discussion, the unanimous consensus of the Board was the following:
1. In principle, the Islamic Bank may not deal with riba-based banks, even when its dealings do not include riba, unless this is required by a necessity, or serves an interest, recognized by the Shari’ah.
2. Based on the above, the Board’s opinion on the question is that there is nothing here that would prevent the Islamic Bank from buying the goods and then selling them to the client who ordered them, or to anyone else, if the condition mentioned above is met, and as long as the deal contained nothing else repugnant to the teachings of the Shari’ah.
Question 283 Agreements Stipulating Interest-Free Lending (1)
With regard t o foreign correspondent banks, it is clear that there is a problem related to the ways transactions are accounted for because these are concluded and recorded on the basis of interest rates. Since the like of these transactions are ribawi they are prohibited to the Islamic Bank. We therefore suggest that transactions should be concluded on the basis of an advance agreement with the foreign bank. The gist of the agreement would be that the Islamic Bank will deposit an amount in its account with the foreign bank without its earning interest on the balance. Then the Islamic Bank will use the funds in the accounts for its business. In case the Bank’s withdrawals exceed the deposited amount, such that the foreign bank becomes the Islamic Bank’s creditor, no interest will be paid. Transfers must be completed for the replenishment of the account in such a way that equilibrium is constantly maintained between the amounts deposited and the amounts withdrawn. Is there any objection from a Shari’ah perspective to this method of transacting?
Fatwa
All jurists agree on the prohibition of loans for which benefit to the originator is made a condition. Ibn al Mundhir wrote: They are in consensus that if a lender stipulates to the borrower excess or a gift (in return for the loan) and then lends on that basis, the excess that is taken will be riba. It is related that Ubayy ibn ICab, Ibn ‘Abbas, and Ibn Massud prohibited loans that bring benefit. Finally, a loan is (understood in Islamic law to be) a contract of friendship and favor, so if benefit is stipulated, the loan will be divested of its true nature.
Among the scenarios for loans bringing benefit described by the classical jurists is one in which the lender stipulates that the borrower must seil him something, or rent him his house, or lend him something in return. AI Hattab stated that there are no differences of opinion regarding the prohibition of a lender’s lending on the condition that the borrower lends something in return. This is what they have opined regarding conditions.
If, however, the loan is unqualified by any condition, and the borrower repays it with something better, or adds a gift, or sells something to the lender, or rents him his house, or lends something in return, there will be nothing unlawful in any of that.
The agreement suggested by the Faisal Islamic Bank to be concluded with foreign banks, though it excludes interest on loans, it may nonetheless be stated that it includes benefit to the lender. Thus, it will be prohibited if the Faisal Islamic Bank stipulates to the foreign bank that it is to extend it credit whenever its accounts become overdrawn. This is because the amount placed by the Faisal Islamic Bank with the foreign bank, if we consider it a loan, then the Faisal Islamic Bank is loaning to the foreign bank on the condition that the foreign bank loan to it. And all of the jurists have agreed that this is unlawful. If we consider the amount a deposit, the foreign bank (in this case the lender) will benefit from the deposit, in which case its loan to the Faisal Islamic Bank will have brought it benefit. This too is unlawful.
The way out of the prohibition is for the Faisal Islamic Bank to place the amount in its own account at the foreign bank for no interest. It must not stipulate that the foreign bank lends it money to cover overdrafts. Rather, in its agreement with the foreign bank it must suffice by saying that the Faisal Islamic Bank will not pay interest to the foreign bank in case the foreign bank becomes its creditor. This is the opinion of the Board for the Solution to the problem within the legal framework established by the classical jurists.
The Board also notes that there is another way to legalize the agreement suggested by the Faisal Islamic Bank, even if it were to stipulate to the foreign bank that it must extend its credit without interest when its account is overdrawn. This is because the purpose of the agreement for the Faisal Islamic Bank is to avoid taking interest and paying it. Its purpose is clearly not the benefit it stands to gain from loaning, or the benefit to be gained by the foreign bank. Thus, even though the condition it stipulates in the agreement centers on lending, and that the lending should take place without interest, the basic purpose of the agreement is to avoid interest. If the foreign bank refuses, the Faisal Islamic Bank would not accept a loan on interest from it, but would search for another bank that would agree to transact without interest, or it would simply depend on its balance and dispense with the condition about lending. So the purpose of the condition is a good purpose which accords with the higher purposes of the Islamic Sharp ah and accomplishes an Islamic principle which all Islamic banks strive to realize, or transacting without interest. Finally, all matters are judged on their purposes.
In summary, then, the Board’s view is that the transaction suggested by the Faisal Islamic Bank in its question is lawful, regardless of whether it stipulates in its agreement with the foreign bank that it lend without interest, or whether it does not stipulate lending, but suffices with the condition that it not accept interest. And Allah knows best.
Question 284 Agreements Stipulating Interest-Free Lending (2)
I would like your eminences to kindly explain the Shari’ah perspective on the Jordan Islamic Bank’s stipulating to the commercial banks in which it deposits funds for certain periods of time without taking interest or fees, a condition to the effect that they place matching deposits in the Islamic Bank at the same rate and with the same conditions, i.e., without taking interest or fees from the Islamic Bank when they require liquidity for their investment projects.
Fatwa
We feel it appropriate at the beginning to mention as an introduction the points that will lead us to an understanding of the correct answer, Allah Willing.
1. Ibn Taymiyah cited a mursal hadith in which the Prophet of Allah, upon him be peace, is reported (by one of the successor generation, not a Companion) to have said, “Verily, Allah loves penetrating vision at the onset of doubt, and He loves perfect wisdom at the arrival of desire.”
2. The entire Shari’ah is based on the principle that when a wrong which leads to prohibition is countered by a preponderant need, the unlawful may be permitted. What then of something that is not wrong?
3. The legal presumption in all contracts and conditions is that they are sound and lawful. These may not be prohibited or declared void unless there is sound evidence to Warrant this from the Shari’ah, either in the form of texts or by analogy.
4. Ibn Taymiyah cited several hadiths regarding how conditions are to be considered. Among these is the hadith included by al Bazzar in his collection on the authority of Ibn ‘Umar that the Prophet, upon him be peace and blessings, said, “People are bound to the conditions they stipulate, so long as these are in accord with what is right.” Ibn Taymiyah commented that the texts of both the Qur’an and the Sunnah are witness to the variety of this hadith’s meaning.
5. The principles of Imam Ahmad’s legal theory and his recorded opinions clearly indicate that he considered a condition lawful if its purpose was sound, even if it might appear unlawful for other reasons.
6. A condition may not make lawful what Allah has made unlawful. But if something is legally categorized as permissible, a condition may render it obligatory (in a peremptory manner), like a condition requiring an increase in the marriage gift.
7. Any loan accompanied by a condition that repayment will include excess is unlawful. There is no difference of opinion on this point. Ibn Mundhir stated, “They are in consensus that if a lender stipulates to the borrower excess or a gift (in return for the loan) and then lends on that basis, the excess that is taken will be riba, regardless of whether the excess is in quality or quantity.”
8. Imam Ahmad wrote that a condition to write a note payable in another city is unlawful. In another written opinion, the Imam said that it is lawful to do so, if it is in the best interests of both parties. The Shari’ah did not come to prohibit what is in the best interests of people, especially when there is no harm in these things. On the contrary, it came to legalize them. Moreover, there is nothing in the Qur’an or in the Sunnah to expressly prohibit this. It is essential therefore to insist on its lawfulness.
Of course, the thought that immediately comes to mind is that it is unlawful, for the following reasons:
1. The hadith says that any loan which brings benefit (to the lender) is riba.
2. The hadith that says that a loan linked to a sale is not lawful.
3. The legal point made by Muwaffaq al Din ibn Qudamah in his al-Mughni, and by Shams al Din ibn Qudamah in his al-Sharh al-Kabir that a condition in a loan to rent a house (to the lender), or seil him something, or loan him something at a later date, is unlawful. The reason cited for this is that the Prophet of Allah, upon him be peace and blessings, prohibited a sale linked to a loan, and also a condition stipulating a transaction from within another transaction.
However, with regard to the first hadith mentioned above, it is not an entirely authentic one because the Companion who related it did not say that he had heard it directly from the Prophet, upon him be peace. Even so, “Umar ibn Zayd said, in al-Mughni, “There are no sound hadiths on the subject.” The opinion to the contrary held by Imam al-Haramayn and al-Ghazali is just a guess, because neither of the two was accomplished in the science of hadith criticism, as al-Shawkani mentioned in his Nayl al-Awtar.
The second hadith, even though it was included in the five (secondary; because they do not include Bukhari and Muslim) collections (of authentic hadiths), by Ahmad, Abu Dawud, Nasa’i, Tirmidhi, and Ibn Majah, it was the opinion of Ibn Taymiyah that the signiflcance of the hadith is to say that it is not right to combine the making of a payment with the doing of a favor, because the favor comes about as a result of the payment and thus becomes a part of the payment. In such a case, the meaning of riba is realized. [It is a different matter], however, if the contract is based, at a fundamental level, on a favor and a good deed, such is the case with a wadf ah (a sale in which the price is set at less than what the seller states to be the value of the goods) or a loan, and there is no condition bringing benefit of any sort.
Then the question is whether a condition carries with it anything leading to excess (i.e., something, some benefit, beyond the normal terms of payment)?
A deposit made by anyone to another for no interest is certainly permissible. In fact, it is essential that no interest be taken on a deposit. Thus, by stipulating this condition, the Cooperation of the other bank is realized through its not seeking interest from the Islamic Bank for any amount the Islamic Bank has deposited with it, within the limits of the similar amount it deposits with the Islamic Bank. Therefore, this is a condition which brings about a sound Shari’ah purpose.
The points mentioned by Muwaffaq al Din and Shams al Din were based on the hadiths of the Prophet of Allah, upon him be peace and blessings, in which he prohibited a sale linked to a loan, and a condition stipulating a transaction from within another transaction.
Furthermore, the hadith that carried the prohibition was explained by Ibn Taymiyah to mean that it is not right to combine the making of a payment with the doing of a favor, because in such a case the meaning of riba is realized.
In our particular case there is no compensation and no favor; and for this reason there is no realization of any of the various meanings (forms) of riba. As to its stipulating a transaction from within another transaction, it appears to me the purpose for doing so is the same as was mentioned by Ibn Taymiyah in his explanation of the hadith. The reasons for (my understanding) this follow:
1. In the same volume, it is written: If his debtor goes broke, and he lends the debtor a thousand with the understanding that the debtor will repay him a certain amount each month, this will be lawful. This is because what he derives benefit from is something that is owed him already. So, even if he was owed wheat, and he loans the debtor enough to purchase wheat with which to repay him, this will not be unlawful for the same reason.
2. In Mu sjam al Fiqh al Hanbali, it is written that if someone wants to sent expense money to his family, and someone loans him the money on the condition that he pay the money to his family, there is nothing wrong with that as long as the lender takes nothing takes nothing (other than repayment of the principal) in return.
These two fiqh rulings imply that if a person takes what rightfully belongs to them, and if this does not lead to anything prohibited; and that if a person stipulates a purposeful transaction within another transaction, and if this does not lead to anything prohibited, then both cases will be lawful.
Our own case leads to the stipulation that interest will not be sought or collected, and this is something which, from an Islamic legal perspective, is to be aimed for as it brings about a sound result. It also places the Islamic Bank in a Situation where it is not required to pay interest if ever it is in need of liquidity for the realization of its investment objectives. This is a Situation which, we hope to God, will become widespread.
Before giving the final opinion on this matter, I will mention an event which took place in the times of Abu Hanifah (d. 150 AH/767 AC), may Allah grant him eternal mercy. This was included by al Tabarani in his collection entitled al Mu jam al Awsat in a narration in which ‘Abd al Warith said, “I went to Makkah and there I found Abu Hanifah, Ibn Abi Layla, and Ibn Shubrumah. So I asked Abu Hanifah what his opinion was in regard to someone who sells something and stipulates something eise at the same time. His reply was that the sale is invalid and the condition as well. Then I asked Ibn Abi Layla the same question and he replied that the sale is valid but the condition is invalid. Then I asked Ibn Shubrumah the same question. His reply was that the sale and the condition are both valid. So I said to myself, ‘Glory be to Allah! Three jurists from Iraq, and each gives me a different answer?1 So I went back to Abu Hanifah and told him what had happened. Abu Hanifah replied, ‘I cannot speak for the other two, but I was informed by ‘Amr ibn Shu’ayb, who narrated from his father, who narrated from his grandfather that the Prophet of Allah, upon him be peace, prohibited a sale and a condition. So, the sale is invalid and the condition is invalid.’ Then I went back to Ibn Abi Layla and told him what had happened. Ibn Abi Layla replied, ‘I cannot speak for the other two, but I was informed by Hisham ibn ‘Urwa, who narrated from his father, who narrated from’A’ishah who said, “The Prophet of Allah, upon him be peace, ordered me to buy Burayrah and to set her free.” Thus, the sale is valid, but the condition is invalid.’ Then I went to Ibn Shubrumah and told him what had happened. He replied, “I cannot speak for the other two, but I was informed by Mis’ar ibn Kudam, who was informed by Muharib ibn Dithar, who heard Jabir say, “I sold a camel to the Prophet of Allah, upon him be peace, on the condition that it take me to al-Madinah.” So the sale is valid, and the condition is valid.'”
In this manner, the opinions of three jurists differed on a single question. Each one of them based his opinion on a relevant text and their own understanding of the same. Thus, each one had his own perspective; and for every mujtahid there is a reward, as long as he does not contradict a text [of the Qur’an or the Sunnah] without a sound explanation or a reasonable argument.
For all of these reasons, it appears to me that this condition will not lead to something prohibited, nor will it require an increase in either quantity or quality. Instead, it will realize for the Islamic Bank an acceptable objective; that it not be required to borrow, when there is a need to do so, from an entity that will Charge it interest which is clearly contrary to the higher purposes and clear teachings of the Sharp ah, and is furthermore contrary to the objectives behind the establishment of the Islamic Bank. Therefore, it is my opinion that it is lawful to stipulate such a condition, especially when it contributes to the realization of a Situation we hope that the Almighty will allow to become common; the ability to make deposits and to borrow without interest. And Allah knows best.
Question 285 Interest on Foreign Investments
The Jordan Islamic Bank intends to undertake certain investment projects outside the Hashemite Kingdom of Jordan. These will be in accord with the policies set by its Executive Committee and will take place through investments made in foreign countries. Since such investments are subject to taxes on the profits made from their Operations, it is possible for the Bank to lessen its tax bürden from the profits if it resorts to the establishment of companies wholly owned by the Bank in countries that offer significant tax advantages, owing to bilateral or collective agreements between these countries and others.
For example, companies established in the Netherlands Antilles enjoy tax advantages from the income they derive from investment projects in the United States of America. Their only tax liability is to the regulatory agencies in the Antilles which, in comparison to the tax liability in the United States, is negligible.
Therefore, I would like Your Eminences to explain the Shari’ah perspective in regard to the Islamic Bank’s establishing similar companies abroad, and its earning interest and fees through these companies on the capital it invests in them, and on the loans it advances to finance them. It should further be explained that these companies are to be wholly owned by the Jordan Islamic Bank. In this manner, the Bank will earn interest and fees for its capital and for the loans it grants to the companies. The purpose of all of these measures is to reduce the tax liability of the companies, as was explained above.
Fatwa
It is clear from the question that the Bank’s purpose is to arrive at a method for reducing its tax bürden on the companies it establishes outside of Jordan in the ways described in the question. This is certainly an objective for the bank to strive for, but on condition that this is in no way contrary to the goals, by-laws, or policies of the Islamic Bank.
Even so, the Islamic Bank was established on the basis of certain unequivocal principles and ideals, embodied in the Statement that the Bank would “provide banking services to meet social and economic requirements, provide financing, and offer investment opportunities on the basis of other than riba.” See the third paragraph in the contract of establishment, “Objectives of the Company and its Business”; and also article six of the Bank’s by-laws; and article three of the Internal Organization of the Bank.
One might [in this Situation] call to mind the opinion of Abu Hanifah that there can be no riba between a slave and his master. Even so, the jurists of the Hanafi school explained this opinion by pointing out that a slave and whatever he may own are all the legal property of the master. Therefore, no sale can actually take place between them. See Radd al Muhtar, vol. 5, p.l 85.
If we examine the issue from an analytical fiqh perspective, it will become clear to us that the analogy of the master and the slave does not apply to the Islamic Bank of Jordan and the branches it establishes outside of the country. This is because the Bank and its branches are completely independent, in terms of their budgets, their legal entities, and their liabilities. Thus, each, in its own capacity, transacts business through buying and selling, paying and receiving, and showing either profits or losses.
It should therefore be clear that the legal analogy with the legal point mentioned by Abu Hanifah in regard to a slave and his master is not applicable in the case we are now considering, because there is no comparing one to the other.
The question, however, needs clarification in respect to two points:
1. Interest
2. Fees
In respect to interest, there is nothing to allow it, and no justification for taking it under the circumstances described because to do so is to outright contradict the teachings of Islam on the subject, and is contrary to the goals, by-laws, and policies of the Islamic Bank.
With regard to fees, however, since these are taken in exchange for real services performed by the Bank in the course of doing business and facilitating transactions, they are closest in nature to pay (for employment) if they are not actually “pay” itself. The Islamic Research Academy in Cairo has explained that the services of banks in maintaining current and credit accounts, cashing checks, dealing in letters of credit upon which foreign and local businesses depend, all of these normal banking activities are lawful from an Islamic legal perspective; and whatever is taken in return for these services is not riba. See the decisions of the Second Conference held in May of 1965, and the Third Conference held in October of 1966.
Therefore, all fees taken in by the bank’s branches abroad and then sent to the original Bank in return for any service mentioned in the decisions of the Islamic Research Academy’s Conferences, or similar to them, are to be considered lawful in the Shari’ah, and there is no objection to them. And Allah Most High knows best; and it is He who guides to the Straight Way.
Question 286 Deposits Based on Agreements
The Islamic Bank will occasionally deposit funds, say one million Dinars, on an interest- free basis with one of the other banks in Jordan. This comes about through a friendly agreement with the other bank that it will seil the Islamic Bank foreign currency, say three million dollars weekly. Moreover, whenever the Islamic Bank purchases an amount, the exchange will take place at the purchase price determined for that day by the Central Bank of Jordan. Of course, it is the Central Bank that daily sets the prices for the sale and purchase of foreign currencies. The purchase price equals the price at which the Central Bank purchases currency from other banks and from the general public; while the sale price equals the price at which the Bank sells foreign currency to other banks and the general public.
It is therefore respectfully requested that you explain the Sharfah position in regard to the Bank’s involvement in this matter.
Fatwa
Clarification of the Shari’ah position on the matter mentioned in your question [requires that it first be] summarized: The Islamic Bank will sometimes deposit funds, interest-free, in another bank in Jordan. Thereafter, a friendly agreement is concluded in which the bank agrees to seil the Islamic Bank foreign currency at the purchase rate determined by the Central Bank for that day… etc.
From the way the deal is portrayed in your letter, the following is clear:
1. The Islamic Bank deposits, interest-free, an amount in Jordanian currency in one of the other Jordanian banks.
2. A friendly agreement is concluded between the Islamic Bank and the bank holding its deposit to the effect that the holding bank will seil the Islamic Bank foreign currency at the purchase price determined by the Central Bank for that day.
3. The Central Bank sets the rates, on a daily basis, for the sale and purchase of foreign currency. The rate for purchase is the price the Central Banks pays for currencies to other banks and the general public. The rate for sale is the price at which the Central Bank sells foreign currency to other banks and the general public.
4. Naturally, the selling rate is less than the buying rate.
5. The deposit made by the Islamic Bank carries with it the Bank’s permission for its use [by the other bank], and therefore becomes a loan, and becomes subject to the same rules [as govern a loan],
6. There is a consensus among the jurists that if a lender places a condition on what is loaned to the borrower such that repayment will exceed the value of the original loan, then the excess will be riba. Even if the condition calls for a gift, the gift will be considered riba.
7. In paragraph two of article six of the Islamic Bank’s by-laws, it is stated that the Bank may lawfully transact in foreign currency, in sales and purchases, on the basis of the spot rate rather than the forward rate. Within the parameters of permitted transactions are mutually agreed upon loans in different foreign currencies without interest, depending on the need.
Also, in keeping with Article 1-15 of the above-mentioned by-laws, the Bank is to commit itself in its dealings to transact on an interest-free basis.
For all of these reasons, it is clear that the Situation portrayed in the Bank’s question falls under the general heading of a loan that brings benefit, which is clearly prohibited by the Shari’ah; and there is a consensus on this point. This is especially true when the benefit or excess is made a condition [of the loan] or at least takes the same ruling as a condition. There can be no doubt that the bank holding the deposit would not seil foreign currency to the Islamic Bank at the purchase rate if the Islamic Bank had not made those deposits [on those terms, i.e., interest-free]. And Allah knows best.
Question 287 The Terms of a Beneficent Loan
Attached for Your Eminence is the draft recently prepared for beneficent loans. It is requested that Your Eminence review the draft and make whatever observations you may care to make before the draft becomes enacted as policy.
Fatwa
I have seen the draft prepared for beneficent loans which includes that the depositor will allow the Islamic Bank to use those of his/her funds deposited with the Bank for the purpose of beneficent loans, and that such funds will not share in any profits, nor bear any losses, and that the depositor will withdraw nothing from the funds so deposited before the agreed upon maturity date without the permission of the Bank… etc.
Moreover, it should be clear from a Sharf ah perspective that a deposit is a trust in the hand of the deposit holder, and that s/he is liable for it if it is destroyed through transgression or negligence on his/her part unless there is an agreement to the contrary. Since the draft includes permission for the Bank to use deposits for the purpose of beneficent loans, the contract will be considered a contract of loan.
Since a loan requires the return of a similar amount to the lender at the end of the term for the loan, and since the Bank will not seek to receive compensation in excess of the amount loaned, the draft may be considered correct. Thus, it will be lawful froma SharP ah perspective to transact on the basis of the points outlined therein. Finally, both the depositor and and the deposit holder will be deserving of a reward from the Almighty.
Question 288 Sharing the Profits from a Loan
Clients, both individuals and companies, come to the Bank and propose that it place a certain sum of money at their disposal so that it may be used in their business for a certain period of time (like one year). At the end of this period, the client will either return the amount or renew, with the agreement of both parties, for another period of time.
The Bank agrees with the client, when advancing the money, to receive a certain percentage of the revenue (income) or the net profits of the Company or the individual in return for the financing advanced by the Bank, in a sort of partnership in the business of the client.
Likewise, at the time of the agreement between the Bank and its client on this arrangement, a basis will be established for arriving at a definition of the revenue or net profits from which an agreed percentage will be sought by the Bank in light of the official budget and accounts of the client. Your Eminence is requested to give a Sharf ah opinion regarding the possibility of the Bank’s involvement in this sort of Operation.
Fatwa
With reference to your memorandum number (70) dated 19 Dhu al Qa’dah, 1407 A.H. or 7/15/87 in regard to clarification of the Sharf ah perspective regarding the possibility of pursuing the transactions described therein, the following is clear:
1. Clients request the Islamic Bank to place specified sums at their disposal for use in their commercial businesses for specified periods of time, with the understanding that the client will return the amount at the end of a specified period of time.
2. The Bank agrees with the client to receive a definite percentage of the revenue (income) or the net profits, etc.
3. At the time of agreement, a basis will be established for the definition of revenue or net profits, etc.
4. It is clear from the text of the memo that once a line of credit has been opened for the client, an agreement will be made on the percentage of revenue or net profits (for the Bank) etc.
The amount (to be advanced in this manner) must be considered a loan. But when it is made a condition in a loan that excess will be paid in return, the excess will be unlawful; and there is no difference of opinion on this point. See al Mughni, vol. 4. p. 31. Moreover, excess stipulated in a loan or derived as a result of it is considered by Islam to be riba and is prohibited. See al Fatawa al Islamiyah, Dar al Ifta al Misriyah vol 9 p 3328.
Furthermore, the text of the memo suggests that the purpose (for entering into such a transaction) is so that the Islamic Bank may claim the excess without risking loss. If this is to be the case, the transaction will then not be subject to the principle of sharing in profit or loss, as required by a lawful partnership (musharakah). For these reasons, I will not advise the Bank to pursue such transactions as they are girded by dubious elements on every side, unless they are altered in such a way as to become subject to profit and loss in accordance with Shari’ah teachings and complied with these.
Question 289 Tax Payments on Reserves
With reference to the law in Article 20, Paragraph A of the Bank Code, no. 13 of 1978; to Articles 21-24 of the Bank Code in explanation on how investment risk reserves may be put to use; and to our discussions with Your Eminence…
We would like to inform Your Eminence that the Income Tax Authority has demanded the payment of income taxes from the Bank on the amounts deducted annually for the investment risk reserve [fund], beginning from the time the Bank began operating.
The Bank sought a court decision on the subject, explaining that the investment risk reserves should be tax exempt for the reason that these are neither the property of the shareholders nor of the depositors. The case was referred to the Court of Appeals, and from there to the Court of Cassation which, on 6/15/1985, decided that the investment risk reserves were indeed subject to income tax.
Therefore, Your Eminence is requested to please explain the position of the Shari’ah in regard to the Bank’s paying taxes on these reserves, and then charging the taxes owed on the reserves to the collected balance in the account of the aforementioned investment risk reserve.
Fatwa
With reference to your memorandum regarding taxes sought annually from the investment risk reserve, the requirement of the Sharf ah perspective is that these be paid out from the account of the aforementioned investment risk reserves.
Question 290 Mutual Loans
Suppose that we are in need of 10 million dollars, for example, for a period of one month. If we request a bank to give us the amount as an overdraft (on our account there), but without a fee, the bank will agree to do so, but reluctantly. This is unless we are in a Position to reciprocate by giving the bank something of equal value, say in Saudi Riyals. Then, when we return the Dollars that we borrowed from the bank, it will return to us the Riyals that we gave to them. Is this acceptable?
Fatwa
From a Sharp ah perspective, there is no impediment to a mutual exchange of beneficial loans, when no interest is either paid out or received.
Question 291 Mutual Exchange of Beneficent Loans
We maintain accounts in Saudi Riyals with certain banks, the balances of which may vary between debit and credit in large amounts. The banks neither charge us fees nor pay us interest in either case (debit balances or credit). Even so, if our account balance remains a credit for any length of time, the banks seek replenishment of the account, and we comply. Is this sort of an arrangement between banks acceptable?
Fatwa
There is nothing in the Shari’ah to prevent the mutual exchange of beneficent loans when no payment or receipt of interest is involved.
Question 292 Partial Repayment in Advance
A loan will mature on 12/13/1990 for the amount of two hundred thousand Kuwaiti Dinars. Then, six months before the time for repayment (maturity date), the client (the debtor) requested that s/he be allowed to pay one hundred thousand on 7/1/1990 on the condition that the remaining amount be deferred to 6/30/1991, and the Finance House agreed to the new terms. Is this arrangement acceptable from a Shari’ah perspective?
Fatwa
It is lawful to advance the payment of a debt to before its maturity date, even when the advance is accompanied by a condition to the effect that the creditor will grant a longer period of time for repayment of the remaining debt.
Question 293 Fees for Bank Checks
Certain clients come to us with the request that we verify a check they intend to present to an official authority. At that time, a corresponding balance is reserved and in exchange for the client’s check, a check is issued from the Finance House for the authority. Thereafter, when the check is presented, the Finance House pays out the amount. Will it be lawful to seek a fee for this Service?
Fatwa
Since the order to pay (bank check) is not in the interest of the creditor alone (the Finance House in this case, by considering the current account a loan), but rather in its interest and in the interest of the debtor as well, it is lawful to charge a fee for the issue of the check. This is because both the creditor and the debtor benefit from the Service.
Question 294 A Loan Bringing Benefit
Is it lawful to make a loan to a client on condition that s/he deal exclusively with the Kuwait Finance House when buying and selling foreign currency, or at least use it as an intermediary?
Fatwa
It is not lawful for the Kuwait Finance House to make a loan to a client on the condition that s/he deal exclusively with the Kuwait Finance House when buying and selling foreign currency, or at least use it as an intermediary. This must be done to block ostensibly legitimate means to illegitimate ends because otherwise there is a danger of going contrary to the legal principle that loans bringing benefits are prohibited.
Question 295 Lost Checks
Our clients present us checks in foreign currencies so that we may collect their value for them.
What is the legal responsibility of the Kuwait Finance House, both financially and morally, to the client in the following circumstances
1. If the check is lost before it is mailed, i.e., while still in the possession of the Kuwait Finance House?
2. If the check is lost in the mail before it is received by the bank against which it is drawn, or the bank that is entrusted with collecting its value for the Finance House?
3. If the check is lost at the correspondent bank entrusted with collecting its value for the Kuwait Finance House?
4. If the check is lost after arriving at the bank against which it is drawn?
Fatwa
1. If the check is lost before it is mailed, i.e., while still in the possession of the Kuwait Finance House, the Kuwait Finance House will be responsible.
2. If the check is lost in the mail, the Post Office will be responsible for whatever amount is determined by its regulations. At the same time, the Kuwait Finance House will remain responsible because it chose to use the mail as a carrier. In this respect, the Instructions of the client (if s/he left any) may also be considered.
3. If the check is lost at the correspondent bank entrusted with collecting its value for the Kuwait Finance House, the collecting bank will be responsible.
4. If the check is lost at the remitting bank (against which the check is drawn), that bank will be responsible.
5. All of this is in terms of material responsibility. From a moral perspective, however, the one causing the loss should produce whatever documents are needed to rectify the Situation. Likewise, it should be the one to reimburse whatever actual losses were incurred as a result of the loss (and delay).
Question 296 Money from Suspended Accounts
Sums amounting to 1,250 Kuwaiti Dinars have been kept in suspension at the Finance House since 1982 in current accounts for which there are no correct numbers or whose holders names are missing. What is to be done with these sums?
Fatwa
The rules for lost items should be applied to these amounts, such that they may be given to public charities. If the owners should ever appear, the Finance House should explain what was done with their accounts. If the owners approve of what was done, then all the better. If not, however, the Finance House will be responsible for restitution of the sums to their rightful owners from its charitable accounts.
Question 297 Unclaimed Checks
Please advise us what to do with the accumulations of checks in the possession of each of our branches for small amounts, none greater than ten Kuwaiti Dinars. These are checks that were issued by the branches several years in the past in favor of clients whose account balances were closed out as a result of their mismanagement of the same. Please advise us now as to the lawfulness or permissibility of depositing these checks in the account of the Zakah Fund at the Finance House?
Fatwa
There is no legal impediment to depositing these checks in the account for charitable giving at the Finance House after the passage of a period of time sufficient to indicate that the owners of the checks have abandoned these owing to their insignificance, and after every attempt has been made to contact the owners. If the owners should appear after the funds have been given to charity, they must be informed of what was done. If they approve, then that will be better. Otherwise, they must be reimbursed from the General Shareholders’ account.
Question 298 Repayment from Interest-bearing Accounts
In Operations involving Settlements between banks and an insolvent client, the client will seek to convert property into liquidity so as to be able to earn interest by depositing cash in a commercial bank. In other words, the property will be sold, and this will be like collateral, and the returns will be invested and distributed among the banks, each in accordance with its share of the debt. The client will keep 25% of the returns. The Kuwait Finance House finds itself in the position of one of the creditors. Will it be lawful for it to accept, in repayment of the debts incurred by the client in his/her dealings with the Finance House, sums which have resulted from interest-earning deposits?
Fatwa
Since the debts owed the Finance House by its insolvent clients came about through lawful transactions, and since the amounts advanced are in repayment of those debts, it is therefore lawful for the Finance House to accept the amounts. There is no connection between the Finance House and the source of those amounts. Rather, the sin will fall upon the one who invested the amounts in interest-bearing investments.
Question 299 Bank Guarantees for Business with Riba-based Banks
One of our clients requested a bank guarantee from us so as to allow him to do business (like furnishing) with a conventional bank. Is it lawful for us to issue such a guarantee?
Fatwa
For reasons having to do with piety and for the purpose of exhibiting dissatisfaction the Board is of the opinion that such a guarantee should not be granted for purchases, buildings, or contracts for interest-based banks.
Question 300 Contests for Account Holders
The Department of Property Management and Maintenance encourages lessees to open accounts at the Finance House so that their monthly lease payments may be deducted automatically. The incentive offered comes in the form of periodic contests, every three months, with prizes which include electrical appliances and the like. Thus, every lessee who opens an account with the Kuwait Finance House and gives it the right to deduct their lease payments directly from their accounts becomes an eligible contestant in the contest. Is there anything to prevent this from a Shari’ah point of view?
Fatwa
There is nothing wrong from a Shari’ah perspective with opening accounts for lessees at the Kuwait Finance House so that their lease payments may be deducted directly from those accounts; or with offering those who give the Kuwait Finance House the right to deduct these payments eligibility in periodic contests.
Question 301 Monthly Giveaways
Given the interest of management in leasing the apartments owned by the Finance House, it encourages leases by purchasing a new car each month, and then offering it through a drawing for its lessees. The winner of the drawing is given the car as a gift for no cost. Please inform us of the Shari’ah perspective on this matter, and whether or not such a gift is acceptable?
Fatwa
There is no legal impediment from a Sharfah Standpoint to offering prizes through a drawing for lessees as an incentive to lease.
Question 302 Privileges for Account Holders
In view of the profits envisioned for the Finance House from investing the balances of current accounts, a study was done recently which suggests offering Privileges to the holders of these accounts, and especially to the better accounts.
Fatwa
It is lawful to offer the holders of current accounts, whether in general or only a certain group among them, special Privileges along the lines of gifts or prizes; but only if these are neither made conditional nor even mentioned at the time the accounts are opened.
Question 303 Assistance in Cash and Kind
Cooperative Associations which hold current or investment accounts with us, is it lawful that we offer them assistance in cash or kind in return for the business they do with us?
It should be recognized that other banks offer such assistance.
Fatwa
If the assistance offered in cash or in kind is made conditional at the time the account is opened, or a condition of its continuation, then this will not be lawful because it is a case of a loan bringing benefit.
If, however, the assistance is not made a condition, but simply offered by way of good will, then there is no impediment to this from a Shari’ah perspective because this is like a gift. Moreover, the giver is his own master in terms of how much he gives away or not.
Question 304 Announcing Prizes and Gifts for Depositors
Is there anything in the Shari’ah to prevent announcing certain gifts, like leather cases for check books, or to prevent the presentation of free gifts to clients like, for instance, offering a safe deposit box for free when usually we charge fees for just this sort of service? May we likewise give away a free parking pass, or tickets and lodging for ‘umrah to holders of current accounts who maintain balances above a certain amount?
Fatwa
There is nothing in the Shari’ah to prevent announcing certain gifts to holders of current accounts who maintain balances above a certain amount. None of this, however, may become a condition at the time the account is opened, nor may it be mentioned. Instead, this should be a part of the good will in transactions that the Prophet, upon him being at peace, encouraged when he said (though perhaps not exactly in these words), “Verily Allah loves a servant who is generous when he sells, generous when he buys, and generous when he seeks payment.”
Question 305 Dilatory Debtors
Please inform us of the Shari’ah perspective on clients who owe the Finance House money but who, and this is well known to the Finance House, despite their ability to pay continue to defer repayment. The reason they delay is in order to take advantage of the time, i.e., they attempt to delay for as long as they can after the date their payment is due, and this is detrimental to the Kuwait Finance House because it is not then able to make timely Investments with the money owed.
An example of this Situation is the case of Trading Company A:
The committee (at the Finance House) learned that the Company, through its cost center, is able to repay the loan in füll from the present assets of the Company. The amount owed by the Company to the Finance House is about six million Dinars due on 6/1/1985. The Company has a regulär supply of monthly cash inflows; and it is apparent to the Finance House from the tone of the negotiations with this Company, that the reason for their delay is merely to earn time. All of this, however, is to the clear detriment of the Finance House.
Fatwa
It is not lawful to take anything extra from a dilatory debtor in return for his/her delay of payment, regardless of whether the delay is intentional, or done when the debtor is in possession of ample funds. The reason for this is to avoid falling into the riba of delay. Management should seek legal recourse against the debtor by whatever means are necessary to protect its rights.
Had the Shari’ah become the law of the land, it would have been the duty of the Qadi to discipline the debtor in a way that would discourage him/her and others from delaying the payment of debts.
Question 306 Imbalances in Mutual Loan Agreements
Previously, a fatwa was issued by the Shari’ah Supervisory Board regarding the lawfulness of an exchange of interest-free and not-for-profit loans between the Finance House and some other banks. The reason for such an exchange was the need on the part of the Finance House for foreign currency with which to cover purchases made abroad so as not to expose itself to the risk of loss from price fluctuations. So the Finance House returned the foreign currency it borrowed when it had taken possession of the goods, and then it sold what it had bought. But what happened afterwards was that the riba-based banks, in their desire to loan only on financially beneficial terms, continued to stipulate that whatever amounts of Kuwaiti Dinars they borrowed from the Finance House would have to be greater than the value (in Kuwaiti Dinars) of the foreign currency that they, in turn, would lend to the Finance House. So, if the Finance House wanted foreign currency equal to one million Kuwaiti Dinars, the riba-based bank would insist on taking in return a loan for one million one hundred thousand Kuwaiti Dinars, for example. This Situation continues to the present date, when the loans outstanding are as follow:
The amounts borrowed by the Kuwait Finance House from riba-based banks total 139 million Dinars. The amounts loaned by the Kuwait Finance House to riba-based banks total 173 million Dinars.
The broad Sharfah principle in regard to loans is that a loan that brings benefit is riba. So, does this principle apply in the case described here, or not? There is a difference of 34 million Dinars between what was borrowed and what was loaned. Of course, each of the two parties will receive complete repayment for the amounts they loaned, and in the same currency.
Fatwa
The mutual exchange of loans as practised by Islamic banks when dealing with riba-based banks is lawful, even when the loan advanced by the Islamic bank is greater (in value) than the corresponding loan. This is because it is lawful to loan in one or more directions, and this will not be considered a loan that brings benefit.
Question 307 Surveying the Islamic Bank’s Services
I would like to explain to Your Eminence the suggestions regarding the by-laws and practical guidelines for operations at the Jordan Islamic Bank so that you review these from a Shariah point of view, and in accordance with the requirements of Articles 1-28 in the charter of the Islamic Bank.
Introduction and Clarification
The Internal By-laws and practical guidelines attached to it include all the Operations to be conducted by the Jordan Islamic Bank in the initial stages of its opening for business. All of these fall within the parameters of the objectives and special features specified in the Charter of the Bank and the Internal Corporate Regulations.
The By-laws and practical guidelines attached to it also include an explanation of the general foundations for the ways the Islamic Bank of Jordan will do business in the various fields of banking and investment so as to comply absolutely with the imperative to avoid riba, either taking or giving it, under all circumstances.
PART ONE: Accepting Deposits
The Jordan Islamic Bank will accept cash deposits, and on the basis of recording these in accounts in accordance with the following categories:
First: Credit Accounts
These are cash accounts received by the Bank on the basis of its authorization to use them, and to either profit from them or be responsible for the losses these incur, without being restricted by any condition at the time of withdrawals or deposits. These, moreover, include two categories of accounts: current accounts and deposit accounts.
Current Accounts are accounts kept ready for withdrawals and deposits without restriction or condition. In these accounts permission is given to use checks and other instruments for making withdrawals and otherwise operating the account, but only within the limits of the balance ready for payment.
Deposit Accounts (DA) are accounts that are subject to the same rules for current accounts in terms of their capacity for withdrawals or deposits without restrictions or conditions, though without permission to use checks for withdrawals from the account. Instead, the presence of the account holder or his/her authorized representative is required.
General Rules for Credit Accounts
1. Funds deposited in credit accounts are deposits for the use of which permission is given, that will be returned upon demand, that are not restricted by any restriction at the time of withdrawal or deposit, and that will not share in any percentage of profits from investment or in the risks thereof.
2. The Bank will issue to the holders of current accounts periodic statements on established dates from the general administration. Holders of deposit accounts will receive personalized deposit books, but they will not be given periodic statements.
3. The Bank may Charge credit accounts with fees for maintaining the account, bookkeeping, the issue of deposit books, and other expenses demanded by banks under a variety of circumstances.
Second: Joint Investment Accounts
These include all investment deposits received by the Bank from those interested in joining it in its ongoing, regulär and varied fmancing and investing activities. This is done on the basis of the deposits earning a certain percentage of the yearly net profits (from these activities) in accordance with the conditions stipulated for the account.
These joint investment accounts are divided, from the perspective of the conditions particular to each, into three categories; savings, notice, and term accounts. Savings Accounts: These are accounts the purpose of which is to encourage small investors to participate in investment Operations by allowing them to make partially restricted deposits and withdrawals in accordance with the conditions stipulated for this sort of account.
Notice Accounts: These are accounts in which withdrawals are made subject ot advance notice, in accordance with the conditions stipulated for notice accounts. Time Accounts: These are accounts in which deposits are linked to a certain time, in accordance with the conditions stipulated for these accounts.
Savings Account Conditions
1. Savings accounts may be opened by persons wanting to do so themselves, or by those who represent them. No more than one account may be opened for anyone at a Single branch.
2. Withdrawal from the account must take place in person, either by the account holder directly or by her/his authorized representative. Withdrawals from these accounts may not take place by means of checks.
3. An account holder may withdraw, without notice, an amount no less than one Jordanian Dinar and no greater than ten Jordanian Dinars during a single day. If the amount to be withdrawn is greater than the daily limit, the account holder will have to inform the bank of the (planned) withdrawal at least ten days before the date on which the withdrawal is to take place.
4. The balance permitted to be deposited in a savings account must not exceed the maximum amount set by the General Administration of the Bank. Any amount in excess of this maximum will be considered a regulär deposit and not a part of the [savings] investment account.
5. The participation of savings accounts in the results of profits from investment will be 50% of the annual average of the balance maintained in the account (i.e., the other 50% will not be made subject to profit or loss from investment).
6. Participating accounts will begin to realize profits from investments at the beginning of the month following the month in which the deposit was made. Amounts withdrawn will cease earning their share in profits from the beginning of the month in which the withdrawal was made.
7. The minimum balance for consideration in sharing the results of profits from investments is at least one hundred Dinars. The account holder will be considered withdrawn from participation if the balance for any month during the months of a single fiscal year falls below the established minimum.
8. The Bank will present each account holder with a Bank Book for recording payments and withdrawals. The ledgers at the Bank, however, rather than these Bank Books, will be considered the definitive authority in regard to the account balance and its movements.
Notice Account Conditions
1. Notice accounts may be opened by persons wanting to do so themselves, or by those who represent them. More than one account may be opened for anyone at a Single branch.
2. The period set for notice is at least three months.
3. Checks may not be used for the purpose of withdrawals from this account. The client may, however, operate the account within the conditions outlined here, by requesting movement or transfers by means of signed, written notes that match the sample signature that is kept at the Bank.
4. Before the expiration of the notice period of ninety days, an account holder may not withdraw any amount from the account unless s/he presents a written notice to the Bank.
5. The balance permitted for deposit in a notice account must not exceed the maximum amount set by the General Administration of the Bank. Any amount in excess of this maximum will be considered a regulär deposit and not a part of the [savings] investment account.
6. The participation of notice accounts in the results of profits from investment will be 70% of the annual average of the balance maintained in the account (i.e., the other 30% will not be made subject to profit or loss from investment).
7. Participating accounts will begin to realize profits from investments at the beginning of the month following the month in which the deposit was made. Amounts withdrawn will cease earning their share in profits from the beginning of the month in which the withdrawal was made. This excludes amounts withdrawn in ways contrary to the condition for notice, in which case the notice period must be added.
8. The minimum balance for consideration in sharing the results of profits from investments is at least one hundred Dinars. The account holder will be considered withdrawn from participation if the balance for any month during the months of a single fiscal year falls below the established minimum.
9. The Bank will present each account holder with a Bank Book for recording payments and withdrawals. The ledgers at the Bank, however, rather than these Bank Books, will be considered the definitive authority in regard to the account balance and its movements.
Time Account Conditions
1. Time accounts may be opened by persons wanting to do so themselves, or by those who represent them. More than one account may be opened for anyone at a Single branch.
2. The minimum period for participation, such that an account holder will have the right to share in profits, is at least one fiscal year, from the beginning of January to the end of December in the same year.
3. Acceptance of deposits will begin from the first of October and continue to the end of December in each fiscal year.
4. Account holders may not withdraw any amount from the original deposit until after the maturity date and the announcement of profit distribution. If, however, the Bank agrees to the withdrawal of the deposit, or to a partial withdrawal before the specified date, the amount thus withdrawn will forfeit its right to participate from the beginning of the relevant fiscal year.
5. The balance permitted for deposit in a time account must not exceed the maximum amount set by the General Administration of the Bank.
6. The participation of time accounts in the results of profits from investment will be 90% of the annual average of the balance maintained in the account (i.e., the other 10% will not be made subject to profit or loss from investment).
7. The minimum balance for consideration in sharing the results of profits from investments is at least five hundred Dinars.
8. The Bank will present each time account holder with a Bank Book for recording payments and withdrawals. The ledgers at the Bank, however, rather than these Bank Books, will be considered the definitive authority in regard to the account balance and its movements.
Fourth: Bank Guarantees
A bank guarantee is an undertaking (given by the Bank) to settle a debt at the request of a client ordering it. The Islamic Bank offers this Service to its clients on a fee basis (wakalah bi ajr), and it claims the right to seek fees commensurate with those charged by other banks. The fees will, of course, exclude the interest which accumulates from the date of demand (if this occurs) and the date of actual settlement by the client.
Fifth: Related Business
The Jordan Islamic Bank offers a complete complement of banking services, including the collection of checks, notes for trade, property management, estate management, due diligence studies on those with whom it deals, and more. All of these services are undertaken for fees; and there is nothing that prohibits the same as long as no debtor to creditor relationship is involved.
Sixth: Exchanges and Dealing in Currencies
The Jordan Islamic Bank deals in a variety of foreign currencies, on the basis of mutual possession at the time of sale or purchase, and in accordance with rates current at the date of exchange.
PART TWO
First: Discounting Notes and Limited Term Credit Operations
The Jordan Islamic Bank will pay the value of bills of exchange written in the interest of its clients, without charging interest to its clients. Toward the same end (service to its clients) the Bank will also engage in credit Operations for limited terms.
Fees for account maintenance, ledger entries, correspondence, and collecting will also be charged for by the Bank, though these will be specified for each trade bill. Nor will such fees be charged on an ad valorem basis by linking them to either the face value or duration of the bills.
Second: Transferring Funds Internally and Internationally
The Islamic Bank offers these services as an authorized agent with the right to collect fees like other banks, regardless of whether the amounts of these fees are flat or a percentage.
In case the transfer is for export in foreign exchange, the Bank will seil the foreign currency to the client seeking the transfer at the rate on the day the transfer occurs.
Third: Opening Letters of Credit
A letter of credit is a means for authorizing payment of a specified sum on certain specified conditions, like the presentation of certain documents. The Islamic Bank offers this service to its clients on the basis of agency for fees. As such it claims the right to collect fees from its clients like other banks, with the exception of interest.
PART THREE – Finance and Investment Operations
The Jordan Islamic Bank engages, in its capacity as a financier, in a variety of lawful investment activities as determined by the Shari’ah. These fall under the following major headings:
A. Financing by means of Mudarabah
1. The Islamic Bank offers the required financing, either in füll or in part, for limited trade Operations or for the execution of certain projects, on the basis of sharing in the profits or losses which result, and as specified in the principles of Islamic law.
2. The percentage of profits to go to the Bank will be specified after agreeing on the same with the client. Losses will be handled as a percentage of the (fully paid share) capital.
3. The Bank’s Administration Committee will set the percentage of mudarabah Operations in relation to the total of the Bank’s investment Operations.
4. The Administration Committee will set the minimum time limit for mudarabah Operations.
5. It is lawful to agree with the Mudarabah manager on periodic (account) Settlements and partial accounting for whatever mudarabah goods have been sold and to collect the profits realized from whatever Operations have been completed, as and when these come to completion.
B. Financing by means of Limited Partnerships
1. The Jordan Islamic Bank offers the required financing, in füll or in part, for the implementation of projects expected to yield profits. This is accomplished by means of an agreement with the contracting party to give the Bank a certain share of profits, while the remainder, i.e., a portion of the profits, is set aside for the purpose of repaying the original capital layout.
2. The Bank’s Administration Committee will set the percentage of limited partnership Operations in relation to the total of the Bank’s investment Operations.
3. Accounting for the projects thus financed will be carried out by the Bank regularly, and on the basis of actual income.
4. The Bank may charge a fee for feasibility studies of projects, commensurate with the effort expended on each, from the Bank’s account.
5. The Bank’s Administration Committee will set the minimum time limit for financing through musharakah Operations, beginning with the date the project is initiated. The Bank’s partners may not seek settlement for their own accounts until after at least fifty percent of the original financing has been repaid.
C. Financing by means of Murabahah for the Purchase Pledger
1. The Islamic Bank will offer intermediary financial services by way of its readiness to purchase inventory goods sought by clients who request the Bank to purchase the same (on their behalf) for cash and then reselling the goods to them at a previously agreed markup.
2. Murabahah Operations will be regulated in accordance with the following guidelines:
• The period for repayment will not exceed a limit set by the Bank’s Administration Committee
• The goods to be purchased will not be of the sort that easily spoil
• The purchase pledger in the murabahah transaction will offer guarantees sufficient to cover all payments at the times that these fall due.
3. The Bank’s Administration Committee will set the percentage of mudarabah Operations in relation to the total of the Bank’s investment Operations.
Fatwa
1. The Islamic Bank operates under Legislative Act no. (13) of 1978 and its appendices. The second part of that Act defined the objectives of the Bank and its concessions, all of which were founded upon transacting in ways far removed from the domain of riba that was prohibited by the Almighty. The contents and structure of the Act were drawn up after ensuring their compliance with the Shari’ah of Islam through the assent of an Islamic board of high competence and varied specializations. It was my privilege to be a member of that Board.
2. The first purpose in such a Situation is to ensure that the proposed by-laws and practical regulations not include any ribawi transaction prohibited by Islam. If this is accomplished, then any Organization embodied by the by-laws and regulations for the purpose of realizing the interests of the Banks’ shareholders and providing justice among them will be lawful. Shaykh al Islam, Ibn Taymiyah wrote, “The purpose for sending Prophets and revealing Books is so that people may actjustly in relation to the rights of the Almighty and the rights of His creation” (see al Siyasah al Shar lyah, p. 24). The great scholar, Ibn al Qayyim wrote: “Verily, Allah sent His prophets and revealed His books so that people would act justly. This is the justice on the basis of which the heavens and the earth were erected. So, should the signs of truth appear, and if these can be substantiated in any way by evidence, then that is Allah’s law and His religion, and His pleasure and His command.” ^Ilam al MuwaqqVin, vol. 3. p. 543).
3. The Islamic Research Academy in its second conference held in Cairo in Muharram of 1385AH/March, 1978, declared in regard to the banking transactions:
- All forms of interest on loans are riba and prohibited. There is no difference in this respect between what is termed a loan for consumption or a loan for production because the texts of the Qur’an and the Sunnah are categorical in the prohibition of both categories.
- A little riba and a lot are haram.
- Lending on the basis of riba is prohibited and may not be legitimized by either need or requirement.
- Regulär bank Operations including [maintenance of] current accounts, bills of exchange on which trade between merchants and banks is based, all of these are lawful bank Operations. Whatever is taken in return for these is not riba.
- Certificates of Deposit, interest bearing checking accounts, and all similar debt instruments based on interest are riba-based transactions and prohibited.
I support the contents of the decisions taken by Islamic Research Academy’s conference; including the decision to consider all interest riba and absolutely prohibited. I likewise support the idea that fees deducted from current accounts for services like cashing checks, or issuing bills of exchange for merchants, are lawful when these are in return for efforts expended by the Bank’s employees. All of these are legitimate banking Operations, and whatever is charged in return for the same is a lawful fee and not riba.
Even so, I would like to qualify the Statement that fees are charged in return for services offered by bank employees the first time these are rendered; and that subsequently, after an account has been opened, when these services are rendered, there will be no reason to charge further fees in the way that other banks do because under such circumstances whatever is charged by the Bank will more closely resemble riba than fees.
I uphold what was written by Dr. Sami Hammoud on pages 320-322 of his book, Tatawwur al A”amal al Masrafiyah bi ma yattafiqu wa al Shari’ah al Islamiyah. Nor should our Bank ever succumb to such a matter.
4. The suggestions put forward in the draft came in three sections:
Part One – Cash Deposits and its Categories
Part Two – Various Banking Services
Part Three – The Business of Financing and Investing within the Framework of Financing through Mudarabah, Financing through Limited Partnership, and Financing through Murabahah
All of the Bank’s Operations comply with the rulings of the Shari’ah of Islam as articulated in the major texts of the classical schools of jurisprudence, or as derived from the legal principles of the Shari’ah, or the laws which take into consideration the legal parallels of these transactions, as is the case in a joint mudarabah with a joint tenant.
All of this accomplishes the points made in Article Two of the Bank’s Charter, especially when we realize that the prefered opinion of the majority of jurists is that there is no exclusivity to the dealings and transactions practised at the time of the Prophet of Allah, upon him be peace, or during the times of his immediate successors. Thus, a “new” transaction will be lawful if it is not in clear contradiction of a teaching from the texts of either the Qur’an or the Sunnah, and is also in the interests of Muslims as dictated by their circumstances.
The legal presumption in relation to all contracts is that they are lawful. They are, moreover, binding if both parties have willingly agreed to them, and if they contain no conditions contrary to the Shari’ah like excessive ambiguity or undue advantage.
Since the suggested draft contains no element of the matters mentioned above, I see nothing in it that is contrary to the Shari’ah of Islam and therefore advise the Administration Committee to enact the draft and to institute it, in interests of the Bank’s shareholders, and in the hope that the Almighty will grant both you and I His guidance to the straightest of paths.
Question 308 Using the Word “Interest” to Derive Benefit
Is it possible to use the word “interest” instead of “profits” or “returns” without actually intending its true meaning, so as to gain certain of the financial benefits accorded by the concerned authorities in the West to deposits and financing?
Fatwa
The scholars participating in the Forum were informed of certain legal benefits in the British tax system for interest either paid or received in relation to those who do business with banks.
Then, based on the principle that legal consideration in transactions is given to purposes and meanings rather than words, there was general agreement that there is no impediment to using the word “interest” in place of “profits’ ‘ or “returns”. This decision is based on the assumption that the riba which is prohibited by the Sharp ah is not what is intended. Following a discussion of the matter, the following was agreed upon:
Even though “interest” as used in the terminology of modern banking is in fact the riba which is prohibited by the SharP ah, regardless of whether this is paid out or taken in, or used for consumption or for production, there is nonetheless no impediment to using the word “interest” under the circumstances sought by those doing business with the Albaraka Bank in London for the purpose of gaining the financial benefits offered on interest on deposits and financing.
Care must be taken in all of this, however, to use the word “interest” in the way alluded to above only on documents which are not issued by the Bank, like tax forms for earnings on deposits, or on separate certificates for the various modes of financing. If, however, the intention is to change the nature of the transaction, such that it becomes lending or borrowing for profit, then that will not be lawful.
Question 309 Purchase of a Business License
Is it lawful to purchase the business license of a business which operates on the basis of riba when the business is being sold (and none of its riba-based assets remain) with the intention of correcting its Operations?
Fatwa
It is lawful to purchase the license of a business whose Operations are riba-based for the purpose of correcting those by making all the Operations of the business Shari’ah- compliant and free of transactions prohibited by the Shari’ah, like riba and so on, regardless of whether this is announced in the company’s charter or not.
The Shari’ah Board would like to add its support to this idea, and offers its thanks to all those who would undertake such purchases whenever they become available.
Question 310 Interest from Bank Deposits
What is the opinion of the Islamic Research Academy (in Cairo) in regard to a Muslim depositing his money in a foreign bank? Or in regard to the interest paid by modern banks?
Fatwa
The deposit by a Muslim of his money in a foreign bank, when it is possible to deposit the money in an Islamic bank is haram or unlawful because to do so contributes to weakening the Islamic economy and strengthening the non-Islamic economy which it competes with, and that is unlawful.
The deposit by a Muslim in an interest-earning account is unlawful because one of the two countervalues increases without there being anything in return for it. The same will apply in regard to a foreign bank or a local (national) bank because this (sort of interest) is riba exactly.
The actual amounts (of interest) determined by such banks, foreign or local, for their depositors may not be put to use. Imam Ahmad ibn Hanbai, however, held it lawful to take possession of such (prohibited) earnings and then to spend these in the Muslim public interest, like on refugee camps, or hospitals, or for the defense of the faith. This is the opinion given in our fatwa. And Allah Most High knows best.
Question 311 Using Interest Accruing from Deposits
What is the Shari’ah ruling in regard to depositing in riba-based banks with the intention of spending the accrued interest on charitable projects which benefit the poor? And what is the ruling in regard to [an institution, like an Islamic bank] accepting such interest from people [who want to give it away] with the intention of spending it on charitable projects which benefit the poor and needy?
Fatwa
We used to allow deposits in riba-based banks because people were compelled to use them. Certainly, it was impossible to expect people to secret away their cash holdings in their homes owing to the obvious dangers involved. And there was no other way for them to protect their wealth, other than by depositing it in those banks.
After the establishment of Islamic banks and various Islamic finance houses all across the Arab and Islamic world, the need [to deal with conventional banks] no longer remains. I therefore no longer see the lawfulness of depositing in conventional banks since to do so supports their usurious dealings.
This [opinion] is in regard to deposits. However, as far as the interest which accrues from such deposits is concerned, my opinion remains that it should not be left to the bank, but taken by the depositor. Even so, the depositor must not derive any benefit to him/herself from the interest; it must not be consumed, it must not be used to pay Zakah, and it must not be used to pay taxes to the State. Instead, it must be spent on the poor who deserve sadaqah. Moreover, such charity will not be accounted a meritorious act on the part of the giver, in the same way that it would if one gave from one’s own money. The most that one can hope for in such a Situation is that one will be blessed for acting as an intermediary by directing the money from the bank to the needy.
It is the poor who are actually the ones deserving of all wealth for which no one eise is legally deserving. My opinion is that Islamic charitable projects are as legitimate a recipient of such money as the poor themselves.
This should also explain the answer to the second part of the question above, the acceptance of money from interest and its use for the poor or for projects that benefit the poor. And Allah knows best.
Question 312 Money from Conventional Bank Deposits
This question [from the Islamic Development Bank, in regard to its practice of depositing its surplus liquidity in conventional banks, and in regard to what was to be done with the interest which accrued to its accounts from those accounts, ed.] rests on three central and interrelated points. From these points an answer may be formulated, i.e., a correct Shari’ah ruling on the issue. These points, or three points of departure, are as follow:
1. Is the deposit of cash in riba-based banks for the purpose of investment savings or in a current account lawful or unlawful in the Shari’ah? By riba-based banks I mean those commercial banks which transact on a system of interest whereby they accept loans in the name of deposits and then offer loans for investment. The banks then calculate interest for their depositors at a certain percentage and loan money to their clients at a rate that is higher. In this manner the banks profit from the difference between the rate at which they [borrow i.e.,] pay on deposits and the rate at which they loan to clients who borrow from them.
2. When money is deposited with riba-based banks owing to necessity or when there is no alternative, what happens to the interest calculated by the bank for its depositors? Should the depositor take it? Or should it be left with the bank because it is riba and it is unlawful to take riba?
3. Is the ruling in regard to depositors taking this interest, whether lawful or unlawful, the same in all cases, regardless of whether the bank in which the deposits are made is located in a Muslim country or in a non-Muslim country? In other words, is the ruling the same if the bank is located in the “Abode of Peace” or in the “Abode of War”? Or is there a difference between the two locations?
Fatwa
ONE: Cash Deposits in Riba-based Banks
1. It is well known that the deposit of money in riba-based banks is synonymous with the depositor’s lending money (the amount of the deposit) to the bank. In this context, the meaning of deposit differs considerably from the term used for deposits in Islamic law, which is someone’s safekeeping something for another as a trust. Moreover, in Islamic law, the keeper of the deposit may not make use of the deposit (while it is in his/her safekeeping). In fact, if use is made of the deposit without the permission of the depositor, the safekeeper will have transgressed; and s/he will go from being a trustee to a usurper who will be held legally responsible (for all damages or losses incurred on the deposit).
That is the meaning of deposit in Islamic law. Thus, it is not the same as the sort of deposit that is meant when we speak of depositing money in a bank for savings, or in a current account. The generally understood meaning of deposit in conventional banks is that money deposits are loans, with the depositor as the lender and the bank as the borrower. All the rules governing deposits have been drafted on the basis of this arrangement.
As a result, the bank assumes ownership of deposits as soon as it takes possession of them. At that time, the owner’s right to the actual object (cash money) becomes forfeit and passes instead to a right to a similar amount of money (not the exact same bills of the deposit) for which the bank becomes liable. In other words, the amount (of the deposit) is accounted for as a debt against the bank which must be repaid (on demand) to the depositor. The bank has the right to dispose of the money by lending it out to someone else, or by discharging its own obligations to other banks or individuals with whom it does business, just like any other borrower who takes something from another as a loan.
2. The actual Situation in such an operation is that the bank receiving the deposits calculates interest for its depositors (whose deposits are treated as loans) at a certain rate. It also lends these deposits of money at a higher rate of interest to clients who seek to borrow money from it. The difference between the two rates becomes the bank’s profit.
Then, from a Shari’ah perspective, there can be no doubt that this business is actually riba. It is for this reason that practising Muslims abstain from dealing with conventional banks, as either depositors or borrowers. If, however, they are compelled to make deposits, they will refuse to take the interest paid to them by the bank on those deposits or current accounts, if the bank pays interest on current accounts. This is because the established rule in the Sharp ah of Islam is that if the taking of something is unlawful, then the giving will also be unlawful. The opposite will also hold true. In other words, if the giving of something is unlawful, then the taking of the same will also be unlawful. In the same way that it is unlawful for a Muslim to consume riba, it is also unlawful for a Muslim to give the same to another to consume. Thus, it is as unlawful for a creditor to charge riba as it is for a debtor to pay it. This is exactly the same as the giving and taking bribes.
3. However, if a person is compelled to seek a loan by circumstances considered valid in the Sharp ah, i.e., for a fundamental, living requirement, even if it is the repulsion of injustice, and the person is unable to find anyone Willing to advance a beneficent (interest-free) loan, it will be lawful (for that person, under those circumstances) to borrow on interest. This is in accordance with the legal principle of necessity which states that needs may permit the prohibited. In such cases, the sin will fall on the giver of riba, not on the taker who is compelled, because his or her taking the loan was based on compulsion.
All of this is what the jurists have decided in regard to riba. Then, since the meaning of riba applies to bank interest, the legal rulings of riba will also apply. In addition to the above, it is also an established rule in Islamic law that assisting in sin is sin. This is based on the verse of the Qur’an: Cooperate in doing good and being heedful; and do not cooperate in sin and enmity (5:3). This is a matter of consensus concerning which not a dissenting opinion was ever voiced by the earlier or the later scholars of Islam; even if it is possible to State that assisting in sin is perhaps less grievous on the scale of sinful actions than the sin receiving that assistance.
4. Following these premises, we may now arrive at a conclusion on the first point up for discussion: Is the deposit of money in riba-based banks lawful or unlawful from a Shari’ah perspective?
I will say that such a deposit, in the absence of compulsion, is unlawful and (must be considered) a sinful act because it supports the bank in its usurious transactions, when such support is clearly a form of assisting in sin. Perhaps the deduction of this result, if the premises are correct, is now so clear as to admit of no further argument or discussion. These premises are undoubtedly correct; and therefore, so is the conclusion.
The above ruling is made in regard to deposits, in riba-based banks, that are made in the absence of compulsion. If, however, there is no escaping such deposits, either for the protection of the money or for some other reason deemed acceptable by the Shari’ah, like facilitating the accessibility or transfer of funds, then there will be a different ruling on the matter. In that case, the depositor will not be considered a sinner (for making deposits in a riba-based bank). This takes us to the second of the three points of departure mentioned in the question for study: What is to be done with the interest which accrues from such deposits? Is it to be taken or left to the bank?
5. It remains to say, in regard to the first point which we continue to discuss: Is there a necessity or a need deemed acceptable by the Shari’ah for the deposit of money today in riba-based banks? May we then State that the sin will be lifted from those who deposit their money in such banks, even when they are supporting the conventional banking system by doing so?
It is my opinion, in answering the question above, that no one familiar with the circumstances of today’s world can possibly deny the existence of a general need among people to deposit their money in whatever banks are available to them in their countries. This is because it is folly to suppose that one can keep money safely in one’s home or place of business. No one in their right mind would attempt to do this in view of the widespread use of modern methods and technology among professional thieves in nearly every country of the world, if not in every country!
Likewise, it is even more dangerous to bury one’s money in the ground. In addition, it becomes very difficult to recirculate money once it has been buried, or to add to it. Thus, the deposit of money in banks has become a real need for people, if not an absolute necessity for the protection of their money, for ease in dealing with it, circulating it, transferring it, and transferring to it; especially with the widespread use of checks and checking accounts. All of this has done away with the need to carry cash, even to the far reaches of the earth when travelling, and for making every sort of payment, whether for business or otherwise, locally or internationally.
All of these needs, each with its own purpose, may not be met except by means of bank deposits. Therefore, today, there is no underestimating the importance of bank deposits. One of the principles of Islamic law is that a need, whether general or personal, may be treated as a necessity. Islamic law is füll of examples of this principle, and these may be seen in the commentaries on al-Majallah, article 32.
6. It should be noted that there is a difference, from a fiqh perspective, between a need and a necessity. Necessity is what, within limits set by the SharPah, will legitimize what is ordinarily unlawful. This is what is alluded to in the following verse of the Qur’an: …except for what you are compelled to do (6:119) which actually obligates the believer to make use of the license accorded by the law (to do what is prohibited). This will apply to those lost in the desert and in danger of starvation, for example, with nothing to eat but pork or Carrion, and nothing to drink but wine. Under such necessity, the jurists have prescribed the obligatory use of legal license. If someone refuses to use this license and then dies as a result, s/he will have sinned.
A need that reaches the same degree of immediacy as a necessity will also be accorded legal license, but not of an obligatory nature. Thus, if one chooses to be patient in one’s affliction or time of need, one will not sin (by not having recourse to legal license). This is because a need is less onerous than a necessity in terms of sustaining life. Thus, if a need is not met, it will not immediately place someone in the way of danger: Instead, it may bring that person face to face with a temporary difficulty.
7. Now, under all circumstances, whether in the case of need or necessity, such a license is considered in Islamic law to be the exception and not the rule. It is therefore subject to the occurrence of a real need or necessity, and it will be defined in terms of the same (i.e., to the extent that there is a need). Therefore, it is not lawful to exceed the limits of what will actually serve to satisfy a need or a necessity. When the necessity is lifted, so is the license.
This is the basis for the legal principle which states that: “What is necessary is determined by the magnitude of the necessity,” and the legal principle which states that: “Something made lawful by an excuse will no longer be lawful when the excuse is no longer valid.” The result of all this in regard to the subject we are discussing at present, and in our present circumstances, is that whenever a reliable Islamic institution is available, one that spares people the need to deposit in riba-based banks, the exceptional legal license (to deposit in those riba-based banks) will no longer be valid. Under such circumstances, it will no longer be lawful for Muslims to deposit their cash in riba-based banks. Instead, it will be obligatory to deposit that wealth in the Islamic financial Institution which performs the same functions as those riba-based banks; i.e., protection, ease of access, deposits, withdrawals, transfers, and all the other functions for the use and protection of money.
8. Today, and Allah be praised, there are several financial institutions of this nature operating in the Islamic world. These are the (riba-free) Islamic banks that have been established in a reliable and systematic manner in Dubai, Kuwait, Jordan, Sudan, and Egypt. In the view of the experts, all of these banks are economically sound, credit-worthy, and good investments. These banks, in addition to offering the services mentioned above, realize for their depositors, by means of their sound and halal investments, greater profits than the rates of interest paid by conventional banks to their depositors.
Following the establishment of these Islamic banks, there is no longer any excuse for depositing in conventional banks. Such deposits have now become prohibited. Unless, of course, the capacity of these Islamic banks, having been established at the local level, is insufficient to deal with the deposits of the Islamic Development Bank, which is an international bank. In that case, it will be lawful for the IDB to deposit money in conventional banks, but only as much as is beyond the capacity of the Islamic banks to handle.
SECOND: What is to be Done with the Interest from Riba-based Banks
9. Earlier it was mentioned that when today’s practising Muslims are compelled to deposit their money in conventional banks, they will often leave the interest that accrues on their accounts to the banks because they feel that this is the prudent thing to do since that interest is actually riba; and because they consider themselves compelled to deposit their money in those banks, not to take interest on it. (See para 2 above).
In my estimation, they are making a mistake. This is not the correct Shari’ah Position. Even if their motivation for the same is piety, they have nonetheless strayed from the path of wisdom and good judgment. The Shari’ah is nothing but wisdom and good judgment. And those who are granted wisdom have been granted a great deal of good (2:269).
A proper understanding of the Shari’ah in this regard dictates that one not leave to the banks the interest from such deposits because to leave it to them is to increase their ability to transact on the basis of interest. As such, then, it is assisting them and encouraging them in the commission of the unlawful. I have explained earlier how assisting in sin is sinful. Moreover, the larger the amounts left to these banks, the greater the mistake from a Shari’ah perspective.
10. At this point, we are confronted by the following question:
If it is not lawful for the depositor in a riba-based bank to consume the interest paid to him by the bank on his/her account(s), and it is not lawful to leave it to the bank out of piety, then what is the correct method of disposing of these amounts? What, after all, is to be done with interest?
The answer to this important question, and the one I have given in my fatwa, and the one that I have often debated with people who possess neither legal acumen nor learning, is that the correct Shari’ah method for disposing of such interest is for the depositor to take it out of the bank. The depositor, however, may not benefit from it in any manner, s/he may not consume it, or use it to pay bills or debts, or to pay Zakah, or to pay taxes… even if those taxes appear unjust in the taxpayer’s estimation and in the estimation of the general populace. This is because all of these amount to the depositor consuming the interest him/herself. In other words, in each of these instances one is consuming riba. This is because all of these responsibilities will have to be discharged from one’s wealth, whether one likes it or not. Then, by paying with the interest taken from the bank, one saves the money that one would otherwise have had to pay in order to discharge these responsibilities… which is the same as consuming the interest.
So the depositor is to take the interest that accrues from the deposits in the riba- based bank and distribute it among the poor in its entirety because the poor are the correct Shari’ah recipient of such money. Nor is this (distribution) to be accounted a charitable act on the part of the depositor, as if s/he had given freely of his/her own wealth. Rather, the depositor may receive no more than the blessings for the actual effort expended on delivering the money to its rightful recipients, and for acting as an intermediary between the bank and the poor.
The legal parallel [for the receipt of such blessings] is if the bank wanted to give a certain amount of money to the poor in the locality through an annual program of social assistance, and then selected someone who was both trustworthy and familiar with the poor families in the area to take the money and distribute it among the most deserving. There is nothing wrong in agreeing to such an offer, and then to undertake the task. Rather, s/he will earn blessings for his/her efforts.
The only difference between the two scenarios is that the person in the second example is a volunteer and the bank is the charitable source which chose him/her to distribute the money, having authorized him directly. The depositor in the bank, however, has the power to take a certain amount from the bank, equivalent to the amount of interest that has accrued to the deposits in his/her account. This, however, is of no consequence to the essence of the question at hand because s/he still has a choice, either to take or to leave the interest. If s/he takes the interest from the bank in favor of the poor, not for any purpose of his/her own, only then will the two scenarios be comparable.
11. Here again we are confronted by a question, or an objection, and I have often had to address it: How do you justify giving haram money to the poor? Is the unlawfulness of the unlawful restricted to the rieh and not the poor?
The answer to this question is that it originates from a lack of familiarity with the law of Islam. It is an established legal principle that the poor are the rightful recipients of all earnings derived from improper or tainted sources; in the same way that they are the rightful recipients of any wealth for which there is no legal owner.
Suppose that someone were to amass wealth by prohibited means, like robbery, or bribery, or riba, or the like. If that person repents and decides to return the money to its owners, as is required, s/he will be unable to do so because s/he no longer knows to whom it belongs. Then, according to the legal principle that the poor are the rightful recipients of all money for which there is no legal owner, the money will have to be given to the poor. This is the same as an item of value that is apparently abandoned and is found by someone who announces the find publicly. After a suitable period of time has passed, if no one comes forward to claim the item, its rightful recipient will be the poor. All of this has been explained in detail in the manuals of Islamic law.
This is what Islamic law has prescribed in regard to tainted earnings. But such earnings are not to be considered tainted in relation to the poor. On the contrary, in relation to the poor they are pure. This is because they became tainted by the one who earned them. When they come to the poor, however, they come untainted.
The evidence adduced for this position comes not only from legal analogy, but from the hadith of the Prophet, upon him be peace, in which it is related that one of the poor Companions brought food or sweets to him, upon him be peace, and then remembered that what he had presented to the Prophet had actually come to him from charity (and the Prophet was not to receive charity). So the man informed the Prophet of where it came from. Then the Prophet, upon him be peace, replied, “It may be Sadaqah for you, but for me it is a gift.” This is an authentic hadith.
The legal point to be derived from the hadith is that wealth, once possession of the same has been taken by means of charity, passes into the ownership of the poor and is joined with the rest of his/her legal possessions. Thereafter, it is the right of the poor person to dispose of his/her wealth in whatever manner s/he pleases. If it is sold, or gifted, or its ownership passes on (to another) by whatever means, its link to the prior means (of its possession) is severed; as if the actual object of the wealth were to change with the changing of the means of its ownership.
12. It is for this reason that the jurists have established the following legal principle: A change in the occasioning factor of ownership is the same as a change in the object owned. {al Majallah: article 98). Based on this principle, the jurists have derived numerous legal rulings, some of which are mentioned in the commentaries on al Majallah under this heading.
In the subject under discussion, the actual item taken from the bank and then distributed among the poor is not one of the impure things declared unlawful for consumption by Islam, owing to an impurity inherent in its composition, like Carrion, pork or wine. Rather, the money exchanged by banks is in of itself pure, and a favor from the Almighty (whether in the form of gold or silver or paper currency). Impurity comes from the prohibited means by which wealth is earned or, in this case, riba. So, if the money is withdrawn with the approval of the bank, and is then given to the poor by a new and lawful means of ownership [as a gift], the poor will take ownership of something pure. This is because impurity follows
the means of ownership or, in this case, the means by which the bank earned these amounts. Now, [following this explanation] no scope should remain for the suspicion that the poor are being given impure wealth.
13. The argument that puts all discussion to rest in this matter, and the one that silences all those who suppose it to be unlawful to take interest from interest- based banks and to give it to the poor (without benefiting from it personally in any way) is the following:
With regard to the interest paid out by riba-based banks to their depositors, there are four possible courses of action, and no more. Let us consider each of these to see which is acceptable from a Sharp ah Standpoint, and which is unacceptable.
• The depositor takes the money and makes use of it like he makes use of the rest of his money
• The depositor leaves the money in the bank, thinking this to be the prudent way to avoid consuming riba.
• The depositor withdraws the money and then destroys it so that neither she nor the bank may derive benefit from it.
• The depositor withdraws the money from the bank and does not benefit from it anyway, but gives it to the poor without accounting for the act of giving a charitable act on his part (sadaqah) or a discharge of his responsibility to pay Zakah from his own wealth. Instead, he acts as an intermediary or a conduit between the vaults of the bank and the pockets of the poor (as explained above).
Now, the first Solution is one that no one should have any doubts about because it is clearly unacceptable owing to its including the consumption of riba.
The second Solution, however, is one that people might suppose to be acceptable from a Shari’ah viewpoint. This is because they suppose it to include an element of pious abstinence. Nonetheless, a simple analysis of the Solution will show this supposition to be false because it amounts to assisting the riba-based bank and strengthening it financially to pursue its usurious activities. I have already explained how assisting in sin is sinful. Therefore, the least that may be said in relation to this Solution is that it is unbalanced, and that it falls under the heading of blind faith.
The third Solution is one that no one in their right mind could think to be acceptable in the Shari’ah. The destruction of money and all sorts of beneficial wealth, even if these come into one’s possession by unlawful means, is certainly not a legal way out of the unlawful way the wealth was earned. Wealth, on its own, cannot be declared sinful and then be condemned to death! The destruction of wealth is a waste of the bounty granted us by the Almighty, and is therefore an irresponsible act. The Shari’ah of Islam is wisdom itself, because the Lawgiver is Himself All-Wise.
Thus, after dismissing each of the first three solutions (owing to their obvious flaws) only the fourth Solution remains. And this is, indeed, the correct Shari’ah Solution; especially after we have eliminated all the others. In this manner, we may bring our discussion of the second matter to an end. We shall now move on to the third and final point.
THIRD: Is the Solution we Arrived at in Answer to the Second Question Applicable under all Circumstances? Or is there a Difference Between the Abode of Peace and the Abode ofWar?
14. Everything explained in the answer to the second point regarding what is to be done with the interest that is paid by the bank to its depositors is presumed in the case of deposits made in banks in Islamic countries or in what is termed the “abode of peace.” If, however, a Muslim deposits money in a conventional bank located in a non-Muslim country, or the “abode of war”, the legal ruling in relation to the deposit will differ. In such a case, the ruling will be linked to the view of Islamic law in regard to the wealth of the “people of the abode of war:” Is it sacred or not?
In the terminology of Islamic Law, “people of the abode of war” are not only those who are actually at war with Muslims, but all those who are not formally allied with Muslims by a covenant of protection, such that war could conceivably be declared between them and Muslims at any time.
The legal opinion on the matter voiced by the Hanafi school is that the wealth of the people of the abode of war is not sacred. However, if such a person enters the abode of Islam under protection, i.e., with permission, he becomes protected, and all of his wealth that accompanies him to the abode of peace will be as sacred as the wealth of a Muslim. Thus, it may not be appropriated except by legal means.
When a Muslim enters the abode of war with permission, as in the case of a trader or a tourist, and is accorded protection by the inhabitants, he becomes bound by the covenant of protection to deal with them fairly, and not to appropriate their wealth except by the means which they consider to be legal for its appropriation. This will hold true even if this means is considered unlawful by Islamic law, like riba, or gambling, or a wager if one is confident of the outcome. Even so, a Muslim may not give of his wealth anything that is unlawful. Still, a Muslim may indeed appropriate their wealth by whatever means they deem acceptable, even if it is prohibited in the Shari’ah of Islam; but on condition that the means of appropriation not include anything, like fraud or deception, which is in and of itself prohibited (so that the reason for it being unlawful has nothing to do with
the sanctity of the wealth held by inhabitants of the abode of war) like drinking wine or committing adultery. This is because the unlawfulness in these matters has nothing to do with the sanctity of another’s wealth, which may not be appropriated except by Islamically legal means. So, if an inhabitant of the abode of war pays money to a Muslim who is authorized to be in the abode of war, and uses Islamically acceptable means to do so, like a gift or a sale, or Islamically unacceptable means to do so, like riba, or gambling, or a wager, it will be lawful for the Muslim to take the money. This is because, in the abode of peace, the only thing to prevent such a transaction is the sanctity of another’s wealth which may not be appropriated except by lawful means. The wealth of an inhabitant of the abode of war, in the abode of war, however is not sacred. So, if a Muslim enters
the abode of war, but without their protection, like a prisoner or an infiltrator, and is then able to take possession of some of their wealth, it is lawful for the Muslim to keep that wealth. If, however, the Muslim enters with their permission and protection, none of their wealth will be lawful to the Muslim without their permission because s/he is bound by the requirements (legal and moral) of their protection.
15. This is the preponderant opinion among the scholars of the Hanafi school, and it is the opinion of Imam Abu Hanifah himself, and of his companion, Muhammad ibn al Hasan al Shaybani. The other three Imams, Malik, Shaffi, and Ahmad ibn Hanbai, (accompanied by Imam Abu Yusuf of the Hanafi school) opposed this opinion. Instead, they held that for a protected Muslim in the abode of war the wealth of its inhabitants may become lawful only for the same reasons that it becomes lawful in the abode of peace. This is because the ruling of Islam with regard to the lawfulness or unlawfulness of occasioning factors is unqualified. And every Muslim is bound to that unqualified ruling, whether in the abode of peace or the abode of war. Thus, riba will not be lawful to a Muslim, not in our abode and not in theirs. Nor may their wealth be appropriated by means of gambling or wagers, even if one is sure of winning, because these means are considered unlawful occasioning factors by Islam. Their own satisfaction with (the lawfulness of) such factors is of no consequence in the matter if the occasioning factors are considered unlawful in Islam.
(See the legal texts on this debate in al Durr al Mukhtar and its commentary, Radd al Muhtar, at the end of the chapter on riba in the Book of Sales where the author states: “… nor riba between an inhabitant of the abode of war and a Muslim there, i.e., in the abode of war, because his wealth, i.e., the wealth of the inhabitant of the abode of war, is permissible there. Thus, if he is satisfied, it will be lawful if there is no fraud involved, even if the contract is imperfect, or (if the wealth is appropriated) by means of gambling. This was opposed by Abu Yusuf and the three other Imams.” Vol. IV, p. 188. See, too, Bada 7 al Sana by al Kasani, Vol. V, p. 192, and the commentaries on al Hidayah with Fath al Qadir by Ibn al Humam, Vol. VI, pp. 177-178. These legal texts and others corroborate in greater detail what I have outlined here.
16. From the preceding it should be clear, in regard to the subject at hand, that interest paid by foreign banks in foreign countries (the abode of war) on deposits made by Muslims or Islamic institutions is subject to these legal differences of opinion.
Thus, the preponderant opinion of the Hanafi school is that it is lawful to take the interest and to make use of it in any way; whereas the other schools hold the same to be unlawful because interest is riba and prohibited.
Needless to say, the Hanafi school stands at the head of all the recognized schools of law in Islam. Moreover, its founder, Imam Abu Hanifah, was one of the greatest of all the Imams in terms of his learning, prudence, and heedfulness of the Almighty. Every Muslim will be rewarded when s/he meets Allah as a follower of one of the four great Imams, and of his legal school and thought. This is expressed by the author of Jawharat al Tawhid in the following verse: To link oneself to one of these geniuses is a duty, This has been related by all the scholars with clarity.
The ruling we elaborated upon above was the ruling of Imam Abu Hanifah himself, and his companion, Imam Muhammad; and not the opinion of the later jurists ofthat school. Thus, there is no way to refute those who adopt this opinion. Those who would like to take the prudent course of not engaging in dealings over which the jurists differed, however, are free to do so. This is true with regard to all such differences between the recognized schools of law.
17. As a result of all this, in regard to the question we are discussing, it is lawful for the Islamic Development Bank to take all the interest that has accumulated in its accounts in foreign banks because that interest is halal in the opinion of the Hanafi school, even if it is unlawful in the opinion of the other three schools. A Muslim is not required to have his/her behavior and dealings accord with each and every one of the recognized schools of law, or even with the majority. Rather, to accord with one is sufficient.
It was stated previously, in the discussion of the second point, that to leave the interest with a riba-based bank in one of the Islamic countries, out of a sense of piety, is an unbalanced act in the sight of the Sharp ah. And that, instead, it should be taken from the bank and distributed among the poor, without the account holder deriving any sort of personal benefit from the same. Then, with reference to riba-based banks in foreign (non-Islamic) countries, it is absolutely forbidden to leave the interest to the banks. Especially when one of our classical legal schools holds taking it to be halal.
The least that can be said under these circumstances is that the interest should be taken and distributed among the Islamic groups and organizations that represent the poor, in the way that we explained interest from banks in Islamic countries should be distributed. Especially when the interest accruing in the accounts of the Islamic Development Bank has reached amounts that are considered significant in terms of international budgets, like nearly sixty three million US Dollars. Many matters held merely permissible by the law, will become obligatory when seen from the perspective of politics. Thus, in the poorer regions of Islam today, and in the oppressed Muslim minority countries, there are people in need of only a hundred dollars to save their religion and their way of life, like in the Phillipines and elsewhere. Yet there is no one to extend to them the help that they need. Such people and those like them are the ones most deserving of the staggering sums held by the foreign banks, now that we have found a legal way to take them.
Even so, this valid legal opinion faces still another matter of practical difficulty. The deposits in most foreign banks in foreign countries do not come exclusively from foreigners. Rather, many of them carry accounts for individual Muslims, and for Muslim governments as well. Then, no doubt, the course furthest from all doubt is to abstain from making deposits in such banks, except under circumstances of dire necessity; and to have recourse instead to deposits in Islamic banks, as was mentioned earlier in our discussion of the first point.
It should also be noticed that the deposits of individuals in riba-based banks may no longer be considered correct from an Islamic perspective. Of course, since the deposits of individuals are insignificant in comparison to the deposits of the Islamic Development Bank, then its depositing in such banks is even more incorrect from an Islamic perspective. And its example to others (if it continues this practice) will be a bad one. Then, to the extent possible, it must refrain from making deposits in riba-based and foreign banks.
18. At this point it will be necessary to turn our attention to another point of importance. We have already stated that it is lawful to take the interest that has accumulated from deposits in these banks. This does not mean, however, that it is lawful for the Islamic Development Bank to leave its deposits in the foreign banks. Rather, as we explained before, the lawfulness of such deposits is subject to the factors we mentioned and explained in our discussion of the first point, regarding the presence or absence of reliable, interest-free, Islamic banks capable of holding such deposits for the Islamic Development Bank and investing the same in ways that are halal.
This study is limited to the question of the lawfulness of taking this interest after the deposits have actually been made in these banks. The question of whether or not it is lawful to make these deposits in the first place is one that should be answered in light of the Standards and principles we discussed in our answer to the first point.
19. Still another point of importance remains to be discussed here. The differences of opinion in regard to taking interest from the inhabitants of the abode of war in the abode of war is actually about taking that interest and then legalizing its use or deriving benefit from it just like any other form of lawful wealth.
If we look, however, from the perspective of the issue we discussed in the second point, which was the lawfulness of taking interest from riba-based banks in Islamic countries for the purpose of distribution among the poor, without the account holder’s benefitting in any way, then taking the accumulated interest from foreign banks and distributing it among the poor Muslims through the groups and associations that represent them around the world is even more deserving of that lawfulness; if we do not, in fact, declare it obligatory to do so. To simply abandon these amounts to the banks, for them to consume as one consumes a tasty morsel, is something that no one in their right mind could condone. To my way of thinking, all the legal schools would be in agreement on this point.
20. Finally, having answered points two and three, the answer to the question of the four alternatives posed above becomes strikingly clear. On the basis of the opinion of the Hanafi school, if it is lawful to take such interest from foreign banks on foreign soil, and if it is lawful to consume it as well, then all four alternatives will be lawful.
While on the basis of the opinion of the other three schools, which do not permit the taking of such interest for the benefit or consumption of the deposit holder, I have already explained that taking it for the purpose of distributing it among the poor and needy, without the deposit holder’s deriving any sort of benefit from the interest, is also a point on which all the legal schools may agree. This is because the evidence we adduced for this opinion did not come from one legal school or another. Instead, it is based on the general principles of the Shari’ah itself, and on its purposes which consider the poor to be the rightful recipients of all wealth for which no lawful owner may be determined, and to which no one is entitled, and for which there is no one to whom it may be returned.
On the basis, then, of other than the Hanafi school’s opinion, the member states in the Islamic Development Bank may not take their shares of the accumulated interest payments in the foreign banks and then invest them or otherwise derive benefit from them. It will, however, be lawful for them to take their shares and distribute these among the poor, as was explained in the answer to the second point.
The first three alternatives pertain to the underdeveloped Islamic countries, and to the poor Islamic communities in non-member states. These, in my estimation, in relation to the wealthier Islamic countries, are like the poor among individuals. Therefore, the interest should be spent among them in the way that was explained in the discussion of the second point.
21. The fourth alternative (on the question of whether it is lawful to take the interest and use it to cover differences in the value of currencies when their prices fall, in the way that occurs when inflation brings up the price of the Dollar, for example, or the Pound Sterling) is a complicated matter.
The reason for this difficulty is that today’s international organizations, in their civil and mercantile Codes, operate on the principle that they will not be affected by either the rise or fall of currency rates from the time a debt is recorded to the time that it is discharged. For, if this was to have an effect, no definite amount could be assigned to a debt, and no debtor would know how much to pay when the time came for collection. There are other factors at work in this matter as well, and no one who is familiar with them will fail to understand that the issue has implications for the international system of taxation, and for other matters as well.
However, since the question concerns the religious aspect of the matter, in terms of lawfulness or unlawfulness, even if there is no way to legally bind anyone to that particular aspect in today’s world, I will nonetheless State that today’s paper currency is the same as the coinage, other than gold and silver, governed by the
rulings of the jurists in their writings.
Thus, the Hanafi school’s opinion in regard to such coinage is that if it loses value (i.e., goes out of currency completely), or if it loses value or gains, when that happens, the amount owed will be the value it had on the day the debt was incurred, through a sale, or a loan, or whatever. That is one opinion. Another opinion has it that the amount owed will be the value of the coinage on the day that it went out of circulation. The first opinion was held by Imam Abu Yusuf, and the second was held by Imam Muhammad ibn al Hasan, the two companions of Abu Hanifah.
If the value of the coinage gains or loses, but without going out of circulation, Abu Hanifah’s opinion was that the debtor will owe no more than what s/he agreed to. The rising or falling value of the coinage will have no bearing on this matter.
His two companions, however, Abu Yusuf and Muhammad, were of the opinion that the debtor will have to pay the value of the coinage on the day the debt was incurred either through a sale, or a loan, or by whatever other means. This is the preponderant opinion within the Hanafi school, and the one on which their fatwa is based. (See al Durr al Mukhtar and its commentary Radd al Muhtar at the beginning of the Book of Sales, Vol. IV, pp. 24-25. See also the treatise by Ibn ‘ Abidin entitled, Iqaz al Ruqudß Ahkam al Nuqud.)
Based on the foregoing, if the price of a paper currency were to fall, and the creditor had an account in that currency (like a dollar account) in a bank, and interest was paid to him on the account, it will be lawful for the depositor to take that interest in the amount that covers the loss he suffers as a result of the currency’s fall in value. This will hold true even in view of the opinion that does not allow the taking of interest from an inhabitant of the abode of war while in the abode of war because here he is actually taking what is legally his, even if the modern system fails to recognize this.
Moreover, one’s taking the money in the name of interest rather than in the name of the difference in the value of currencies is of no legal consequence. This is because it is an established Islamic legal principle that if one is owed a debt and the amount of the debt is paid by any means, or by any other name, the liability for the debt will be considered discharged, even if its name is changed. This principle was listed by Imam Abu Zayd al Dabbousi, in his work entitled, Ta’sis al Nazar, p. 61; and he gave several examples of it.
This is what occurs to me on the subject, even if my knowledge of this important matter is limited. I can only hope that Allah has inspired me to answer correctly. And Allah Most High knows best.
By Yusuf Talal DeLorenzo.
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