Interest taken from and given to banks

The question is concerning interest which has severe warnings in the Quran and hadith for those who give or receive it. I was told that the interest which is haram (forbidden) in the Quran and hadith is that which is malicious and takes advantage of the other person. For example, a person does not have enough money to purchase necessities and he borrows money; the lender gives it but with the condition that it will be repaid with interest then it is strictly haram. Nowadays, the money is kept in the banks which are not in need of the money, in fact, they benefit from it. Likewise, nowadays, loans are given at such a large scale which was not common in the time of Rasulullah (may peace and salutations be upon him). Since this sort of lending was not available when the Qur’an was being revealed, therefore it is not haram. What is the correct opinion regarding this?

 بسم الله الرحمن الرحيم

الجواب حامدا ومصليا ومسلما

In principle, it should be understood that whenever the Qur’an prohibits something in a general context, its prohibition will be general. For example, in the Qur’an, Allah subhanahu wa ta’ala has deemed pork and gambling to be haram. Therefore, pork will remain haram regardless of how the animals are raised and gambling will also remain haram regardless of how it is carried out. Likewise, interest will remain haram whether or not the debtor is forced to tolerate a financial burden or not. Therefore the interest given by banks is haram, as is the ruling for any general type of interest.

As far as interest based loans taken by companies are concerned, they are forbidden whether or not they existed in the time of Rasulullah (may Allah bless him and give him peace). Furthermore, it is incorrect to say that they were nonexistent in that era. We find examples of loans taken on a large scale in many ahaadith. Consider the following examples:

1) When the Quraysh sent their caravan to Shaam to acquire wealth to fight the Muslims, many people in Makkah advanced loans to support the detested cause and a stipulated percentage of interest was to be given to each creditor.

2) During hajjat al wadaa’, Rasulullah (may Allah bless him and give him peace) abolished all forms of interest which had yet to be paid. He (may Allah bless him and give him peace) announced that interest as a custom in the era of ignorance is hereby abolished. The creditors are entitled to the original capital which they advanced and no more than that. The first transaction which he annulled was the interest entitled to his uncle, Abbas bin Abdul Muttalib (may Allah be pleased with him). (Abu Dawud) 

The books of history tell us that the interest which was initially owed to Sayyidina Abbas (may Allah be pleased with him) amounted to 20,000 mithqaal of gold (2,812 troy oz).

3) After the demise of the Messenger (may Allah bless him and give him peace), people would entrust their wealth to Zubayr bin ‘Awwam. Rather than taking this wealth as a trust, he would take it as a loan so he would be able to invest it in buying land. Upon his death, the total sum of debt he owed is recorded to be 2,200,000 dirhams. After selling the land and properties he invested in, this debt was quickly paid off. (Bukhari)

Similar examples have been documented in many books and commentaries of hadith. These examples show that large scale business debts also existed during the time of the Messenger (may Allah bless him and give him peace).

In conclusion, Allah ta’ala has prohibited interest in the Qur’an in every shape and form, which includes the interest given by banks to account holders as well as the interest paid to banks.

 والله اعلم

 Allah Knows best.

 Approved by: Mufti Husain Ahmad Madani