Q293 :You have mentioned that fixed interest is one
of the two reasons which make using a bank deposit account forbidden
from the Islamic point of view. However, some banks give a varying rate
of interest. My bank is offering a facility by which one’s account
gains interest from the date the bank receives funds to the date of
withdrawal at a rate which is set each Tuesday morning. The interest
accrues daily and is credited monthly, provided the average balance of
the account is above a certain limit. If it falls below that, the bank
does not credit any interest for that period, i.e. one month. Is it
permissible to use such an account for one’s deposits?
A293 : Allah states in the Qur’an that He has
“permitted trade and forbidden usury.” There is a fundamental
difference between the two, although the polytheists in Makkah used to
claim that they were the same. In trade, a person invests capital and
puts in an effort. Both are essential to make profit. Moreover, a
trader always faces the possibility of incurring a loss. The investment
of time, effort and money and the expectation of profit and the risk of
loss are all part and parcel of doing a business and making a
livelihood. In usury, the situation is totally different. Describing it
in its ugly form of the old “moneylender” days, we say that in usury a
person lends another some money for a specific period of time after the
lapse of which the borrower returns the money with an extra sum which
he pays to the lender for no reason other than having received from him
the loan. The lender does not concern himself with what the borrower
does with the money. He is only concerned with whether he would be able
to repay it together with the additional sum. If the borrower starts a
business with it and his business suffers a loss, the lender still
expects to get his full principal and the additional sum. That sum is
specified in advance and is included in the contract, whether it is a
written or a verbal one. The interest system is not much different,
although it has acquired more respectability. Moreover, banks have
added the apparently advantageous system which allows people to deposit
money and earn interest. But still, even in the Western capitalist
countries, where the banking system is so deeply entrenched in the
overall social structure, the old moneylender still exists and exploits
people’s needs. It is true that the banking system has developed over
the years and the capitalist system has adopted a number of reforms
which gives it a more pleasant image of care for the underprivileged.
It remains, however, a system which is geared to serve those who are
better off. If you start with an initial outlay, you are likely to
improve your situation. But if you start with nothing, then the chances
are that you will continue to have nothing. The Islamic system has
different aims. It does not respond to social pressures in order to
care for the weak and underprivileged. It tries to remove the causes of
such social pressures before they enlarge. It cares for the under
privileged and similar groups without any need for them to either
“lobby” politicians, or be organized in voting blocks which have to be
pacified, or even seek the more violent way of demonstration and
upheaval. In order to achieve this, Islam removes the causes which
create social divisions. One of its remedies is the total prohibition
of usury in all its forms. What is wrong with the interest-based
banking system, from the Islamic point of view, is that it is nearer to
usury than straightforward trade. I have mentioned in the past that
when a person puts his money in a deposit account which gives him some
interest, this transaction differs with the Islamic system in two
aspects: there is no risk element in the process which means that the
depositor does not have any risk of his money diminishing as a result
of losses incurred by the bank, and he makes no effort to generate an
innete. It is true that the bank is the party which makes the effort
and conducts the investment of its assets. But the clients of the bank
are not partners as such. Otherwise, they would have been given a
percentage of the profits made by the bank, rather than a pre-arranged
rate of interest. Their profits would have carried from one year to
another according to the performance of the Bank, not according to
changes in interest rates. If you look at the banks in the Western
world you will find that they make huge profits, but what they give to
depositors is peanuts in netparison. When we mention this, some people
are a little confused on their bank deposits. They say that since the
rate of interest is variable over any length of time, then that is
sufficient to make the transaction permissible from the Islamic point
of view. This is a misconception. Islam is not concerned here with
whether a bank pays its depositors a rate of interest of 5 or 15
percent, or whether it makes it 8 percent one week and 10 percent the
next week. It is concerned with the fact that some interest is earned
without any risk of loss. By the removal of that risk altogether, the
transaction is no longer one of business and trade, but one of usury.
This is the reason for its prohibition. I realize that by saying what
I have said, I have not helped people who have some savings which they
would invest. In purely monetary terms, the safest way of investment
which guarantees some returns without giving the investor any worries
is, in our modern world, to open a deposit account in a bank. But this
is not the fault of Islam. It is rather the fault of Muslims. For many
years, Muslim societies have not matched the development of the more
advanced societies. Therefore, they continue to borrow systems which
are alien to Islamic outlook and philosophy. These borrowings increase
the problem rather than contribute to its solution. As we see, in many
Muslim countries, the Western banking system is imported, with little
alternative available to people. But if we yield to the temptation
offered by this system, we are less likely to develop an Islamic
alternative. In the last 15 or 20 years, new attempts at establishing
Islamic banks have been made, some of which have been successful while
others have not enjoyed a great degree of success. Nevertheless, these
attempts must be encouraged by governments and individuals so that
truly Islamic alternative to the banking system benetes a reality.
Our Dialogue ( Source : Arab News – Jeddah )