Fatwas on Banking
Q1895. Is it incumbent on the person who borrows money from the banks to ask the permission of authorized religious authority, or his agent when the bank demands payment of ribā? And is it permissible to borrow without any pressing need?
A: In essence, borrowing, even if it is from a state bank, does not require the permission of an authorized religious authority. As to loan contracts per se, they are valid, even ribā-based. However, if ribā-based, as a matter of religious duty it is ḥarām to embark on them, irrespective of whether you get it from a Muslim or a non-Muslim, an Islamic state or a non-Islamic state. The only leeway is circumstances of extreme necessity where committing a sin can be tolerated. No ḥarām borrowing can become ḥalāl with the permission of an authorized religious authority. Indeed, there is no case for permitting it. However, there could be room for doing away with the ḥarām aspect in this case, i.e. by not intending to pay the extra amount, albeit the borrower may know that the bank is going to charge him anyway. The permissibility of a ribā-free loan does not hinge on the circumstances of necessity and need.
Q1896: The housing bank in the Islamic Republic grants loans to people to buy, build, or refurbish their own property. Having bought the property or refurbished it, the bank retrieves the loan from the borrower by installments. However, the total sum paid back will be larger than the one that had been granted in the first instance. Is there any legal justification for the payment of the extra amount over and above the amount of the loan?
A: It is known that the banks do not grant the money by way of loan, rather it is in accordance with a valid and shar‘ī contract, such as partnership, ju‘ālah, rent, or the like. However, there is no harm in these transactions provided that the shar‘ī provisions therein are respected.
1897: Some banks grant an increase of 3% to 20% on the money deposited with them. As a means of circumventing the dabbling in ribā, is it permissible to treat this increase as a compensation for the depreciation in the purchasing power of the money deposited and thus allowing for inflation?
A: If the profits have been realized as a result of investing the deposited money on behalf of the customer according to a valid and shar‘ī contract, they cannot be treated as ribā. Without doubt, they are profits made from a shar‘ī transaction.
Q1898: What is the ruling in the matter of working in banks that deal with ribā, especially if there are no other jobs to do?
A: If the work in the bank is, in any way, related to ribā-based transactions, it is not permissible. However, the claim that no other ḥalāl employment by which to earn a living is available is not a valid reason to dabble in ḥarām business.
Q1899: We bought some property through the housing bank. It was agreed that we repay the money the bank gave us by monthly installments. Is this type of transaction valid as per shar‘, and did we become the owners of the property?
A: There is no objection to that, should the bank have bought the property for itself, then sold it to you by installments.
Q1900: Under the title of partnership or any other deal, the banks grant loans to interested customers for building houses. The banks charge between 5% and 8% increase [interest] on the amount of loan. What is the ruling on this type of loans, especially with this surcharge?
A: Taking the money from the bank under the title of partnership or any other proper and shar‘ī transaction cannot be deemed a loan or borrowing. Nor should the profits made by the bank of these shar‘ī transactions be considered ribā that is forbidden. There is no objection to taking the money under any of those titles to buy or build property. Nor is there any objection to having the right of possession over the property. However, even if it is deemed a loan with a surcharge, the borrowing contract per se is valid and the borrower can use the money, although the usurious borrowing ḥarām.
Q1901: Is it permissible to receive the interest paid on money deposited with the banks of non-Islamic countries, irrespective of whether the owners were among the People of the Book or polytheist? Is it permissible to have the right of disposal over such money, regardless of whether or not the depositor made it conditional that he be paid the interest?
A: In the given case, it is permissible to take interest, even if it was with the condition of taking such interest.
Q1902: If some of the shareholders of the bank are Muslim, is it permissible to receive the interest?
A: There is no objection to receiving interest from the shares of non-Muslims. It is not permissible to receive interest from the share of a Muslim. That is, where depositing the money with the bank is with the condition of getting interest and ribā or for the purpose of receiving it.
Q1903: What is the ruling in the matter of taking interest on the money deposited with the banks in Islamic states?
A: It is not permissible if the money was deposited under the title of loan and that the payment of interest was made conditional or with that anticipation/intention.
Q1904: Where the bank charges interest on the loans it grants, can one circumvent this by, say, buying one thousand bank notes for cash to be repaid by twelve monthly installments with the surcharge, or by buying from the bank twelve bills of exchange, totaling one thousand two hundred, for one thousand in cash provided that the total of these bills be settled in twelve months?
A: Such fallacious transaction which is nothing but a way to escape the dabbling in ribā-bearing loan is ḥarām and invalid.
Q1905: Can the transactions of banks in the Islamic Republic of Iran be deemed sound? What is the ruling in the matter of buying property and other things with money borrowed from banks? What is the view on performing ghusl and prayer in the property? And is it permissible to receive the profits arising from depositing money with these banks?
A: Generally speaking, the transactions carried out by the banks in accordance with the laws passed by the Islamic Consultative Assembly, and sanctioned by the esteemed Council for Safeguarding the Constitution should be all right. Accordingly, they are deemed valid.
The owners of the capital can have any profit arising from investing the capital in accordance with any proper Islamic contract.
Taking a loan from the banks to buy a property or other things should be without a problem provided that it is done in accordance with one of the aforesaid contracts. However, if it took the form of a ribā-bearing loan, it is ḥarām as a matter of a religious duty. Yet, the loan contract is concluded; the borrowed money can be had by the borrower, who should, as a result, have the right to use it and to possess whatever is bought with this money.
Q1906: Is the interest taken by the banks in the Islamic Republic on loans granted to people to buy property or livestock, agriculture etc. ḥalāl?
A: If it were true that the banks grant these amounts for building or buying property or other purposes under the title of loan, there would be no doubt that the paid interest was ḥarām according to shar‘. Therefore, the banks would have no right to demand payment of such interest. However, banks give the money, apparently, according to one of a host of shar‘ī contracts, such as silent partnership, partnership, ju‘ālah, or rent.
For example, one way could be that the bank shares the property as a partner by paying part of the constructing expenditure. The bank then sells its share to the other partner to be paid by the latter by installments within, say, twenty years. Another way could be by renting the property to the other partner for a given period of time and rent. Accordingly, there is no problem in taking the money or paying the mark-up which the bank puts for such a transaction. Thus, such transactions have nothing to do with the loan granting and the interest levied thereof.
Q1907: I obtained a loan to set up a joint venture. I gave half of the amount of the loan to a friend of mine and made it conditional that he would pay all the interest due to the bank. Is what I have done shar‘ī?
A: If the granting of the money by the bank was on the understanding that the bank was party to the joint venture, that both the parties were aware of, the recipient has no right to dispose of it in any other avenue, let alone lend it to a third party. The recipient should treat the money as a safe deposit with him to be used in the agreed way. Otherwise, the very money should be returned to the bank.
Q1908: A person procured a sum of money from a bank to fund a silent partnership. However, they did so by presenting forged documents. It was agreed that the money would be returned to the bank, over a certain period of time, plus the surcharge. If the bank was unaware of the false documents, would the money be treated as a loan and the interest paid by the borrower as ribā? And what is the view if the bank was aware of the falsification of documents?
A: If the validity of the silent partnership contract depended on the genuineness of the documents that were the basis of the contract, the contract would be null and void. On the assumption that the documents were false, taking receipt of the money from the bank cannot be deemed a proper way of borrowing. Nor is it deemed a silent partnership. It would, instead, be considered a procurement of money by way of illegal transaction. Thus, it should be returned to the bank together with any profits made from trading thereof. This is so if the bank was unaware of the situation. If the bank official was aware of the falsity of the papers, the money obtained should be treated as usurped property.
Q1909: Is it permissible to deposit money with a bank and authorize its officials to invest the same in any shar‘ī transaction without demanding a specific share of the profits, but on the understanding that the bank would give the investor his share of the profits every six months?
A: There is no objection to this type of deposit if the money is left with the bank with unrestricted freedom, i.e. even choosing the type of investment and specifying the investor’s share of the profit on their behalf. Nor is there any objection to taking the profit made by investing the money in a legal transaction. There should also be no problem if the investor was ignorant of the size of their share of the profits at the time of depositing the money.
Q1910: Is it permissible to deposit money in long-term savings accounts in the banks of non-Islamic countries that are either in enmity with the Muslims or having treaties with them?
A: In itself, there is no objection to depositing money in the banks of non-Islamic countries provided that this would not lead to strengthening their economic and political power that they might use against Islam and the Muslims. Otherwise, it is not permissible.
Q1911: What should become of the dealings with banks of all sorts that exist in Muslim countries, among which are banks owned by repressive regimes, non-Muslim countries, or privately owned ones, whether by Muslims or non-Muslims?
A: There is no objection to being party to any shar‘ī and permissible transaction conducted with the banks. As for ribā-based transactions and taking ribā from Muslim banks or institutions, they are not permissible unless the capital of the bank is owned by non-Muslims.
Q1912: It has been the practice in Islamic banking that depositors receive licit profit for their money that the bank invests in different fields and ways. Is it permissible for individuals to adopt the same practice, i.e. lending money to people in the marketplace to invest as they see fit?
A: Should the money given to the other party be in the form of a loan with the condition that the recipient pays monthly or yearly interest at a certain percentage, such a transaction is ḥarām as a matter of religious law and the interest taken on the loan is treated as ribā that is ḥarām, albeit the loan contract per se is valid. Yet, if the money is deposited with the other party to invest it in a shar‘ī type of work and in accordance with a shar‘ī contract and the money owner gets a given share of the profits made, such a transaction is sound and the profits made thereof are treated as ḥalāl gains. Therefore, it makes no difference whether it is a person, a bank or another legal entity.
Q1913: If the banking system is based on ribā, what is the view on using it for depositing/borrowing money?
A: There is no objection to depositing money with the bank under the title of a ribā-free loan. Nor is there any objection to borrowing money from the bank on a ribā-free basis. As for ribā-based borrowing, it is absolutely ḥarām as a matter of religious law, albeit the loan contract per se is valid.
Q1914: I procured money from the bank to fund a silent partnership venture. Is it permissible to make use of this money to buy property?
A: The capital of a silent partnership is deemed a deposit with the recipient. Thus, the latter should have no right of disposal over the money, except for trading in it as the contract between the two parties dictates. Should the recipient, unilaterally, spend the money in any other avenue; his action would amount to usurpation.
Q1915: A person received a sum of money from a bank for investing in trade. It was agreed that the bank would be a partner and receive a share of the profits. If the business made a loss, would the bank share the loss?
A: In a silent partnership, the loss would be borne by the capital and its owner. It would be made up by profit. However, there is no objection if the two parties conclude the contract with the provision that the working partner sustain the loss wholly or partly.
Q1916: A person opened a savings account with a bank. After a while, the bank gave the depositor a profit. What is the view on such a profit?
A: If the money was deposited in the savings account as a loan in order to get interest, the transaction is based on interest, or it is stipulated; it is not permissible to receive such a profit, because it is ribā that is ḥarām. Otherwise, there is no problem in it.
Q1917: There is an investment scheme whereby the customer leaves a sum of money, on a monthly basis, in a deposit account for five years untouched. At the end of the period, the bank gives the depositor an amount on a monthly basis for the rest of his life. What is the view on this type of investment?
A: The said transaction has no shar‘ī basis. Indeed, it is ribā-based.
Q1918: What is the view on long-term deposit accounts whereby the money attracts profit calculated as a percentage?
A: There is no problem in depositing money with the bank with the purpose of investing it in any of the shar‘ī transactions. Nor is there any problem in taking the profit made thereof.
Q1919: A person took a sum of money from the bank for a certain purpose. However, they did not actually mean to use in that avenue, but spent it in a different one. They might as well have changed their mind and spent the money for some other more pressing need. What is the ruling in this matter?
A: If giving the money by the bank and its receiving by the customer was done by way of loan, it is correct. The borrowed money should be the property of the borrower who is, therefore, free to spend it in any avenue they wished, albeit it is obligatory on them, as a matter of religious duty, to abide by the condition, if it was stipulated, that they should spend the money in a particular avenue.
Yet, if giving the money by the bank and its receiving by the customer was under the title of silent partnership, for example, the contract is not sound if it was nominal. Accordingly, the money would still be the property of the bank and the recipient should have no right to use. Moreover, if they were serious in concluding the contract under which they got money from the bank, the money is considered as trust and it is not permissible to use it in an avenue not stipulated in the contract.
Q1920: A person received a sum of money from a bank to fund a silent partnership. After a while, he repaid the money, by installments, to the bank alongside its share of the profit. However, the bank employee who received those installments embezzled the money by forging the documents as he confessed before the court. Should the person who procured the money for the silent partnership in the first place still be liable to pay it back to the bank?
A: If the phased repayment of the money to the bank was made according to the procedure in place, and the embezzlement of the money by the bank employee was not originated from the borrower acting irresponsibly, the latter should not stand to compensate the money. The employee who embezzled the money should make the compensation.
Q1921: Is it obligatory on the banks to notify the account holders of the prizes they won by lot?
A: This should follow the procedure applied by the bank, in that should the payment of the prizes to the rightful owners be dependent on the notification of the bank, such notification becomes obligatory.
Q1922: Is it permissible, as a matter of religious law, for the bank officials to pay of the profits generated by the money deposited by the customers to any person or legal entity?
A: If the profits are the property of the bank, it is up to the bank to deal with them according to the procedure in place. Yet, if the profits are the property of the depositors, it is at their disposal.
Q1923: Banks pay depositors monthly interest. This interest is fixed even before the money is invested. Furthermore, the depositor does not bear a loss. So, is it permissible to deposit money for the purpose of getting the interest or is such a transaction ḥarām because it is ribā-based?
A: Should leaving the money with the bank be by way of loan in order to obtain the interest, this clearly is a ribā-based loan that is ḥarām as a matter of religious duty. Any profit to be made thereof is ribā that is illicit. Alternatively, there is no harm in depositing the money with the bank for investment in a shar‘ī and ḥalāl transaction. Fixing the rate of interest before investing the money and non-sustainment of any expected loss by the depositors are immaterial to the validity of the provisions of the contract.
Q1924: If the mukallaf was aware of certain improprieties in certain transactions that are done by some bank employees, such as silent partnership and credit sales, is it permissible for the mukallaf to deposit their money with the bank in order to obtain profits?
A: Should the mukallaf be convinced that the bank employees were investing his money in an illegal transaction, it is not permissible for him to either receive the profit made thereof or make use of it. However, how could he be so sure, given the volume of the depositors’ funds and the wide range and volume of transactions conducted by the bank, many of which are legitimate and proper transactions?
Q1925: In implementation of agreements between employees and employers, some companies and government departments deduct certain sums of money from the salaries/wages of their employees and deposit the same with a bank for investment. The employees get their share of the profit proportionate to their contributions. Is this transaction correct and, therefore, permissible? And what is the view on the profit made?
A: Should depositing the money with the bank take the form of a loan with the condition of getting the interest based on it or with that intention, saving the money with the bank would be ḥarām and the interest gained would also be ḥarām as a matter of religious duty. Therefore, it cannot be had nor used. However, there is no objection to such money savings, to the profit made through a shar‘ī contract and paid to the customer, or the mark up paid by the bank if the purpose is to leave the funds with the bank for safekeeping or any other shar‘ī purpose, yet without making the procurement of interest conditional or anticipating such interest. In this case there is no objection to taking receipt of the extra money which is considered as the property of the depositor.
Q1926: Is the bank management right in promising to grant banking facilities to the holders of savings accounts, should they leave the money in their accounts untouched for, say, six months, noting that this is done as an incentive to customers to deposit their money in such accounts?
A: There is no harm in such an undertaking. Nor is there any harm in the bank’s granting banking facilities as an incentive to depositors.
Q1927: Some bank employees, whose job is to receive payments from customers to settle their electricity and water bills, are left with some money over and above the bills’ amounts. For example, some customers do not demand the change back. Is it permissible for the employee to have such money for himself?
A: The extra money should go to those who paid it in the first instance. The recipient should return the funds to their rightful owners if he knew them. Otherwise, they should be treated as money of an anonymous owner. Therefore, it is not permissible for the employee to take it for himself unless he is sure that the owners gave him the money by way of gift or have given it up.
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