Islam, Murabaha and Fixed Deposits
Islam has declared war on the moneylender who demands interest. It did so in the very last divine revelation (al-Baqarah, 2:279) to come down in the Holy Qur’an. Here is that last revelation:
“O ye who believe! Fear Allah, and give up what remains of your demand for usury (i.e., the interest due on a fixed deposit, or on any other loan on interest), if ye are indeed believers.” If ye do it not (i.e. if you persist in your claim or demand for the interest due to you), then take notice of (a declaration of) war from Allah and His Messenger: but if ye turn away (from such claim or demand), then you are entitled to the return of your capital sum (placed in the fixed deposit or otherwise lent); do not enter into (such) unjust transactions, nor allow yourselves to be subjected to such.
If (you forgo the interest due to you and then find) the debtor in a difficulty (in respect of returning the capital sum that was lent to him on interest), grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.
And (in this matter in particular, i.e., lending money on interest) fear the Day when ye shall be brought back to Allah. Then shall every soul be paid what it earned, and none shall be dealt with unjustly.’ (Qur’an, al-Baqarah, 2:278-281)
Prophet Muhammad (peace be upon him) declared that the consumption of even a Dirham (a silver coin worth a few dollars) of Riba (usury) was equivalent to “committing adultery 36 times”. He also declared that Riba was comprised of 70 parts and that the smallest part (was so bad that) it was equivalent to “a man marrying his own mother”. Indeed “he cursed all four, and declared that they were all equally guilty—the one who took Riba (i.e., the money-lender), the one who gave Riba (i.e., while paying interst on a loan), the one who recorded the transaction (hence bank personnel), and the two witnesses.” Fifty years ago my own Muslim community of Trinidad and Tobago was led by Haji Ruknuddin (may Allah have mercy on him). He was a leader who both ‘knew’ and ‘lived’ Islam. At that time a Muslim money-lender appeared on the scene and the leader of our community made every effort to get that man to give up his money-lending. When he failed in that effort he responded by prohibiting Muslims from even having a meal in the moneylender’s home. The Muslim community obeyed the command of its leader.
But times have since changed, and our Muslim community is now led, with but few exceptions, by men who neither ‘know’ nor ‘live’ Islam, and by scholars who betray Islam. We even have Muslim leaders here in Trinidad who are consummate money-lenders, placing their money in highest yielding fixed-deposits in the international money market. They then use their bloated check-books that drip with the blood of the masses they have exploited, to bribe their way into winning elections and assuming posts of President-General of Islamic organizations. Those with the intellectual acumen of cattle then legitimize such (checkbook) leaders.
Even Islamic scholars have fallen by the wayside so badly that when a Trinidadian (money-lending) bank organizes a function to commemorate Eid al-Fitr, an Imam who is described as a Maulana accepts an invitation to deliver a feature address at the function. Then his photograft appears in the daily newspaper posing with bank officials. And so, there is both widespread ignorance of the divine law pertaining to the prohibition of Riba, and, worse, wanton violation of that law.
In this essay we direct attention to ‘Fixed Deposits’ as well as to so-called Murabaha transactions in an attempt to explain such to be ‘money-lending’ transactions.
At the heart of the Islamic prohibition of usury (Riba) is the maxim that if you do not plant, you cannot reap. This constitutes a rejection of the false claim to a ‘time-value’ of money. Money by itself cannot increase over time without any input of labor, or without the risk (of loss or of gain) inherent in an authentic business transaction.
The blessed Prophet declared that any transaction involving an exchange of ‘money’ for ‘money’ must be an equal exchange, i.e., with no difference in amount of money exchanged. He declared that an unequal exchange (that would open the door for money to increase over time) would be Riba. Islam also insists that all business transactions must involve risk – and hence ‘profit’ or ‘loss’. Allah Most High can then intervene to distribute and redistribute wealth by taking from some and giving to others. In this way the rich would not remain permanently rich, and the poor would not be imprisoned in permanent poverty.
In his masterpiece entitled ‘Merchant of Venice’, William Shakespeare likened Riba or usury to a ‘pound of flesh’. And in a dream Prophet Muhammad saw the moneylender exposed as a ‘bloodsucker’ since he was standing in a river of blood. We noted earlier that the Prophet cursed “all four”, and declared that “they were all equally guilty—the ones who ‘took’ Riba, ‘gave’ Riba, ‘recorded the transaction’, and ‘the two witnesses’.” Whoever dies with the curse of a Prophet upon him can never escape the hellfire. The Qur’an itself declared that the moneylender would be punished with eternal hellfire:
“Those who devour usury will not stand (before their Lord for Judgment) except as stands one whom Satan by his touch hath driven to madness.That is because they claim that: ‘Business is like lending on interest,’ but Allah hath permitted business and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who persist (in claiming the interest due from fixed deposits or other such loans on interest) are Companions of the Hellfire; they will abide therein (forever).” (Qur’an, al-Baqarah, 2:275)
What, then, is the status of someone who makes a ‘Fixed Deposit’ with his money in a bank or any other financial institution? It should firstly be clear that he has not gifted the money. It must also be recognized that he has not entered into a ‘business’ transaction since he is guaranteed the return of his money plus an additional amount. There is no risk. There is no possibility of loss. And hence that is not business! In fact, in making a ‘Fixed Deposit’, he has lent his money on interest (Riba), and has hence become a cursed moneylender. Those (Muslims, Christians, Hindus, etc.) who read this essay and, in consequence of fear of Allah’s eternal punishment, promptly respond by breaking their ‘Fixed Deposits’, would want to know what they could do with their Riba money. They can neither use it themselves, nor can they give it to others as charity.
Islamic Banks and other Islamic financial institutions are today lending money on interest through the back-door by disguising a loan as a sale on credit. They call it murabaha! But it is most certainly not murabaha! It is Riba! What the bank does is to offer an item on sale in a credit transaction with a price substantially higher than the cash price. While credit transactions are Halal, since the blessed Prophet (sallalahu ‘alaihi wa sallam) himself engaged in such transactions, there is no evidence that the credit price in such transactions was ever higher than the cash price. When credit price is higher than cash price then the implication would be that time has value. And the essence of Riba is that money grows over time. When a client wishes to purchase something, but does not possess the cash with which to purchase it, the so-called Islamic bank enters into the fiction of purchasing the item at its cash price and then selling it to the client on credit. The interest charges are added to the selling price thus making a credit price for the item substantially higher than the cash price.
In fact the bank never actually purchases the item. Rather, it writes out a check to the client who then purchases the item in his name with the bank holding a lien on the item until the sale price is eventually paid to the bank. The bank therefore sold something that it never actually owned – and that is Haram! In actual fact the ‘sale’, also, was entirely fictitious. What the bank actually did was to ‘lend’ a specific sum of money on interest over a specific period of time and to then denominate the ‘loan’ in the amount of a final total that included the total interest payments as money due on a ‘sale’.
It is when the client defaults on payment of installments of money due to the bank that one is treated to ridiculous and utterly scandalous financial gymnastics. Consider the following: a client entered into a so-called murabaha transaction with an unnamed Islamic Bank to purchase a house with a market price of $500,000. The bank wrote out the check to him for $500,000. with which he then purchased the house in his name. He thus became legal owner of the house. The bank then transacted with him a fictitious sale agreement to sell to him on credit a house that the bank never owned (and hence could not sell) for a total of $1 million. The difference between the credit and cash prices was thus $500,000.
One month after entering into the agreement the client defaulted on his payments. The bank then repossessed the house and sold it on the open market for $500,000. But the bank went on to sue the client for an outstanding balance of almost $500,000. The court, however, dismissed the claim and ruled that the bank was entitled to nothing more than the interest payment for the actual duration of the contract (i.e., the amount of time it took the bank to recover its $500,000.)
We have a stern warning to deliver to those scholars of Islam who persist in defending the so-called murabaha transactions of Islamic Banks today. They defend the transaction with Fatwas (fatawa) that are as invalid as the Fatwas (fatawa) which today blindly declare paper money of the modern world to be Halal, and would equally blindly declare tomorrow’s ‘electronic money’ to be Halal. If they obstinately persist in their defense of today’s so-called Murabaha transactions, and then learn in Allah’s court that it was not Murabaha but Riba, at that time they cannot plead for mercy from Allah for they will have misguided people, nor can they say “I did not know”.
By Sheikh Imran Hosein