Is Riba Haram in Islam? Sharia Ruling New

Sharia Status of Interest (Riba): Prohibition and Banking Jobs

Question: What is the Sharia status of interest (Riba)? What is the ruling on working in a bank or a business that deals with interest-based transactions?

Answer:

All praise is due to Allah.

There are countless proofs in the Quran and Hadith regarding the prohibition of interest (Riba), a few of which we will mention here.

Allah the Almighty says in the Holy Quran:

أَعـوذُ بِاللهِ مِنَ الشَّيْـطانِ الرَّجيـم

بِسْمِ اللّٰهِ الرَّحْمٰنِ الرَّحِيْمِ

اَلَّذِيۡنَ يَاۡكُلُوۡنَ الرِّبٰوا لَا يَقُوۡمُوۡنَ اِلَّا كَمَا يَقُوۡمُ الَّذِىۡ يَتَخَبَّطُهُ الشَّيۡطٰنُ مِنَ الۡمَسِّ‌ؕ ذٰ لِكَ بِاَنَّهُمۡ قَالُوۡۤا اِنَّمَا الۡبَيۡعُ مِثۡلُ الرِّبٰوا‌ ۘ‌ وَاَحَلَّ اللّٰهُ الۡبَيۡعَ وَحَرَّمَ الرِّبٰوا‌ ؕ فَمَنۡ جَآءَهٗ مَوۡعِظَةٌ مِّنۡ رَّبِّهٖ فَانۡتَهٰى فَلَهٗ مَا سَلَفَؕ وَاَمۡرُهٗۤ اِلَى اللّٰهِ‌ؕ وَمَنۡ عَAD فَאُآٰئِكَ اَصْحٰبُ النَّارِ‌ۚ هُمۡ فِيۡهَا خٰلِدُوۡنَ

"Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, 'Trade is [just] like interest.' But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair is for Allah. But whoever returns [to dealing in interest] - those are the companions of the Fire; they will abide eternally therein."

(Surah Al-Baqarah, Verse 275)

In another place, He says:

يٰۤـاَيُّهَا الَّذِيۡنَ اٰمَنُوا اتَّقُوا اللّٰهَ وَذَرُوۡا مَا بَقِىَ مِنَ الرِّبٰٓوا اِنۡ كُنۡتُمۡ مُّؤۡمِنِيۡنَ

"O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers."

(Surah Al-Baqarah, Verse 278)

And in the very next verse, He says that if you do not give up interest:

فَاِنۡ لَّمۡ تَفۡعَلُوۡا فَاۡذَنُوۡا بِحَرۡبٍ مِّنَ اللّٰهِ وَرَسُوۡلِهٖ‌ۚ وَاِنۡ تُبۡتُمۡ فَلَـكُمۡ رُءُوۡسُ اَمۡوَالِكُمۡ‌ۚ لَا تَظۡلِمُوۡنَ وَلَا تُظۡلَمُوۡنَ

"And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged."

(Surah Al-Baqarah, Verse 279)

It is clear from these verses that interest is forbidden (Haram), and those involved in it should abandon it. If they do not, it is as if they are at war with Allah and His Messenger.

Amr (may Allah be pleased with him) reported that he heard the Messenger of Allah (peace and blessings be upon him) say during the Farewell Hajj:

“Listen! All interest from the pre-Islamic period of ignorance is abolished. You are entitled to your principal. Do not wrong others, and you will not be wronged (neither take interest from anyone nor will anyone take it from you).”

(Sunan Abu Dawood, Hadith No. 3334)

Working or assisting in a bank or any business that deals with interest-based transactions is forbidden (Haram).

Jabir (may Allah be pleased with him) reported:

“The Messenger of Allah (peace and blessings be upon him) cursed the one who consumes interest, the one who gives it, the one who writes it down, and its two witnesses. And he said: they are all equal [in sin].”

(Sahih Muslim, Hadith No. 1598)

Imam al-Nawawi (may Allah have mercy on him) said in his commentary on this hadith:

“This is an explicit prohibition of writing down and witnessing transactions involving interest. It also contains an explicit prohibition of helping in falsehood. And Allah knows best.”

Therefore, a person who is employed in an interest-based bank inevitably assists in interest-based transactions in some way or practically, even if he is just a security guard for the bank.

So if you are patient, Allah the Almighty will provide you with a lawful (Halal) job, Insha’Allah (God willing).

Because the Almighty says:

{And whoever fears Allah – He will make for him a way out and will provide for him from where he does not expect.}

Contemporary banks are interest-based; therefore, employment in them is impermissible and forbidden (Haram). An electrician or a security guard at a bank may not be directly involved in taking or giving interest, but they are certainly assisting in a business that deals in interest. Just as investing in a bank to earn a profit is forbidden, working in that bank is also forbidden. Similarly, investing money in a bank without necessity is not permissible, as this also falls under the category of helping in interest and forbidden matters.

And Allah the Almighty says:

{And do not cooperate in sin and aggression.}

However, out of necessity and compulsion, such as for the safety of money, you can deposit money in a current account. But you should use this money as soon as possible and not keep your wealth in interest-based banks without reason.

Interest is a major sin in light of the hadiths of the Messenger.

Awn ibn Abi Juhaifah (may Allah be pleased with him) narrated that the Messenger of Allah (peace and blessings be upon him) cursed the one who takes interest and the one who gives it.

(Sahih al-Bukhari, Hadith No. 2238)

Abu Huraira (may Allah be pleased with him) narrated that the Messenger of Allah (peace and blessings be upon him) said:

“Avoid the seven great destructive sins.” The companions asked, “O Allah’s Messenger! What are they?” He said, “To join partners in worship with Allah; to practice sorcery; to kill the life which Allah has forbidden except for a just cause; to consume interest; to consume the property of an orphan; to flee from the battlefield; and to accuse chaste, innocent believing women.”

(Sahih al-Bukhari, Hadith No. 2766)

Samura ibn Jundub (may Allah be pleased with him) narrated that the Prophet (peace and blessings be upon him) said:

“Last night I saw (in a dream) two men who came to me and took me to the Holy Land. Then we proceeded until we came to a river of blood, in which a man was standing, and on the bank, there was another man with stones in front of him. The man in the river would come forward, and just as he was about to get out, the other man would throw a stone in his mouth, forcing him back to where he was. This happened every time he tried to get out. I asked (my companions, who were angels), ‘What is this?’ They replied, ‘The person you saw in the river is a consumer of interest.'”

(Sahih al-Bukhari, Hadith No. 2085)

The Prophet (peace and blessings be upon him) said:

“There are seventy degrees of the sin of Riba, the least of which is equivalent to a man committing incest with his own mother.”

(Sunan Ibn Majah, Hadith No. 2274; authenticated in Sahih al-Jami’, Hadith No. 3541)

In another place, he (peace and blessings be upon him) said:

“A single dirham of interest which a man consumes knowingly is worse than committing adultery thirty-six times.”

(Al-Silsilah al-Sahihah, Hadith No. 1033; authenticated in Sahih al-Targhib, 1855; Narrated by Ahmad, 22007)

A question arises here: from a Sharia perspective, there are many sins that are far greater than interest, such as polytheism (shirk), unjust killing, and adultery. However, Allah the Almighty has issued a warning of war only in relation to interest, and the Messenger of Allah (peace and blessings be upon him) himself used such strong words for it that he did not use for any other sin. So, what is the reason for this?

The answer to this question is that interest is the antithesis of Islamic teachings and directly collides with them, especially attacking Islam’s social and economic systems. Islam teaches us to live as brothers to one another. It teaches us lessons of kindness, empathy, mercy, and self-sacrifice. The Prophet (peace and blessings be upon him) spent his entire life teaching the companions the lesson of brotherhood and sympathy. Through divine revelation, he trained a society of mortal enemies in such a way that they truly became brothers and comforters to one another. Allah the Almighty has counted this as a great favor and mentioned it in two places in the Quran: (Surah Al-Imran, verse 103, and Surah Al-Anfal, verse 63). This was the essence of the life of the Messenger of Allah (peace and blessings be upon him). In contrast, interest creates completely opposite vile qualities in a person, such as miserliness, greed, materialism, and cruelty, and it creates animosity between brothers, which is the exact opposite of Islamic teachings.

Secondly, the entire essence of Islam’s economic system is that wealth should remain in circulation, and the flow of this circulation should be from the rich to the poor. The systems of Zakat and Sadaqat in Islam were made obligatory for this very reason, and the laws of inheritance and mutual rights also support this principle. In an interest-based society, however, the flow of wealth is always from the poor to the rich. In this respect as well, interest is the exact opposite of the entire economic system of Islam.

The Prophet (peace and blessings be upon him) said:

“A time will come upon the people when no one will remain who does not consume interest. If he does not consume it, its vapor (and in another narration, its dust) will surely reach him.”

(Nasa’i: Kitab al-Buyu’, Bab Ijtinab al-Shubuhat fi al-Kasb, Hadith No. 4460) [Classified as Da’if (weak)]

(Imam al-Suyuti (d. 911 H) classified it as Sahih in al-Jami’ al-Saghir, 7513)

And today is exactly such an era. Interest has permeated the very veins of people all over the world, including Muslims, in such a way that every person is affected by it, consciously or unconsciously. Today, if a Muslim with all good intentions wants to completely avoid interest, he faces complications in many places.

For example, nowadays, if someone buys a vehicle—a scooter, car, van, bus, or truck—they must get it insured. Although the amount for this type of insurance is small and it is not the kind of insurance where the company is responsible for paying for damages in case of an accident, the law in our country is that a new vehicle cannot be used until it is insured. And this type of small-premium insurance has to be renewed every year. The business of insurance is impermissible from a Sharia perspective for several reasons, but this is not the place for that detail.

Similarly, business people can neither export nor import goods without dealing with a bank. The easy way for them is to obtain an LC (Letter of Credit) from the bank. In this way, all imported and exported goods are affected by interest-based business. Even those who consider commercial interest to be permissible and support it, present the argument that when most of the items in your house have reached you through the path of interest-based business, how can you avoid them?

The answer to such objections is that it is the government’s job to eliminate this type of interest or to find an alternative path. If the government does not do this, then every Muslim individually should avoid interest as much as they can. Where they are compelled, they will not be held accountable. Allah the Almighty will forgive, because the principle of Sharia is that “accountability extends only as far as a person has control, and where there is compulsion (idtirar), there is no accountability.”

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Another important issue in today’s era is where to keep one’s savings or surplus money securely. It is obvious that for this purpose, banks are a safer place than homes. And there are three types of accounts in banks: (i) Current Accounts, in which banks accept people’s money but do not give interest to the depositors, (ii) Savings Accounts, on which the bank gives interest, but at a low rate, (iii) Fixed Deposit Accounts, which are accounts for funds deposited for a long and fixed period. The bank gives high interest on these. Now, a person who wants to abstain from interest can, at most, deposit their funds in a current account and not take interest. But another complication arises here: the bank also lends out the money from these current accounts on interest and conducts interest-based business. Therefore, some people think, “Why should the interest amount be left with the bank?” especially when Allah the Almighty says: ﴿وَلا تَعاوَنوا عَلَى الإِثمِ وَالعُدو‌ٰنِ﴾ “And do not cooperate in sin and aggression.” Therefore, this money should definitely be collected from the bank, but it should not be used for personal consumption. Instead, it should be given to the needy and the poor or spent on public welfare projects, and one should not have the intention of seeking reward (thawab) for it, because charity from forbidden (Haram) wealth is not acceptable. Their argument is that the rulings of Sharia change with the change of hands (tabdeel-e-yad). For example, if Zayd has interest money and he gives it to Bakr as charity or just gives it without the intention of reward, it will not be forbidden wealth for Bakr. Therefore, money should be kept in an interest-bearing account instead of a current account, and the interest should also be withdrawn from the bank, which should then be spent on the needy or public welfare works. Or, if there is a need to take a loan from the bank, this amount can be paid back in place of the interest, or this interest money can be used to pay illegal taxes imposed by the government.

However, when we look at the commands of Allah and His Messenger ﷺ, all these expediencies fall flat. Therefore, it is essential to avoid this filth in every situation. At the root of such a theory, it seems that since man is by nature greedy, his heart does not want to let go of wealth, no matter which way it comes from. Among the three options mentioned above, the first one appears commendable on the surface, but we do not subscribe to such an expediency for two reasons: First, a person who starts taking interest will never be able to remain completely clean from this filth. Rather, after some time, his ideology will start to become flexible, and he himself will become an example of “Whoever falls into doubtful matters falls into the forbidden (Haram).” Then this very attitude will be transferred to his children. Second, it is a great thing if we even worry about saving ourselves from interest. Our purpose in depositing money in the bank is not for the bank to earn interest from it; rather, our purpose is only the security of the money, and that is fulfilled.

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Another important issue is the Provident Fund for employees of government, semi-government, and some commercial institutions. In this fund, a portion of the employees’ own salary is deducted and deposited monthly, and interest upon interest is accumulated on it. At the time of retirement, the employee receives this entire amount in a lump sum. This issue is generally considered a matter of compulsion (idtirar), and it is said that this is a unilateral decision by the government or the institutions. On this basis, some scholars have even issued a fatwa of its permissibility by including it as a condition of employment and a part of the employee’s right to labor. However, this is said purely out of ignorance. If someone does not want to take interest, no one forces them. On the back of the Provident Fund agreement form, among the conditions listed, clause number 16 clearly states that whoever does not want to take interest is under no compulsion to do so. Moreover, the late Zia-ul-Haq gave a legal form to an alternative solution, which is that whoever does not want to take interest should not take it, and in return, they can get 80% of their deposited amount as an interest-free loan (qard-e-hasanah) at any time, which they can later repay in installments from their salary.

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The third important issue is the partnership accounts of banks, which came into existence as a result of President Zia-ul-Haq’s efforts to eliminate interest. In banking terminology, these are called PLS (Profit and Loss Sharing) accounts. This created a wave of happiness among the religious class, and such people transferred their accounts to PLS accounts. However, upon investigation, it was found that this is also a slightly larger-scale form of Bai’-ul-‘Inah (a buy-back sale). In Bai’-ul-‘Inah, an attempt is made to give the form of a sale to interest through a legal stratagem. For example, if ‘A’ needs cash and does not want to get involved in interest, he buys an item, for instance, a horse, from ‘B’ for five thousand rupees on a promise of payment in one year. Then, after a day or two, ‘A’ sells the same horse back to ‘B’ for four and a half thousand rupees in cash. After a year, ‘A’ pays the five thousand rupees. In this way, ‘A’ immediately gets four and a half thousand rupees, and ‘B’ gets a profit of five hundred rupees on four and a half thousand rupees after one year, which is in fact the interest on that amount for one year. The sale of the horse was brought in the middle to try to make this interest lawful. This is called Bai’-ul-‘Inah. (Muwatta Imam Malik: Kitab al-Buyu’, Bab al-‘Inah). This is pure interest, and both ‘A’ and ‘B’ are sinners.

A similar procedure is followed in partnership accounts. The only difference is that in partnership accounts, the terms “Mark-up” and “Mark-down” are used instead of “Interest” and “Discount.” The interest rate is a percentage per annum, whereas the mark-up is per thousand per day, which is agreed upon between the entrepreneur (mudarib) and the bank. This rate turns out to be almost the same as the per annum percentage rate common in banks. For example, Zayd requests fifty thousand rupees from the bank to purchase machinery. Now, what the bank will do is, in exchange for this amount, it will “buy” the machinery from Zayd himself on paper, and after estimating the expected profit on it, it will apply a “Mark-up” and continue to collect this mark-up from Zayd as rent and a monthly installment. If Zayd cannot pay the principal amount along with the mark-up in installments within the stipulated period, the bank has the authority to sell the machinery and recover all its dues. Whatever is left will be Zayd’s. The bank has no concern about acquiring the machinery, its expenses, the risk of its loss during acquisition, its maintenance, or it becoming obsolete before its time, and it puts the responsibility for all such risks on Zayd. Now you can see for yourself how much this form of Mudarabah (profit-sharing) has to do with the Islamic concept of trade.

The real issue is that our banks, in terms of their basic structure, are financial intermediaries, not commercial institutions. They collect their service charge in the form of interest or a guaranteed profit but are not willing to bear the responsibility of business risks at any cost. And this is the fundamental difference between interest and trade. Therefore, as long as they are not mentally willing to change this basic structure, interest will continue to manifest itself in new forms.

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The fourth important issue is insurance. Like interest, insurance has also engulfed the entire world. In Pakistan, before 1973, insurance business was run by private companies, though they had government patronage. In 1973, the government took them over and, by merging all the companies, further promoted this business under the name of State Life Insurance. Today, life insurance is mandatory for every government and semi-government employee, as well as for employees of every industrial and commercial institution. In the event of their death or an accident, a fixed amount is given to the heirs they nominate, and that amount is paid by the government or the concerned institution. Insurance was initially only for movable and immovable property, then life insurance started, then individual body parts began to be insured separately, and nowadays even certain responsibilities like children’s education and marriage are insured.

This is not the occasion to explain insurance policies in detail. In short, it is necessary to state that it contains elements of interest, gambling, and Bai’-ul-Gharar (a sale involving excessive uncertainty). This is because at the time of agreeing to the insurance terms, neither the policyholder knows what they will be able to pay, nor does the insurance company know what it will have to pay. In other words, neither of the two considerations (iwadayn) can be determined, and such a sale is impermissible. Furthermore, it creates a mess in the Islamic law of inheritance.

Insurance companies often carry out beautiful and extensive propaganda about mutual sympathy, takaful, and cooperation. In reality, it is a purely commercial enterprise that is many times more profitable than even the interest-based business. You can gauge this from the fact that in 1978, insurance companies in America received $98 billion from their policyholders and paid out only $4 billion to them. Thus, in one year, they accumulated $94 billion. (Daily “Jang,” dated 10 May 1979).

The solution is that it is necessary for every person to avoid all types of insurance. Where a person is compelled, it is possible that Allah may forgive them.

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The fifth important issue is Prize Bonds. This business and the prizes won in it are very popular among the public these days. It is actually a composite form of interest and gambling (qimar), and this business is conducted at the government level. When the government needs capital, it obtains money from the public through this means without using the name “interest.” The procedure is that, for example, the government of the Islamic Republic of Pakistan has currently printed bonds of 50, 100, 500, and 1000 rupees, which can be cashed from any bank at any time. Their transaction among the public is just like currency notes. They are printed with numbers just like currency notes. Now, for instance, if 50-rupee bonds are being sold in January 1995, then 100-rupee bonds will be sold in February, and so on. Then, every two months, a draw is held for them. The draw for the 50-rupee bonds will be in March, and for the 100-rupee bonds in April. Now, the numbers that come up in the draw, whoever has those bonds, can show them and receive the announced prize from the State Bank of Pakistan or any National Savings Center.

Since the government itself runs this business, it has gained considerable popularity, and those who have no distinction between lawful (Halal) and unlawful (Haram) participate in it enthusiastically. The prizes distributed every two months are actually the two months’ interest on the collected amount, which, instead of being distributed among all the rightful owners, is given to a few individuals through a lottery. To deceive the public, the name of interest in this business has been changed to “prize,” and awarding this prize to someone through a lottery is precisely maisir (gambling or qimar). The same thing happens in a lottery.

This interest-based business is not confined to these activities alone. If banks engage in interest-based business, so do post offices and National Savings Centers. Then there are many other government, semi-government, and private institutions that run their businesses by taking money on interest and collect interest from people in various forms. Nowadays, the business of selling goods on installments has also become very common. Both the seller and the buyer know that the interest amount is included in these installments. And if there is a delay in the payment of government dues or bills, government and semi-government institutions forcibly collect interest on it. In short, the atmosphere everywhere is poisoned by the effects of interest.

Despite all this, it can be said with certainty that if even today a person makes a firm resolve to avoid interest, they can avoid it. The only incurable thing is human greed. If a trader, seeing others, wants to do a business of four hundred thousand with a capital of one hundred thousand in collusion with the bank, why does he call it compulsion (idtirar)? And if he imports something, he can also avoid the business of interest by depositing the full amount in advance. As far as I have understood, there is no compulsion anywhere; the matter is simply that the earnings from lawful means are less. To get involved in interest just for the sake of higher earnings and then to call it compulsion is nothing but audacity. And all the wealth earned through such tricks and excuses becomes forbidden (Haram). And if a person is truly compelled at some point, it is not a sin, and Allah the Almighty will forgive that. And such compulsion can only occur in giving interest, never in taking it.

Furthermore, it is also worth mentioning that if there are people engaged in the interest business scattered everywhere, there are also some institutions that collect capital from people on the basis of Mudarabah and partnership. For example, joint-stock companies and cooperative societies do business on a purely commercial basis. The prices of their shares fluctuate, and these shares are sold in the open market. Besides, even today, there are many honest and religious traders who accept money on the conditions of Mudarabah and also pay profit according to the agreed-upon conditions at the specified time and return the principal amount when needed. However, one does have to search for such people, but they are not non-existent. Therefore, it is necessary for every person to refrain from this great crime in any case.

((And Allah the Almighty knows best what is correct.))

Reference: https://alfurqan.info/problems/686