How should I escape from Interest? Is Islamic Banking really genuine?
Islamic Banking
Salam Everyone,
I have a question concerning islamic banking.
OK, i know that interest is forbidden in islam and we are not suppose to have anything to do with it.
I live in the west and almost every material thing in your life can be interest based, if you let it. For example: Credit cards, buying a home, getting a car, installments on items, etc. I mean if you dont have cash you will end up paying interest on everything. I mean what are we suppose to do?
If you try to save enough money for certain things, you might die and not even come close to saving that amount of money. I have heard about these "islamic banks", is that really genuine? I mean how are they suppose to make money and they are not charging interest on loans and stuff? I mean banks survive on interest.
So i am just wondering if someone can shed some light on how these islamic banks work and if someone is forced to involve in interest, would it still be consider a sin???
~ justme
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justme, As-salamu alaykum,
Questions such as yours are normally outside the scope of this website, which is focused on marriage and family issues. However, I write about finance issues for a living, so I'll offer some general answers.
Ribaa (paying or charging interest) is haram in Islam, and it's considered a serious sin. You said so yourself:
"OK, i know that interest is forbidden in islam and we are not suppose to have anything to do with it."
The prohibition is quite strong. See Quran verses (2:275-280, 3:130, 4:161, 30:39).
The only time we are allowed to break Islamic laws is in case of extreme necessity (daroora). There is no necessity here. You can live without buying a home or a new car. You can live without a credit card. So there's no such thing as being "forced" to deal with ribaa. It's a choice, don't fool yourself.
Possible alternatives:
* Get a low-rent apartment and save your money until you can buy a small condo or flat. If you work hard you could probably save enough money in five to ten years to do that.
* Buy a used car. This is actually a better value, since new cars lose a large percentage of their value as soon as you drive them off the lot. Alternatively, live in a place where cars are not needed. When I lived in San Francisco (for six years), I never needed a car.
* Use your debit card for purchases in stores and online. I do it. I use my debit card, and Paypal, and I find that I don't need a credit card. I even use the debit card for rental cars and hotels, and I don't have a problem, as long as I have enough money in my account of course. This is better than using a credit card, because it forces you to live within your means. So many people get over their heads with credit card debt and it becomes a huge problem. This is one of the many reasons why ribaa is haram, and Allah knows best. It's a tool to exploit people's poverty and greed.
* In general, live simply. Control your spending tightly, and save as much as you can so that you can buy yourself a car or home eventually.
As far as Islamic banking, there are plenty of Islamic banks but they tend to focus more on commercial investments. There are a few who do Islamic home and car financing. You may or may not have one in your area. Keeping it very basic, the way they work is that they work with you to choose a home or car that you can afford; they buy the home for you; and then re-sell it to you at a higher price than they paid. That's how they make a profit. Typically you would make a large downpayment (30% or more), then monthly payments. It may seem like interest, but it's different in many ways. For one thing, the final price is set and known to both parties in advance. Furthermore, all your payments go toward the principal.
And Allah knows best.
Wael
IslamicAnswers.com Editor
Salam Brother Wael,
Whilst on the topic. I live in London and the house prices for a two bedroom flat are typically 250,000. If you have a family you need more then one bedroom. At the moment I am living in really overcrowded conditions.
Unless your on a very high salary it will take a million years to save that kind of money, and not forgetting house prices are soaring each day. You can do without a credit card and car etc. However shelter is very important. A house or flat is the most expensive.
Are these islamic mortgages genuinly allowed according to sharia. As there are disagreements with it. Most people say that the wording is different however at the end of the day it is still Riba.
So islamically how would someone on a low income go about buying a house?
Jazakallah
Sumairah, if you have a family you don't "need" more than one bedroom. A larger flat is a luxury. Many people in poor countries live with large families in a single bedroom. My neighbors in Panama had two grandparents, a daughter, a granddaughter and a nephew, all in one bedroom. That's common. My daughter and I share a bedroom, with two beds. I'd like for her to have her own room, but it's not possible at the moment. When I was a college student, at one time I shared a two bedroom apartment with ten other students.
I'm just saying, we have to differentiate between what we want for the sake of comfort, and what is truly "daroora" or necessity by Islamic standards.
Furthermore, if housing is very expensive in your location then you could consider moving. People do this all the time. They move from one area of the country to another area with lower housing costs. My ex-sister-in-law moved with her family from the SF Bay Area (very expensive) to a small country town where they were able to buy a home. She and her husband both found jobs there, though the husband had to commute quite a ways.
I'm not telling you to move. Rather, I am suggesting that instead of giving up and saying, "We have to deal with Ribaa", we must become creative problem solvers.
What about creating a flat-buying cooperative with 30 (or more) other families? Each family contributes a monthly portion, and when a flat is purchased it goes to the family with seniority. Then that family continues to contribute so that others can follow.
Anyway, you are fortunate to be in the UK, because you have many Islamic banks offering Islamic home financing there. And yes, it is Shariah-compliant. It's not just ribaa with a different name. Of course the Islamic banks make a profit, but that doesn't make it ribaa. It is trade. Just like any shopkeeper who buys something wholesale and sells it retail. The fact that something is Islamic or halal doesn't mean that it's free or non-profit.
Wael
IslamicAnswers.com Editor
thankyou so much for responding brother wael. i appreciate it. yes i agree it is a bit difficult to live in an overcrowded place but possible. i was jus thinking generally aswell like if there is a couple and 4 or 5 children it would be hard for any privacy in a small flat and fir teenage brothers and sistets to sleep change in one room etc. its very difficult to get a job now in other areas. i have a good job where i can pray on time and observe hijab etc so dont want to risk losing. i may not find a job in another towmn and im a single paremt so im de breadwonner.
i heard that islamic banks buy house n rent it out at a highr price. but on their wording they say Apr raate. whiich usually refers to interest. thats why im confused. you also have to put down a very large deposit which isvery difficult if you cant save much. for single parent its hard. they always seem to cater for the rich.