Islamic banking

So I learned today from my Muslim mate that Muslims don’t believe in earning or paying interest on money. Basically banks charging interest on loans and credit cards is sinful. Conversely, earning interest on your long term deposit account is also sinful. Maybe sinful is too strong a term, but it was a brief conversation and I didn’t quite understand the whole gist of it but it I found it very interesting considering the dismal economic state of many western countries.

I wonder if we would refer to it as simony?

'Islamic banking refers to a system of banking or banking activity that is consistent with the principles of the Shari’ah (Islamic rulings) and its practical application through the development of Islamic economics. The principles which emphasise moral and ethical values in all dealings have wide universal appeal.

Shari’ah prohibits the payment or acceptance of interest charges (riba) for the lending and accepting of money, as well as carrying out trade and other activities that provide goods or services considered contrary to its principles. While these principles were used as the basis for a flourishing economy in earlier times, it is only in the late 20th century that a number of Islamic banks were formed to provide an alternative basis to Muslims although Islamic banking is not restricted to Muslims.’

Um. Yes?

As I understand it, the charging of interest was forbidden for Christians for quite some time too. That’s why in ye olden tymes moneylending was done by Jews. It was considered a sinful trade not fit for Christians, and good Christian trades were forbidden to Jews.

The Muslim client ends up paying the same as the rest of us.

If you don’t have the cash for a house or a car you’ve got to borrow it, and borrowing costs money whether you get it from a Halal bank or a western bank.

I had a number of Muslim clients in my previous career

What you do is rent the product and pay towards the capital too.

So you pay “rent” and not interest.:shrug:

Check it:

[T]hou shalt not claim interest over and above what thou hast spent on him. Thou hast the vengeance of thy God to fear; see to it that thy brother has freedom to lodge with thee. 37 It is not for thee to receive interest on what thou spendest, and entertain him to thy own profit.

Leviticus 25:36-37 (Knox Bible)

Just wanted to comment on the bolded part. No, sinful is not too strong a word, because surah 2:275 of the Qur’an says that those who practice usury and do not repent are going to Hell. They are “companions of the fire”.

Other than that, great thread. Thank you very much for posting it. :tiphat:.

Ya akhi, you don’t need to look to a fatwa for judgment on usury-- the Qur’an is clear enough. Who are you going to trust more: God or a few sheikhs?

Gotta ask if interest in a bank is truely immoral whats the incentive for a bank to operate in the first place?

Wonder if they would consider giving me a loan?:smiley:

There is no thing called “Islamic Banking”, it’s a big lie.

For example, all the banks here in Saudi Arabia do not give you any loan except with high interests, worst they deposit people savings with other international banks taking interest on them and in return people don’t receive anything on their savings thinking it’s a sin if they do so.

Banking business in the Islamic world is a very profitable business because they fool people.

Islamic countries have banks. They do charge interests on loan and pay interest on savings. How do I know? I work in a Muslim country and receive interest on my savings account, the only account I have. I have a debit card for spending money. I can transfer money internationally as needed.

Ah, well that makes all the difference. :wink:

Apparently it does to them.:shrug:

A bank seems like a rather silly idea without interest. Can the whole idea of being against interest even apply to a bank in the first place? A concept which in the ancient world did not exist at all?

I’m an ex-Muslim, free of the spirit of that system, which is not the spirit of God.

“Interest” in the Shariah is rather strictly construed in some ways, and rather loosely in others; it is not completely the same as the American concept of “interest” on money (in Arabic it is called riba). It is similar to simony, and, just like in mediaeval Europe where simony was against the law, in the modern-day Islamosphere where riba is against the law, the Islamic banks have ten thousand ways to get around the law and charge “practical” interest, even if what is charged is not technically riba, almost always to the detriment of the private citizen and the benefit of the banks.

Now, remember, in the Islamic world, these Shariah sanctions are rarely followed, and Saudian banks pay (Shariah-prohibited, haram) riba the same as any American or English bank does, just as their princes drink Johnnie Walker Black, the same as any American or Englishman. But, according to the religious law (especially of Saudi Arabia, which is ruled by the strictest interpretation of the Shariah), they shouldn’t.

It’s a system set up where a specific way to gain a specific kind of financial interest is outlawed, but every other form of usury permitted.

Say, in the West, you buy a house with a mortgage. You pay a certain amount plus interest, or interest only, per bill, towards this house, a little at a time. For example, a $200,000 house with a one-year mortgage at 10% interest would have a $220,000 cost, the extra $20,000 in interest being in effect payment for being able to pay the house off at the end of the year and move in to it at the beginning instead of all at once, and the pursuant credit risk.

In Shariah-compliant banking, the bank buys the same $200,000 house, sells it to the customer for $250,000, letting him pay it off little by little over time (similar to the rent-to-own extortion scheme), but with no “interest” (riba) ever charged, just an initial markup by the bank (which far exceeds what Westerners would consider “reasonable interest”) for the service of buying the house and then rent-to-owning it to the tenants. In some schemes, the tenant has legal title to the house before it is paid off (like a mortgage); in some schemes, he is no different than a lessee.

This is one of many schemes that are used by Islamic banks to charge something analogous to interest, without actually charging “interest”.

Thank you for clarifying and you’re welcome. :slight_smile:

Thank you all for your interesting and informative answers.

Islamic and Christian proscriptions against usury date back to time when barter was the rule and cash transactions were the exception. Cash was where you parked your excess wealth, not the means by which the basics of living were acquired. In such systems, cash more generally had a constant value (except when monarchs gamed the system).

But modern economics uses cash for everything and there is usually an inflation rate. It becomes brutally hard these days to separate legitimate interest to compensate the lender for the inflationary opportunity cost and the risk of lending from the predatory usurers.

The catholic church has unofficially given up trying to arbitrate where the line is and leaves it up to the laity to figure it out. Islam is still trying to wrestle with the issue more officially (which is ironic since there is no official Islamic authority).

I think the major lesson here is that there IS a moral wrong done to those who are entrapped into hopeless debt and interest payments and that people of good moral character shouldn’t do such things to others. I suspect that mortgages given to people within their means isn’t really usury. I suspect that credit card offers to people clearly unqualified to manage them is perhaps still usury even today.

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