Money Related Issues in Islam
By: Sayyid Muhammad Rizvi
Riba and Interest
One of the principles of Islamic economics is “the relationship between one's efforts and the amassing of wealth, and the importance of participating in the risk of losing one's wealth as well as increasing it in any economic transaction. That is why riba or interest is forbidden in Islamic Law ...”1
Almighty Allah says: “Those who take interest cannot stand [In their dealing with people] except like the one who has been confounded by the touch of the Satan-this is so because they say, that trade is just like interest.[Whereas] Allah has allowed trade and forbidden interest.
So to whomsoever comes the admonition from his Lord and so he desists [from interest], he shall have what has already passed and his affair is in the hands of Allah; but whosoever returns [to it], then they are the inmates of the Fire, they shall abide in it.
Allah does not bless interest, and He causes the charitable deeds to grow. And Allah does not love any ungrateful sinner.” (2:275-276)
The main difference between trade and interest is that risk is involved in the former but not in the latter. So any investment in which risk is involved is allowed but wherever the returns are guaranteed for one party but not the other, then the investment is not allowed.
Commenting on the present interest based economic system, Bernard Lietaer, a well-known business professor and former banker, says, “…But money wasn't created by God. We have forgotten that it's a system designed by people. And I believe that this design, which dates from centuries ago, is at the root of most problems in our society...
The monetary system is programmed - albeit not deliberately - to cause certain behavior. It promotes competition and short-term thinking; it forces economic growth, and it undervalues care, education and tasks crucial to maintaining a society. Economics theory teaches us that people compete for markets and raw materials; I think, in reality, people compete for money.”2
So how is the money created? Money is created through borrowing from banks and lending institutions.
Professor Lietaer illustrates the ill of interest through an interesting story: There once was a town where the people lived in harmony. Their food, shelter, clothing, and tools came from the land, forests, rivers, and animals around them. What one family could not make for it itself, it got from [an] other at the weekly market. There, people bartered what they had for what they needed - a chicken for cooking pots, firewood for cloth, and so on.
One market day, a stranger showed up and watched. At day's end, the stranger called the townspeople together and said, “Your trading is cumbersome and clumsy! Bring me a cowhide and I'll show you a better way.”
Curious, the townspeople brought the hide. The stranger then cut it into circles: “I've made ten circles for each family. One circle represents one chicken. Use these to trade with each other. You'll see, it will be much easier than carrying your goods to market. And, oh yes, I'll come back in a year to collect this loan I've made. But at that time, each family will owe me eleven rounds of hide instead of ten, as a token of appreciation for the improvement I've brought into your lives.”
The town represents the society. The stranger who brings money -the rounds- into being by lending it out represents banks. The 11th round the stranger requests from each family as payment for services represents the interest payment on the loan.
The money does indeed make trading much easier. However, the stranger/bank has created only 10 units of money per family, yet each family must repay 11 units.
One of each 10 families will have to go bankrupt to provide the 11th round to all the others.
In a community where cooperation once flourished, extra effort is now required to wrest the eleventh round from a neighbor’s hands; this leaves little time or energy to help anyone out anymore, or even to enjoy a little socializing.3
a) Two Types of Interest
In Islamic laws, interest (riba) is of two types:
Interest in Business and Trade
Any business deal that has the following three conditions will be considered riba and haram:
(a) The commodity and the price are of same kind.
(b) They are things that are sold by weight.
(c) The price is more than the commodity.
For example, selling 100 kg wheat for 110 kg wheat would be considered riba and haram no matter whether the payment is on spot or deterred.
However, if a person were to sell 100 kg wheat for 110 kg raisins or to sell 100 US dollars for 125 Canadian dollars, then it would be a legitimate transaction because the items are neither the same nor weighed. This transaction will be valid even if the payment is deferred.
Similarly, if a person were to sell a dozen eggs for fifteen eggs, then it would be a legitimate transaction even though the items are of the same kind because they are not sold by weight. This would be a legitimate transaction u11less the payment bas been deferred.
* * *
Other related transactions
1. To sell gold in exchange for gold with increment in the price -whether on spot or in deferred form- is forbidden. Similarly, selling silver in exchange for silver with increment in the price-whether on spot or in deferred form- is forbidden.
2. "Buy Now and Pay Later": The merchant is allowed to fix two different prices for the same item: lower price for cash or higher price for the payment that is deferred to a fixed date. This is valid only if the merchant had 'fixed the price for the deferred payment beforehand.
However, if the deferred increased price is negotiated during the deal itself, then it is riba and is not permissible. For example, if the merchant says that this item is of $ 100 but the customer says that he cannot pay now, he can only pay after a year; and the merchant then proposes that the deferred payment will be $125- that is riba and haram.
Moreover, this only applies to items that are not sold by weight; otherwise, it is considered riba and is not permissible.
1. “Pay Now andReceive Later”: There is no problem in such a transaction as long as the commodity and the price both are not in gold or silver form.
Interest in Loan
It is haram to charge interest from a Muslim in loan. As far as charging interest from a non-Muslim is concerned, most contemporary mujtahidin have allowed it.4
According to the majority of our mujtahids, charging interest is allowed between father and children, and between husband and wife.
* * *
When discussing the issue of riba with a former Pakistani businessman in New Jersey a few years ago, I found out that some Pakistani economists have divided the loan into two types:
1."Loan for consumption" (e.g., for advanced study, treatment of an illness, marriage of one's daughter) and 2. "Loan for investment'' (e.g., for buying or expanding a business).
They say that the riba forbidden in Islam only applies to "loan for consumption'' and not to “Loan for investment,” thus allowing charging of interest on a loan given for investment This was also brought to my attention by a friend who reviewed the manuscript of this treatise.
I have not yet seen this type of division of loans in the contemporary works of Shi'i jurists nor am I familiar with any basis for such a division in the primary shariah sources. The only scholar to my knowledge who has discussed these two types of loan is Shaykh Murtadha Mutahhari in his Mas' ala-e Riba.5
Even he has concluded that the Islamic prohibition of riba covers both types of loans: qarz-e masrafi (loan for consumption) as well as qarz-e tawlidi (loan for investment).
So then how can Muslim businesspeople get loans for investment? The most practical way would be to use the mudaraba partnership format in which the "creditor" becomes the silent partner, i.e., "investor".
b) Loan, Debt and al-Qarzu 'l-Hasan
Islam strongly recommends its followers to live within their own means, to manage their finances wisely, and not be extravagant in spending. Asking for a loan without necessity is reprehensible (makruh). lmam 'Ali (a.s) said, “Beware of debt for it causes anxiety at nighttime and humiliation at daytime.”6 Of course, if there is a need, then the reprehensibility of asking for a loan is lifted.
If you give a loan without the condition of interest, then it is known as al-qarzu '1-hasan (a good loan; an interest free loan) and is considered a very good deed in Islam. Many ahadith say that the reward for giving charity is multiplied ten times whereas the reward for giving an interest free loan is multiplied eighteen times.7
Giving such a loan is considered like giving a loan to Almighty Allah who is going to pay it back with compounded interest: “Who will give a good loan to Allah so that He will multiply it for him manifold? Allah straitens and increases (the sustenance), and to Him you shall return.” (2:245)
Repaying al-Qurzu ‘l Hasan
There is a misconception among some Muslims that "al qarzu '1-hasan" means that the debtor does not have to pay it back and that the creditor should consider it as “a bad debt”. This is absolutely a wrong notion. What a debtor does not have to pay back is known as charity, not a loan; a loan has to be repaid as per the condition agreed between the creditor and the debtor.
Mu 'awiyah bin Wahab inquired from Imam Ja'far as-Sadiq (a.s) about the validity of the story that once a Muslim died in Medina and the Prophet was requested to lead the funeral prayer for him. When the Prophet found that the deceased had left a debt of two dinars, he politely declined and instead asked his companions to say the funeral prayer until some of his relatives agreed to pay off the debt on his behalf. Imam as-Sadiq (a.s) replied, "That is the truth. The Messenger of Allah (s.a.w) only did that so that people may learn a lesson to pay the debts back to one another and not to take the debts lightly ...”8
Imam as-Sadiq (a.s) also said, ''Being killed in the cause of Allah is atonement for all sins except the debt; there is no atonement for it except its repayment ...”9
After the verse (2:282), quoted earlier, Almighty Allah even talks about a security against the loan. He says, “And if you are in a journey and you do not find a scribe, then (there may be) a security taken into possession (by the creditor).
However, if one of you trusts another, then he who is trusted should deliver his trust, and let him be careful (of his duty towards) Allah, his Lord; and do not conceal testimony, and whosoever conceals it, his heart is surely sinful. And Allah knows what you do.” (2:283)
lmam Zaynu '1-'Abidin (a.s) wrote: "It is the right of your creditor who demands back the loan that, if you have sufficient money, you must fully repay him and give him his dues and make him independent of yourself; and do not make him run around and not tarry [in repayment], because the Messenger of Allah has said, “Tarrying of the rich is injustice.”
“And if you are facing hard times then you should please him by amiable talk and kindly request him to allow an extension of time so that he returns from you content; and do not make him suffer bad dealings in addition to the loss of money because that is meanness. And there is no power but with Allah.”10
To the creditor, Almighty Allah says, “And if (the debtor) is in straitens, then let there be postponement (of the payment) until he is in ease. However (in such a case), letting it go as charity is better for you, if you know.” (2:280)
In al-qarzu '1-hasan it is recommended for the debtor to pay something more to the creditor who has given the interest-free loan.
c) Bank Activities
The rules governing Muslim banks are different from those governing non-Muslim banks.11
Deposits in Non-Muslim Banks
According to most jurists, it is permissible to deposit money in a non-Muslim bank with the condition of interest because it is permissible to earn interest from NonMuslims. 12
How then do banks operate under an Islamic economic system?
Ayatullah Khamana 'i, in answer to a question related to money earned in deposit accounts from banks (in a country governed by shari' a law like Iran), says: “If the act of depositing the money in the ban k is like giving the loan to the bank and the bank gives extra money in that account-then it is riba and haram.
But if the deposit is not as loan but as an investment where the bank takes that money and invests on behalf of the customer according to one of the commercial laws of Islam [like mudaraba], and then the bank divides the profits between itself and the customer-in this case there would be no problem in the profit that the hank gives to the customer.”13
According to Ayatullah Nasir Makarim Shirazi, another prominent mujtahid in Iran, such an act of investing by the bank on behalf of customer will only be valid if the contract is clearly and really outlined between them; but if it is just a pretense to get around the issue of interest, then it is really riba and haram.14
This concept of mudaraba between the bank and the depositors is quite alien to the financial institutions of the West where the banks (e.g., in Canada in J 996) continued to make profits in billions even though the overall economy was still trying to recover from near depression.
iv. Getting Loan from Banks
According to most mujtahidin, it is haram to get loan from a non-Muslim bank with the condition of paying interest.
However, according to Ayatullah Sistani as well as the late Ayatollah Khu'i, one can technically get out of the prohibition by taking the money from a non-Muslim bank with the intention of istinqadh-that is, using the wealth of non-Muslims which is available to you from them willingly, according to their own laws. In this case, use of that money will be permissible even if one will be forced to pay interest.15
v. Use of Credit Cards
Using credit cards as a convenient way of shopping is permissible. However, it is haram to delay the payment because that entails paying of interest. (Of course, using the concept of istinqadh mentioned earlier, it would be permissible to be use credit cards as means of getting a loan.
However, based on what I have written below, I would strongly caution the reader against being caught in the trap of debt.)
According to a recent survey in the United States of America, 40 percent of consumers pay off their credit cards in full each month: “They are doing great...The other 60 percent to varying degrees are buried under or completely buried under, and getting in deeper. And you see the results.” 16 While the Central Banks (in the USA as well as Canada) have pushed down short-term interest rates, and mortgage rates have fallen in 2003 to a 45-year low, credit card interest rates have not followed. The average credit card carries a 15 to 17 percent interest rate plus penalty fees.
The banks marketing departments know the human element of greed: in the year 2003, five billion credit card offers were mailed out, including many to consumers who never would have qualified for credit 20 years ago. According to Jordon Goodman, “Bankers call it the democratization of credit - giving people who can't handle credit all the credit they can't handle.” He also point towards a cultural shift among present Americans who have embraced debt as a way of life.17
If you are among the 40 percent of those who use the credit cards just as a means of convenience and pay them off by the due date, the financial institutions automatically increase your credit limit in order to entice you to overspend so that you may end up paying the interest. Beware of this temptation, and control your greed. Constantly remind yourself of the difference between "need" and “greed”.
It is worth repeating the saying of Imam 'Ali (a.s) quoted earlier: "Beware of debt for it causes anxiety at nighttime and humiliation at daytime."
vi. Financing a Car Purchase
Am I allowed to buy a car financed by the bank and pay back through installments to the bank with interest? Based on rule no. iv, mentioned above, getting the money from a non- Muslim bank would be permissible.
However, the option of "lease to own" is probably the best from the Islamic point of view: you pay more than the normal price but it is not as interest. Let us hope that this concept of "lease to own" is made available by the financial institutions towards purchases of homes; this will greatly eliminate the problem of paying interest on home mortgages.
vii. Services of the Bank
Using other services of the bank like transferring money and opening Letters of Credit to import goods is permissible; and the banks are allowed to charge commission for their part of the job.
viii. Working in the Banks
Working in banks or similar financial institutions: The activities of a bank are divided into two: halal and haram.
Working in sections where interest is involved, is haram. The earning received from such work is haram. Working in sections where interest is not involved, is halal. This ruling, according to Ayatullah Sistani, is relevant to Muslim banks and customers only. Therefore, if the bank in which you are working is a non-Muslim bank and/or the customers are non- Muslims, then dealing in interest with them as a bank employee is permissible; and the earning received from this work is halal.18
d) The Stock Market and Futures
i. Mutual Funds, the Stock Market and Bonds
In light of what we have said, investing in mutual funds and the stock market in which the returns are not guaranteed would be permissible.
Such investments, however, could become haram because of secondary reasons: like If one invests in a company that deals in a haram commodity, such as a brewery or casino. The best option for a Muslim investing in mutual funds would be the “ethical funds'” since such funds do not deal in alcohol, tobacco, gambling or environmentally harmful products.19
However, you must be careful when dealing with the stock market and ask the following question: Are the shares "earnings driven" or "story driven''? If the shares are earnings driven (i.e., have proven history of performance), then it is permissible. However, if the shares are "story driven", then it is like gambling and is not permissible.20 (An example in recent times was the skyrocketing shares of the Internet stock that were "story driven", and which then just collapsed.)
Interest-bearing bonds would be allowed except from Muslim banks as per the ruling of Ayatullah Sistani.
ii. Futures Markets
"Futures" means an agreement in which the seller agrees to deliver a commodity -which does not exist yet- at a future date at a specific price. For example, a farmer signs an agreement to sell 1000 bushels of wheat to a buyer at the price of $5.00 a bushel robe delivered after eight weeks.
Futures have become financial instruments and investors trade them in large quantities on exchanges. Now investors are not required to actually deliver or receive the commodities listed in the contracts.
There are two important questions about futures markets:
1. Is it permissible for the seller to sell a commodity in futures?
Selling a commodity in the form of futures is permissible with certain conditions that include:
i. there must be a proper description of the commodity;
ii. the payment of the price must be done on spot;
iii. the amount of the commodity must be clearly specified;
iv. and the time and place of delivery must also be fixed.
This kind of transaction is known as "as-salaf" or "al salam".
2. Is the buyer of futures allowed to sell the commodity to a third party before actually receiving the commodity?
There are four possibilities:
i. If the commodity is not sold by weight, then it is permissible.
ii. If the commodity is sold by weight and the first buyer wants to sell it at the same price or less than what he paid, then it is permissible.
iii. If the commodity is sold by weight and it is from the category of fruits, and the first buyer wants to sell it with profit, then it is permissible.
iv. If the commodity is sold by weight and it is not from the category of fruits, and the first buyer wants to sell it with profit, then it is not permissible.
In cases where such a transaction is permissible, the merchandise and the price cannot be of the same commodity otherwise it is considered riba and it is haram.
Joining the police or armed forces
Can a Muslim join the police or armed force of a non-Muslim government?
Any trade, business or profession that involves i'anatu 'z- zalama-helping the oppressors is forbidden and considered as one of the major sins in Islam. The Qur'an says, “Do not be inclined towards those who are unjust otherwise the Fire will get you.” (11:13)
So selling any arms, ammunition or apparatus of oppression to an oppressive (non-Muslim or Muslim) government is absolutely haram. Similarly, working for an unjust and oppressive government in the departments that are used to oppress the people is haram for the followers of Ahlu '1-bayt.
Therefore, Muslims who would like to join the law enforcing agencies should seriously study the system or the institution in their countries before deciding to join. The question they should ask themselves is: Will I become a tool of oppression of the unjust government, or will I be a civil servant serving the people in the true sense? If the answer to the first part of the question is "yes," then do not pursue that career; if the answer to the second part of the question is "yes," then you may accept it.
The same would be guide-line for those who would like to participate in the political process of the western democracies. If they are confident that they will serve the people, especially their brethren in faith, then they can participate in the political process. But if they realize that they will become a tool of oppression in an unjust government, then have to steer away from that political process.
* * *
The seriousness of this issue from the Shi''i perspective becomes clear from the story of Safwan al-Jammal, a companion of the sixth and seventh Shi''i Imams. Safwan owned a camel-rental business (similar to the car rental business of our times), and hence his title "al-Jammal" from jamal, camel. Once he rented his camels to Harun ar-Rashid, the 'Abbasid caliph, considered a tyrant ruler by the Sh'ias.
Imam Musa al-Kazim (a.s): "O' Safwan, everything about you is good except one."
Safwan: "May I be sacrificed for you! What is it?"
The Imam: ''The renting of your camels to this man [referring to Harun)."
Safwan: "By God, I did not rent them out to him for arrogance or adventure-seeking, neither for hunting nor for entertainment, rather I rented to him for this path [to Mecca for pilgrimage]. Moreover, I am not handling [the animals] by myself, rather I am sending my slaves with him.''
The Imam: "Safwan, is your rent due on them (i.e., Harun and his people)?"
Safwan: "Yes, may I be sacrificed for you."
The lmam: "Do you wish that they should live until you get your rent?'
The lmam: "Whoever wishes for them to live is one of them; and one who is from them will enter the Fire."
Safwan al-Jammal went and sold his rental business to someone else.21
* * *
There are many examples of when the Shi'as had asked the Imams for permission to work with the establishment of the 'Abbasid caliphs. In most cases, they were refused permission by the Imams; and whenever they were exceptionally allowed, the Imams put a condition -you will help your brethren in faith.
A well-known hadith from Imam Ja'far as-Sadiq (a.s) says, “The penance for working for an [unjust] ruler is to fulfill the needs of the brethren.”22
In countries like Canada where multi-culturalism is promoted and where the presence of minorities in law enforcing agencies would help in preventing racism and discrimination, the Muslims can join in such agencies provided they always remember the penance mentioned above.
Sculpting and Painting and Drawing
It is forbidden to make a complete statue or sculpture of a living being. However, there is no problem in buying or selling pictures of such statues or sculptures, even though it is makruh.
Making a sculpture of a limb by itself is permissible.
Of course, drawing, painting or carving a living being is permissible. Similarly, making statutes or sculptures of non living things like flowers or trees is permissible.
Sculpting, painting or drawing of living or non-living things or symbols that are used as objects of worship by other religions is not allowed. So making, buying or selling idols or religious symbols such as a cross would not be permissible.
Astrology and Palmistry
It is haram to make horoscope and predict the future of people by looking at the movement or alignment of stars. This is, obviously, different from astronomy that is a proven science.
It is also haram to believe in astrology and palmistry. A Muslim should trust in the intelligence that Allah has given to him or her, work hard, and rely for success on Divine grace (tawfiq).
It is worth making a note on istakhara or khira (lit.seeking good) which means seeking God's help in making a decision by praying to God through the tasbih (prayer bead) or the Quran. Firstly, istakhara is only relevant in issues which are religiously permissible where a person has a choice to do or not to do. There can be no istakhara in issues which are obligatory or forbidden.
Secondly, there is a famous saying that 'al-istashara qabla al-istakhara - seeking counsel comes before seeking istakhara' which means that one should use his or her own intelligence and knowledge to decide on the issue at hand: and if he or she does not know about that issue, then he or she should consult and seek counsel from those who have expertise in that field.
After all the consultations, if there is still doubt and confusion, then one may do istakhara. Finally, even though istakhara is based on religious sources, one should never become "istakhara dependent".
Is a Muslim allowed to become, or work, as a lawyer? As long as Muslim lawyers do not get involved in haram activities in pursing their careers, then it is permissible for them to work as lawyers.
1. S.Hussain Nasr, A Young Muslim’s Guide to Islam,p.58
2. Bernard Lietaer is a Research Fellow at the Centre for Sustainable Resources of the University of California at Berkeley and former head of the Organization and Planning Department of the Belgium’s Central Bank. The quotes are from his interview with Jurriaan Kamp, the editor of Ode magazine, no.26 (September 2005). Professor Lietaer’s latest books are the Mystery of Money and The Future of Money.
3. As quoted by Sibylle Preuschat, “The Trouble with Interest,” Why Magazine (Winter 1997/1998),p.35
4. As-Sistani, Minhaj, vol.1,p.430, Nasir Makarim Shirazi, Tawdihu ‘l-Masa’il,p.337,486; Khamanai, Ajwibatu l’-Istifta’at, vol.2, p.553,847
5. Mutahhari, Mas’ala-e Riba,p.160-162
6. Man la Yahduruhu ‘l-Faqih, vol.3, p.182.
7. Biharu ‘l-Anwar, vol.74, p.311; Kanzu ‘l-Ummal, hadith no. 15373.
8. Al-Furu; vol.5, p.93
10. The Charter of Rights, p.26-27
11. Al-Khui, Minhaju ‘s-Salihiyn, vol.2, p. 376; as-Sistani, Minhaju ‘s-Salihiyn, vol.1, p.430
12. As-Sistani,Minhaj,vol.1,p.430, Nasir Makarim Shirazi, Tawdihu l’-Masail,p.337,486; Khamanai, Ajwibatu ‘l-Istifa’at, vol.2, p.553,847.
13. Khamanai, Duraru ‘l-Fawa’id fi Ajwibatu ‘l-Qaid (Tehran, 1414 AH). P.86
14. Makarim Shirazi, Tawdih,p.485
15. As-Sistani,Minhaj,vol.1,p.430; al-Khui, Minhaj,vol.2, p.167,376; Ayatullah Khamanai says that such a loan will only be permissible if one does not have the intention of paying the interest. See Ajwibatu ‘l-Istifta’at,vol.2, p.841
16. Statement of Jordon Goodman, spokesman for Cambridge Consumer Credit Counselling, in Martin Wolk, “The Pitfalls of Plastic,” (MSNBC) January 18,2004.
19. The concept of “socially responsible investment” or SRI emerged in mid-eighties. Financial institutions in the West are becoming aware of their Muslim client’s religious obligations and are offering funds that reflect the Islamic requirements. For example, Nova Bancorp Group created a new fund from Navigator, called the Socially Acceptable Market Investment fund or SAMI, that takes the theme of socially responsible investing one step further by applying Muslim religious principles. Aside from excluding companies that make tobacco, booze and weapons, there are no shares in companies that sell or process pork or the entertainment companies involved in casinos, cinemas, music and pornography.
20. The terms “story driven” (i.e., media driven) and “earnings driven” are from a fund manager who wrote about “The Internet Stock” in US News & World Report, June 7, 1999.
21. At-Tusi, Ikhtiyar Ma’rifati ‘r-Rijal, vol.2 (Qum: Al al-Bayt, 1404 AH),p.740
22. Man la Yahduruhu ‘l-Faqih, vol.3, p.176