10-26-2003, 11:28 PM
I think this thread has already been discussed in the form of INTEREST AND RIBA in another topic... Now to make it simpler...
Interest is also offered in banks in Saudia Arabia who declare that they offer pure Islamic Banking... Interesting??
Its quite simple... There's a teeny tiny difference between Interest and Riba and thats what differentiates both... What you invest in a business/company/etc and get a percentage return (interest/share-of-profits) from it is LAWFUL and hence NOT HARAM... But where you give someone a LOAN (and not INVEST the money), or get interest/share-of-profits from a person/entity who earns by lending loans, and receive a percentage return (interest), thats UNLAWFUL in Islam and hence HARAM, and this is the thing that goes by the name of RIBA...
Now to make it more simpler... If you're investing money in some bank, and getting interest on that sum of money, why do people call it haram?... It's haram because the system on which the Bank operates is of Riba... For instance, when you invest your money in some bank, they use your money to offer loans to people on which they (banks) earn interest which is RIBA... And in return, the interest that the bank gives you is purely made of RIBA... Hence it is HARAM...
But when you look at banks that offer PURE ISLAMIC BANKING such as banks in Saudia Arabia, they do offer interest to you as well... But the interest that they offer is NOT MADE UP OF RIBA (lending of loans)... They use your money to make investments in huge business and in return they earn profits from it... Hence, the interest they give you back is made up of the PROFITS that they've generated and is therefore purely HALAAL...
Thats the main difference between banks that offer PURE ISLAMIC BANKING and the others...
Its just like a friend of yours is starting a business... He asks you to invest some money in it... But you don't have sufficient amount so you invest, lets say 5% to the total capital... So because you have such a small investment in the capital, you CANNOT MAKE DECISIONS as the loss suffered wouldnt effect you much but will effect those who have a larger capital at risk (your friend)... Therefore, you are termed as a sleeping partner... You cannot interfere in the business activities, but as you have contributed in the capital, you will receive a fixed percentage of return on your investment...
That is exactly like investing money in banks that offer RIBA FREE or PURE ISLAMIC BANKING... The bank acts as an agent to transfer your money to a business that is likely to need additional capital and in return the bank gets some share of the profits, which is after some more appropriation given back to you in the form of INTEREST/SHARE-OF-PROFITS (in this case HALAAL)... But please note, if you know that the business the bank is investing in is not earning profits lawfully, than the INTEREST/SHARE-OF-PROFITS you are getting back from the bank is UNLAWFUL (HARAAM)...
But when you invest your money in a bank that offers LOANS to individuals and in return demands an INTEREST ON LOAN (fixed SUM OF MONEY), the amount of INTEREST the bank gets from that individual is shared between you and the bank... Hence, in this case, the amount of money (interest) you receive by investing money in the bank is labelled RIBA as it is an INTEREST ON LOAN and NOT PROFIT ON INVESTMENT...
I hope that differentiates between RIBA and INTEREST ( and in a manner Islamic and non Islamic Financing).
However, mortgages and some other investments are far too complicated to be discussed.
Interest is also offered in banks in Saudia Arabia who declare that they offer pure Islamic Banking... Interesting??
Its quite simple... There's a teeny tiny difference between Interest and Riba and thats what differentiates both... What you invest in a business/company/etc and get a percentage return (interest/share-of-profits) from it is LAWFUL and hence NOT HARAM... But where you give someone a LOAN (and not INVEST the money), or get interest/share-of-profits from a person/entity who earns by lending loans, and receive a percentage return (interest), thats UNLAWFUL in Islam and hence HARAM, and this is the thing that goes by the name of RIBA...
Now to make it more simpler... If you're investing money in some bank, and getting interest on that sum of money, why do people call it haram?... It's haram because the system on which the Bank operates is of Riba... For instance, when you invest your money in some bank, they use your money to offer loans to people on which they (banks) earn interest which is RIBA... And in return, the interest that the bank gives you is purely made of RIBA... Hence it is HARAM...
But when you look at banks that offer PURE ISLAMIC BANKING such as banks in Saudia Arabia, they do offer interest to you as well... But the interest that they offer is NOT MADE UP OF RIBA (lending of loans)... They use your money to make investments in huge business and in return they earn profits from it... Hence, the interest they give you back is made up of the PROFITS that they've generated and is therefore purely HALAAL...
Thats the main difference between banks that offer PURE ISLAMIC BANKING and the others...
Its just like a friend of yours is starting a business... He asks you to invest some money in it... But you don't have sufficient amount so you invest, lets say 5% to the total capital... So because you have such a small investment in the capital, you CANNOT MAKE DECISIONS as the loss suffered wouldnt effect you much but will effect those who have a larger capital at risk (your friend)... Therefore, you are termed as a sleeping partner... You cannot interfere in the business activities, but as you have contributed in the capital, you will receive a fixed percentage of return on your investment...
That is exactly like investing money in banks that offer RIBA FREE or PURE ISLAMIC BANKING... The bank acts as an agent to transfer your money to a business that is likely to need additional capital and in return the bank gets some share of the profits, which is after some more appropriation given back to you in the form of INTEREST/SHARE-OF-PROFITS (in this case HALAAL)... But please note, if you know that the business the bank is investing in is not earning profits lawfully, than the INTEREST/SHARE-OF-PROFITS you are getting back from the bank is UNLAWFUL (HARAAM)...
But when you invest your money in a bank that offers LOANS to individuals and in return demands an INTEREST ON LOAN (fixed SUM OF MONEY), the amount of INTEREST the bank gets from that individual is shared between you and the bank... Hence, in this case, the amount of money (interest) you receive by investing money in the bank is labelled RIBA as it is an INTEREST ON LOAN and NOT PROFIT ON INVESTMENT...
I hope that differentiates between RIBA and INTEREST ( and in a manner Islamic and non Islamic Financing).
However, mortgages and some other investments are far too complicated to be discussed.