I would like to put to you the case of a Muslim immigrant who has done very well financially in his life abroad. Keen to do something for his people back home, he sets up a trust and allocates a large sum of money which he puts in a deposit account. The trust uses the interest that accrues to help the local people. In this way he is able to help a large number of people on a continuous basis. In a recent discussion someone suggested that this is not lawful because interest is forbidden. He argues that it is not permissible to run a wine shop even if all the income generated is given to charity. As a counter argument, I suggested that in the latter case, the person concerned could have run any type of business, but in the case of the trust, the donor has no alternative because he may not have time or knowledge or the other requirements to invest the money he puts in this trust. Please comment.
Let us assume that our charitable friend is a doctor who has achieved a high position in his profession, and has become wealthy. He has no knowledge of the business world and he does not understand even the most elementary things about investments. Where does he begin? If he seeks advice from a person with religious knowledge, he is likely to be told of the following story:
A companion of the Prophet, peace be upon him, reflected on the meaning of the Qur'anic verse which says: "Never shall you attain to true piety unless you spend on others out of that which you dearly cherish." (3:92) He then went to the Prophet, peace be upon him, and said: "Messenger of God, I have been reading this verse and I want to do something to implement it. Of all my property, the thing I cherish most is an orchard which I am putting at your disposal. You may do with it whatever you deem fit." The Prophet, peace be upon him, said to him: "Keep the principal as an endowment and make the yield free for anyone who needs it."
So the idea of making a trust to manage the original donation and determine the use of the income it generates fits perfectly with the Prophet's teachings. It makes the original donation go much further than it would have done, if it were to be spent totally. Much benefit may be generated by spending it, but the benefit is far greater and more permanent when an endowment is established and the income is spent on charity. This has been the practice throughout the history of Islam. But in our modern times when life has acquired new complications, things are not so straightforward.
There will be no shortage of suggestions to our charitable person on how to invest his money, but if he refrains from putting it into any of the suggested ways, I can fully sympathize with him. I am not going to discuss here the practicability and difficulties of any such alternative.
I am only saying that a person who is keen to see his donation produce the maximum benefit would like to have his money placed into some scheme which keeps the principal and gives guaranteed returns, without going into the hassle of running a business or employing staff to run it. The banks seem to offer the best solution. But there is the question of interest, which is certainly a major question.
I have in the past expressed the view, which is gaining more and more support, that if a person receives interest from banks, then he may take it and give it to poor people. But what we have here is different. It is putting a deposit in order to generate interest and give it to the poor. Should anyone do that? I would say no, for the simple reason that by doing so, we are contributing to the success of the capitalist banking system based on interest which is usurious in nature.
There are other reasons which could be given for this negative answer, but it is not important to go into the details now. The difference I am making here distinguishes between interest that has come into a Muslim's hand for any reason, and a properly considered decision to deposit money in a bank to earn interest and pay it to the poor. I would not advise anyone to take such a decision.
Now about the analogy with the wine shop which gives all its earning to charity? The reader has pointed an aspect of difference, but there are others. What is important to realize is that nobody may decide to disobey God, even when the disobedience is intended for a beneficial purpose.
A woman of easy virtue whose purpose is to give half or all her earnings to the poor does not do any good. But if she has done this for any reason and then she reviewed her situation and decided to repent, she may give away any portion of her savings to charity to demonstrate her repentance. That would be an acceptable charity from a repentant person.
What should our charitable friend do, then? Perhaps the answer is to go to one of the Islamic banks which operate on a basis which is acceptable from the Islamic point of view. He should speak to the manager and ask for recommendations on how to use his money in a trust or endowment which complies with Islamic regulations. If he does that, then he may achieve his goal of having a regular income for charity. The income may be irregular but more in line with Islamic principles. If he does not find this method satisfactory, then he should consult one of the reputable banks about their investment management services.
These may come in the form of an investment in the stock market. They offer variable returns but they are more acceptable.
• Interest: Inflation as a justification for bank interest
Considering that money loses its value because of inflation, is it permissible for a Muslim to take bank interest within the declared rate of inflation for the country in which he lives, and give what is in excess to the poor?
This is a question which has left many a scholar without any answer to give. It is to the credit of any scholar to say, 'I do not know,' when he is presented with a problematic question. It is when he ventures an answer of which he is uncertain that he may land himself in trouble. The question you have asked should be on the agendas of a highly qualified study group that brings together economists and Islamic scholars of the highest caliber to give answers to the main questions that ordinary people ask and require clear answers. I hope that one of the main centers of Islamic learning undertakes such a task in the near future, because this is badly needed.
Pending such an agreement, we find that a small number of scholars, some of whom are highly reputable, have argued that bank interest is different from usury which God has forbidden. They consider it as returns on an investment. Some of them even find the fact that it is fixed in advance to be preferable as it would prevent exploitation of the small investor. However, the majority of scholars say that all bank interest is forbidden because it is usurious in nature. What we can say is that bank interest is not the same as usury, but there are sufficient similarities between the two to make the majority of scholars equate interest with usury and pronounce it forbidden.
This question is highly relevant. Since money loses value if kept in a safe box, and if one is unable to invest it in a proper way that gives him peace of mind, would it be preferable to take only an amount of interest that is equal to the rate of inflation, in order to maintain the value of his savings? Suppose the bank gives interest at 12 percent and the rate of inflation is 8 percent, would he commit an offense if he retains 8 percent of the interest and give the other 4 percent to the poor? Some scholars will certainly take him to task for doing so, but others would not say that his action is unlawful. However, I advise him to seek a better alternative. That is to put his money in an Islamic bank or in a profit-and-loss sharing account. If he does, he can retain all the returns of his money.
• Interest: Its effects on good actions
Because my savings are not enough for the purpose, I have been contemplating the possibility of obtaining a bank loan in order to build a house for my family. My father has written to me that this is not acceptable from the Islamic point of view. He also said that my prayer, sacrifice, zakah and other acts of worship will not be acceptable in this building. Moreover, the bank clerk is asking for a commission to release the loan which I feel that it is, in actual fact, a bribe. I will be grateful for your advice.
There are two main aspects to the first question : Obtaining a bank loan and paying interest on the borrowed money; and the effect of such an action on one's good deeds. The question of bribe is a side issue on which we will talk later.
There is no doubt that dealing in usury, whether one receives it or pays it, is forbidden. The Prophet says: "Allah curses the one who devours usury, the one who pays it, the one who writes the contract between them and the two witnesses to the contract." A straightforward bank loan which earns interest falls within this type of transaction. Therefore, if you go to the bank and ask for a loan and you arrange to pay it back by installments, adding interest to the principle amount you obtained from the bank, then you are committing a serious offense.
Muslims who live in Europe and America often face the problem of buying a house on mortgage. Several scholars have reluctantly sanctioned forms of this transaction on the basis of necessity. Since banks offer different forms of mortgages, each one will have to be judged on its terms and conditions.
The other aspect of your question concerns the effect of taking a bank loan which is accompanied by the payment of interest on your worship and other good deeds. Your father tells you that your prayer and zakah and other good deeds, which you may do in your house, partially financed by a bank loan, will not be acceptable.
I am afraid your father is mistaken. Allah says in the Qur'an :
"Whoever has done an atom's weight of good will see it then and whoever had done an atom's weight of evil will see it then also." (99; 7-8)
This means that what you do of good deeds will be credited to you, but your bad ones will be recorded against you as well. It is unbelievers whose good actions are of no use to them because their actions are not based on the proper foundation of good deeds, namely, faith.
I am afraid, however, that dealing with usury is a very serious offense which could require much more than the fulfillment of basic duties to offset it.
If you are to pay bribe in order to get that loan, then there is all the more reason for not getting it. Payment of bribes is forbidden. Allah curses the one who bribes and the one who receives bribery.
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