03-20-2004, 05:17 AM
'Interest' is the profit or extra amount gained by the principle when investing or lending money.
'Riba' on the other hand is the profit or extra money gained by the principle ONLY by lending money.
We see that even banks in Saudi Arabia who claim to work through 'pure islamic banking' too pay out interest... Our Al-Meezan Bank, which introduced Islamic Banking in Pakistan itself pays out interest... Then where does the whole Riba-Free banking concept go?
Well actually you see, when you 'invest' money, you are a sort of a partner in that business... Lets say you have a friend who's starting a 'halal' business, you plan to invest money with him... If you invest a small amount, then you'd be called a 'sleeping partner', i.e a partner who can't take business decisions due to the percentage of his capital employed in the business but gets a fixed return...
Therefore, the same is the case when you invest money in bank... You become a 'sleeping partner' with the bank... And then you get return for your investment...
There is another mode of getting return from your money... By lending a loan one can demand a fixed percentage return or a pre-decided amount to be returned in excess of the principle amount... Now this is the definition of 'Riba'... Riba is earned ONLY from Loans and not investment... Therefore, Islam allows investment...
When our religious scholars claim that the banking in Pakistan is based on 'Riba', they are right... And why is that so?... Its because the profit you earn by Investing money in a Bank comes from the 'Riba' a bank has earned by lending loans... So simply put, the profit you are earning through your investment is 'Haram'...
I hope that simplifies a lot of misunderstandings about the Islamic Banking System.
'Riba' on the other hand is the profit or extra money gained by the principle ONLY by lending money.
We see that even banks in Saudi Arabia who claim to work through 'pure islamic banking' too pay out interest... Our Al-Meezan Bank, which introduced Islamic Banking in Pakistan itself pays out interest... Then where does the whole Riba-Free banking concept go?
Well actually you see, when you 'invest' money, you are a sort of a partner in that business... Lets say you have a friend who's starting a 'halal' business, you plan to invest money with him... If you invest a small amount, then you'd be called a 'sleeping partner', i.e a partner who can't take business decisions due to the percentage of his capital employed in the business but gets a fixed return...
Therefore, the same is the case when you invest money in bank... You become a 'sleeping partner' with the bank... And then you get return for your investment...
There is another mode of getting return from your money... By lending a loan one can demand a fixed percentage return or a pre-decided amount to be returned in excess of the principle amount... Now this is the definition of 'Riba'... Riba is earned ONLY from Loans and not investment... Therefore, Islam allows investment...
When our religious scholars claim that the banking in Pakistan is based on 'Riba', they are right... And why is that so?... Its because the profit you earn by Investing money in a Bank comes from the 'Riba' a bank has earned by lending loans... So simply put, the profit you are earning through your investment is 'Haram'...
I hope that simplifies a lot of misunderstandings about the Islamic Banking System.
