Asset financing practiced by usurious banks
Fatwa No: 92470


ASSALAMAQLAYKUM. in our country there is no islamic bankng systm. there are banks/fin insts. that give loans for purchase of assets, they call it asset financing. they tell us that they can buy assets for bussiness purposes(the asset to generate income) whereby we have to pay a down paymnt of say 10% n (the fin insts.) then charge us a hire purchase amount payable monthly at a standard figure that will remain unchanged fr the duration of repaymnt period. though no islamic banking exists here they tell us that they have worked it out in the way accptble to islam. i.e they sell to us as hire purchase. is this ok?


All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.


If these banks and financial institutions first buy these assets and own them and are responsible for their loss or destruction before selling them and handling them to the customer, and then sells them to you with a known and definite price but at a more expensive price than that of purchase and without any interest or fine when delaying the repayment of installments, then this is permissible. This is what the scholars  may  Allaah  have  mercy  upon  them call selling by Al-Muraabahah (i.e. the bank purchases the item and then sells it to a customer by installments with a profit after the bank had actually possessed it), for a person who orders the buying; this is not a forbidden loan with Ribaa.

For more benefit, please refer to Fataawa 90798, 84961 and 82332.

However, if the bank does not buy these assets but just lends its price to the buyers and then makes them repay this loan by installments with a greater amount (i.e. interests), then this is nothing but a forbidden loan with Ribaa (interest and usury), and it is forbidden for a Muslim to engage in this transaction because Ribaa is forbidden and has evil consequences in this world and in the Hereafter. Allaah Says (what means): {O you who have believed, fear Allaah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allaah and His Messenger.}[Quran 2:278-279].

Furthermore, it is reported that the Prophet  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) said: "Allaah has cursed the one who consumes Ribaa (i.e. usury or interest), the one who gives it to others, the one who writes it down and the one who witnesses it". He  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) said: "All of them are equal in sin." [Muslim].

For more benefit, please refer to Fataawa 81662, 82986 and 87403.

Allaah Knows best.

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