Riba and interest
Fatwa No: 85033

Question

I need clarification about the difference between Riba and interest. Is the commission charged by banks in KSA interest or Islamic banking? How? Please reply in light of Qur'an and Hadith.

Answer

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

If the banks you mentioned are established on non-Islamic fundamentals, then they are Riba-based banks even if they are called Riba profit or commissions.

But if they are based on Islam and they deal according to Islamic rules, then their profits are lawful and what they take for the services they provide is lawful as well.

To decide whether a given bank deals according to the Sharee’ah or against it, depends on how that bank carries out its transactions. So, we cannot give a judgment about the banks you mentioned, as we are not acquainted with their ways of dealing.

We advise you to ask some Muslim scholars in the place where you are as they can check how these banks actually do business.

Anyway, we advise you to stay away from any institution that deals in Riba because whenever Allah forbids something He gives a better substitute for it.

Allah Knows best.

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