Is interest (in the modern context) haram?

[Slog]

The partnership program is based on the Islamic financing principle of Musharaka. Under this arrangement two parties (Financing Company aka UIF and the Customer) come together to purchase an asset. In our case “the House.”

Each party contributes their monetary share towards the purchase price of the house. Customer contributes in the form of a down payment and UIF contribution is the financing amount. Since the customer uses the home for his or her benefit, a rent is paid to UIF for using their share of the property. The rent is the “profit” UIF derives for investing in this partnership. Customer acquires the property from UIF over a 10, 15, 20 or 30 year term in monthly payments.

The monthly payment customer pays each month to UIF consists of two portions: Buyout Price and Use Payment (aka Rent). Overtime… the customer buys out UIF’s share and upon final payment takes full ownership of the property.
https://www.myuif.com/financing/home-financing/#tab-2d420231368951de035

There are different companies basically doing the same thing but this company also offers 3 different ways to finance a house without interest

Musharka, mubadla and sukuks are the biggest topi drama there is. They just call it ‘profit payment’ instead of ‘interest payment’ and charge an even higher rate than the prevailing interest rate.

 

[Gharib Aadmi]

Interest isn't permissible under Islamic law.

Riba is not permitted. Islamic Banks charge interest, they might not use that word, but its basically the same thing. You cant lend someone $10,000 , and expect the same thing to be paid back in 5 years and consider that fair. You need to take into account time value of money, a reasonable profit that the lender should make.

Sir Syed Ahmed Khan, to give an example of a Muslim from the subcontinent, made the same argument that interest was not the same as Riba.

 

[Itachi]

Musharka, mubadla and sukuks are the biggest topi drama there is. They just call it ‘profit payment’ instead of ‘interest payment’ and charge an even higher rate than the prevailing interest rate.

J P Morgan has Islamic bank?

 

[Sidilicious]

The partnership program is based on the Islamic financing principle of Musharaka. Under this arrangement two parties (Financing Company aka UIF and the Customer) come together to purchase an asset. In our case “the House.”

Each party contributes their monetary share towards the purchase price of the house. Customer contributes in the form of a down payment and UIF contribution is the financing amount. Since the customer uses the home for his or her benefit, a rent is paid to UIF for using their share of the property. The rent is the “profit” UIF derives for investing in this partnership. Customer acquires the property from UIF over a 10, 15, 20 or 30 year term in monthly payments.

The monthly payment customer pays each month to UIF consists of two portions: Buyout Price and Use Payment (aka Rent). Overtime… the customer buys out UIF’s share and upon final payment takes full ownership of the property.
https://www.myuif.com/financing/home-financing/#tab-2d420231368951de035

There are different companies basically doing the same thing but this company also offers 3 different ways to finance a house without interest

Even if you dress a monkey in a suit, it still acts like a monkey.

This is no different from interest payment. You may call it whatever you want, it’s still interest payment.

 

[Gharib Aadmi]

Even if you dress a monkey in a suit, it still acts like a monkey.

This is no different from interest payment. You may call it whatever you want, it’s still interest payment.

Yes its the same thing. Their is nothing wrong with calling it "Islamic Banking", but overall they are not any different than other banks.

 

[Giannis]

Modern day Islamic banks are a joke, they gonna rebrand interest using Islamic lingo but it's still the same thing. Best thing to do is just work hard, stack those bandz and then buy an affordable house outright on cash. Khalas. No need of any mortgage or mubadla or whatever they wanna call it.

 

[Slog]

Modern day Islamic banks are a joke, they gonna rebrand interest using Islamic lingo but it's still the same thing. Best thing to do is just work hard, stack those bandz and then buy an affordable house outright on cash. Khalas. No need of any mortgage or mubadla or whatever they wanna call it.

Yea and your neighbors will own a house in no time and just do mortgage payments while you’ll be slaving away paying rent equivalent or maybe even more than their mortgage payment. And perhaps when you’re about to retire you’ll have enough cash to buy a house outright if no unexpected medical expenses.

And at the end of the day your neighbors will still be better off because they have a solid asset in hand.

This is why only 33% of Muslims in the United States are homeowners while 58% of the general population owns homes

 

[Giannis]

Yea and your neighbors will own a house in no time and just do mortgage payments while you’ll be slaving away paying rent equivalent or maybe even more than their mortgage payment. And perhaps when you’re about to retire you’ll have enough cash to buy a house outright if no unexpected medical expenses.

And at the end of the day your neighbors will still be better off because they have a solid asset in hand.

This is why only 33% of Muslims in the United States are homeowners while 58% of the general population owns homes

Homeownership among Muslims in America is low not cause they're averse to mortgages, it's cause the community is mostly middle to low income. That said, if I'm not wrong the Pakistani-American community has much higher homeownership rates than other Muslim Americans. It's an income thing.

 

[uberkoen]

There are many other ways buy things without having to take out interest loans. Save up, borrow from others, go in partnership, sell assets etc.

Interest is destroying the world esp with the paper money fraud currencies.

The world has been enslaved through paper money and interest.

You can believe what you like, but the question was NOT your anti-religion opinion but does ISLAM still see interest as haram, only a fool would suggest otherwise.

Why would someone loan you money to buy a house that you will repay over 10-25 years for example? Again, time value of money was not a concept back then but it is now. Value of money depreciates due to inflation and other factors. How do we account for that when giving loans without charging interest?

 

[uberkoen]

It is not business. Because it stays in the bank and you get interest on it. Well, what I say is according to what I have heard from scholars.

Money is a tool that you can earn to use more money. It's all about risk vs reward. Is investing in stocks haram? because in that case as well, you're using money to earn more money. What about investing in a silent partnership where you put money in and ask for certain returns without being actively involved in the business?

How do we literally define riba? How do we say certain things are allowed and certain things aren't.

Is it really haram to use money as a tool to earn more money?

 

[Cpt. Rishwat]

Homeownership among Muslims in America is low not cause they're averse to mortgages, it's cause the community is mostly middle to low income. That said, if I'm not wrong the Pakistani-American community has much higher homeownership rates than other Muslim Americans. It's an income thing.

So I wonder, how do people buy homes in Muslim countries without a loan?

 

[Bigboii]

That itself is interest. They are just re routing it to make it appear as non interest

True but I guess they have to make a profit

 

[KingKhanWC]

Why would someone loan you money to buy a house that you will repay over 10-25 years for example? Again, time value of money was not a concept back then but it is now. Value of money depreciates due to inflation and other factors. How do we account for that when giving loans without charging interest?

Knock knock, again I dont care about your personal opinion, the thread is if Islam allows interest which is does not. Unless you can argue otherwise?

 

[KingKhanWC]

Could you explain where and why Islam sees interest as haram? You are just being aggressive here but not contributing much to the debate.

Riba referred to the excessive charging on loans. It was what is called predatory lending. The modern financial system has interest rates based on market forces rather than arbitrary rates set to exploit

There is nothing to contribute, it's clear in the Quran and Hadiths Interest is haraam and always will be due to the reasons mentioned. The modern financial system is worse than anything in history because of paper money, which I explained. Because you can print as much as you like while enslvaing people into debt. Take away paper money, there may be a discussion. Only new age strange reformists ask such questions.

 

[Giannis]

So I wonder, how do people buy homes in Muslim countries without a loan?

Most people in Muslim countries do get mortgages lol.

 

[Slog]

Most people in Muslim countries do get mortgages lol.

not true in pakistan

and that is why most middle class people do not own homes and the well off own multiple

 

[Giannis]

not true in pakistan

and that is why most middle class people do not own homes and the well off own multiple

I don't think you know what middle class is. A lot of middle class people buy apartments on mortgages.

 

[Musakhel]

From Abu Sa'id al-Khudri : The Prophet, , said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt - like for like, and hand-to-hand. Whoever pays more or takes more has indulged in riba. The taker and the giver are alike [in guilt]." (Muslim, ibid; and Musnad Ahmad)

Usuary or riba is not for excessive amounts of interest only, it is for any amount.

Also
From Abu Hurayrah : The Prophet, , said: "There will certainly come a time for mankind when everyone will take riba and if he does not do so, its dust will reach him." (Abu Dawud, Kitab al-Buyu', Bab fi ijtinabi al-shubuhat; also in Ibn Majah)

 

[Slog]

I don't think you know what middle class is. A lot of middle class people buy apartments on mortgages.

in Pakistan? on mortgages? dont know which world you living in...

 

[sweep_shot]

From Abu Sa'id al-Khudri : The Prophet, , said: "Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt - like for like, and hand-to-hand. Whoever pays more or takes more has indulged in riba. The taker and the giver are alike [in guilt]." (Muslim, ibid; and Musnad Ahmad)

Usuary or riba is not for excessive amounts of interest only, it is for any amount.

Also
From Abu Hurayrah : The Prophet, , said: "There will certainly come a time for mankind when everyone will take riba and if he does not do so, its dust will reach him." (Abu Dawud, Kitab al-Buyu', Bab fi ijtinabi al-shubuhat; also in Ibn Majah)

[MENTION=151956]Bigboii[/MENTION]

Here are more stuffs. Check it out.

 

[Technics 1210]

Most people in Muslim countries do get mortgages lol.

What planet are you living on?

UAE for example, no mortgage, no interest, straight up monthly payments for 5 years.

 

[Mamoon]

So I wonder, how do people buy homes in Muslim countries without a loan?

They inherit it from their parents or buy one from savings.

 

[Itachi]

What planet are you living on?

UAE for example, no mortgage, no interest, straight up monthly payments for 5 years.

housing loan for 5 years only? The installment will be huge!!!! (even if i exclude any interest)

 

[ElRaja]

Money is a tool that you can earn to use more money. It's all about risk vs reward. Is investing in stocks haram? because in that case as well, you're using money to earn more money. What about investing in a silent partnership where you put money in and ask for certain returns without being actively involved in the business?

those are both allowed as you are sharing in the risk and reward, you do not have recourse to a persons private assets if a stock investment or joint venture fails, and these investments do not need to be made with money. you can contribute other forms of capital.

im no expert on islam, but the reason why interest is considered different is because you can basically entrap someone with a debt you know they may be unable to pay, whereas if you lose an investment in an equity venture, there's nothing you can really do.

 

[Kroll]

Riba is not permitted. Islamic Banks charge interest, they might not use that word, but its basically the same thing. You cant lend someone $10,000 , and expect the same thing to be paid back in 5 years and consider that fair. You need to take into account time value of money, a reasonable profit that the lender should make.

Sir Syed Ahmed Khan, to give an example of a Muslim from the subcontinent, made the same argument that interest was not the same as Riba.

In terms of Sharia, interest is taken to be the same as riba, otherwise we would have been quoted a threshold. You might not agree with this but it is the general consensus amongst the scholars.

 

[Slog]

J P Morgan has Islamic bank?

in middle east it does i think

there are many purely islamic banks too

 

[Giannis]

housing loan for 5 years only? The installment will be huge!!!! (even if i exclude any interest)

Down payments are supposed to be 5 - 20% anyways. Although you can get a mortgage with 3% down but that's discouraged and you're required some kind of insurance.

 

[PetroDollars]

In terms of Sharia, interest is taken to be the same as riba, otherwise we would have been quoted a threshold. You might not agree with this but it is the general consensus amongst the scholars.

It depends on how you interpret the sharia, scholars have given different opinions on such matters that they contadict each other.

But like i said previously, most of the scholars who people have talked about in this thread bringing in banking and finance explanations are faulty, there understanding of it is terrible and not right, then they use hadith to match them, it doesnt work that way when you dont even understand banking and finance.

 

[PetroDollars]

There is nothing to contribute, it's clear in the Quran and Hadiths Interest is haraam and always will be due to the reasons mentioned. The modern financial system is worse than anything in history because of paper money, which I explained. Because you can print as much as you like while enslvaing people into debt. Take away paper money, there may be a discussion. Only new age strange reformists ask such questions.

Theres absolutely nothing wrong with paper money unless you get your knowledge from the likes of alex jones or david icke or other deluded conspiracy theorists.

Its the current financial system that has allowed us to extend human life expectancy from 40 to almost doubling to 80. Its allowed you to sit at home and type on a computer screen where you voice your frustrations against the system that freed you, its what allowed you to have your basic needs be met like food and healthcare, remember that the next time to go to a hospital.

Today for the first time in history more people die from over eating than starvation, how do you think that happened. Without money printing there would be no iphones, flatscreen tvs or aeroplanes, even cars would be like private jets are today for the very rich, ofcourse theres some downsides to it like there are to anything else, but its the best system man has built, do you wonder why the world changed more in the last 100 years than in the last 8000, its all down to increasing the money supply.

 

[Technics 1210]

Today, paper 'money' is only valuable by fiat. It's a scam. The government create more at whim, and hey presto the currency is devalued. This results in inflation, thus higher prices.

Paper money is only worth the paper it is printed on if backed by something, typically Gold or Silver.

No currency has survived for more than 100 years without the backing of a precious metal.

Price vs Value people.

 

[PetroDollars]

Today, paper 'money' is only valuable by fiat. It's a scam. The government create more at whim, and hey presto the currency is devalued. This results in inflation, thus higher prices.

Paper money is only worth the paper it is printed on if backed by something, typically Gold or Silver.

No currency has survived for more than 100 years without the backing of a precious metal.

Price vs Value people.

Printing money doesnt result in inflation and has never, more money was printed in western countries in the last 10 years than in the 100 yeasr before that, guess what happened to inflation it went down.

You dont understand money which is obvious, its not somekind of a thing with a value attached to it that you keep as an investment and then spend your investment.

Money is simply an illusion, its a token used for exchaging goods with one another, an exchange mechnism. It doesnt need a value, the only reason it needed a value in previous eras was because of how easy it was to create fake money. By having your exchange mechnism in paper tokens rather than metals, it means you can increasing the money supply, which results in an increase in transactions in the economy, which leads to a better life for all. How do you think the free healthcare and education system still exists in these countries?

If you think this is a scam then you might is well belive everything that paper money has done for humanity is a scam, which i outlined in the previous post.

 

[Technics 1210]

Printing money doesnt result in inflation and has never, more money was printed in western countries in the last 10 years than in the 100 yeasr before that, guess what happened to inflation it went down.

You dont understand money which is obvious, its not somekind of a thing with a value attached to it that you keep as an investment and then spend your investment.

Money is simply an illusion, its a token used for exchaging goods with one another, an exchange mechnism. It doesnt need a value, the only reason it needed a value in previous eras was because of how easy it was to create fake money. By having your exchange mechnism in paper tokens rather than metals, it means you can increasing the money supply, which results in an increase in transactions in the economy, which leads to a better life for all. How do you think the free healthcare and education system still exists in these countries?

If you think this is a scam then you might is well belive everything that paper money has done for humanity is a scam, which i outlined in the previous post.

Printing money has never caused inflation?

Weimar Germany and Zimbabwe say hi.

When you understand the difference between price and value then talk.

Oh and money is not the means to exchange goods, it's currency that does that. Money stores value. Currency depreciates. Look it up.

Your views are as fraudulent as a US dollar bill.

 

[Technics 1210]

On another note - if interest is haram, then what about dividends? Or buying bonds? Is this all haram too?

 

[PetroDollars]

Printing money has never caused inflation?

Weimar Germany and Zimbabwe say hi.

When you understand the difference between price and value then talk.

Oh and money is not the means to exchange goods, it's currency that does that. Money stores value. Currency depreciates. Look it up.

Your views are as fraudulent as a US dollar bill.

Zimbabwe and Weimer germany was caused by supply issues, Mugabe confiscated farms from whites and gave to blacks, it caused a crash in agriculture and production, Weimer was wiped out the same way from the world war, do you research before throwing absurd childish assumptions. your views are nothing but of a conspiracy theorist.

 

[sweep_shot]

Printing money doesnt result in inflation and has never, more money was printed in western countries in the last 10 years than in the 100 yeasr before that, guess what happened to inflation it went down.

You dont understand money which is obvious, its not somekind of a thing with a value attached to it that you keep as an investment and then spend your investment.

Money is simply an illusion, its a token used for exchaging goods with one another, an exchange mechnism. It doesnt need a value, the only reason it needed a value in previous eras was because of how easy it was to create fake money. By having your exchange mechnism in paper tokens rather than metals, it means you can increasing the money supply, which results in an increase in transactions in the economy, which leads to a better life for all. How do you think the free healthcare and education system still exists in these countries?

If you think this is a scam then you might is well belive everything that paper money has done for humanity is a scam, which i outlined in the previous post.

You are saying printing money is a good thing. In that case, USA can just print out trillions of Dollars to pay off their debts. What do you think?

 

[Slog]

On another note - if interest is haram, then what about dividends? Or buying bonds? Is this all haram too?

If interest of the modern system is haram then bonds are obviously haram too since they pay interest.

Stocks and dividends are not generally. But then there are those who say that stocks of companies who have any kind of conventional debt are also haram.

 

[PetroDollars]

You are saying printing money is a good thing. In that case, USA can just print out trillions of Dollars to pay off their debts. What do you think?

Printing money is what was responsible for increasing human life span by doubling it, advancements in science, technology and medicine and the reason why me and you can have a discussion without seeing each other, so yes its a good thing and dont forget its what gives you a free healthcare and education system. With a gold standard none of this would be possible, there just wouldnt be enough money to around, forget about R&D.

US can print trillions to pay off its own debt but it doesnt need it, it rather prints for the rich, capitalism turned into crony capitalism and it only prints money to pump the stock markets hoping it trickles down to the middle and lower class while making the rich wealthy, so some reforms are needed,but it doesnt worry about its debt because its all printed by its own bank the fed, just like UKs debt is printed by BoE, the bonds they sell to the public can be canceled through QE.

You should read the deficit myth by stephanie, it goes into it in more depth.

The reason why countries are poor and rich is because of financial engineering, poor countries just haven't figured it out yet.

 

[FastBowlingAllrounder]

It is not business. Because it stays in the bank and you get interest on it. Well, what I say is according to what I have heard from scholars.

Business is halal because you are assuming risk.

With interest, you aren't assuming any risk and therefore it is considered haram.

That is why Islamic bonds such as Sukuk involve the Bank/the issuer assuming the risk of the business/project they are investing in (if the business makes profit, the issuer gets a cut, if the business doesn't make a profit, the bank has to stomach the loss of their investment).

 

[Itachi]

You should read the deficit myth by stephanie, it goes into it in more depth.

The reason why countries are poor and rich is because of financial engineering, poor countries just haven't figured it out yet.

I am listening to her lectures and the concepts are very new to me. I do not want to agree with her but what she says does make sense.

 

[uberkoen]

Knock knock, again I dont care about your personal opinion, the thread is if Islam allows interest which is does not. Unless you can argue otherwise?

I just did but you're too dense to understand the reality of the concept of 'riba'

 

[uberkoen]

Business is halal because you are assuming risk.

With interest, you aren't assuming any risk and therefore it is considered haram.

That is why Islamic bonds such as Sukuk involve the Bank/the issuer assuming the risk of the business/project they are investing in (if the business makes profit, the issuer gets a cut, if the business doesn't make a profit, the bank has to stomach the loss of their investment).

Nonsense. Who says you're not assuming any risk. Is time value of money not a risk? Let's say you get an interest rate of 3% but what happens if inflation goes to 5%. Are you not losing money?

 

[FastBowlingAllrounder]

Nonsense. Who says you're not assuming any risk. Is time value of money not a risk? Let's say you get an interest rate of 3% but what happens if inflation goes to 5%. Are you not losing money?

Yes, you are losing money in that case, but the 3% that you are making through the interest rate you mentioned does not involve you taking significant risk. Now if inflation results in that money being worthless is another matter but you profited from that 3% return without any risk.

 

[FastBowlingAllrounder]

On another note - if interest is haram, then what about dividends? Or buying bonds? Is this all haram too?

Dividends from a stock are halal if the company is paying the dividends through their earnings and if they earn/conduct business in a manner that is Islamic compliant.

So, for instance, if they produce and distribute alcohol, and then issue dividends, it is likely that those dividends are from their alcohol based earnings and therefore it is haram.

On the other hand, if it is something like a textile firm who pays out of their halal earnings, then it is halal.

However, if the same textile firm conducts halal sales practice, but pays their dividend from the return they get on company-owned assets, then it depends on those assets. If the assets are interest based, then the resulting dividend will be haram. That's why Islamic investors are encouraged to look into the debt-equity ratio and financial basis of companies before investing.

Regarding the dividend payment itself, again, you take on risk in investing in that business/stock (because if their business goes bust they're unlikely to pay you your dividends).

Bonds are usually haram. There is an Islamic substitute/"halal" bond by the name of Sukuk which involves the lender/purchaser of the bond getting a cut of the profits of whatever project/business the funds went into. Therefore, if that firm/business/project does not generate a profit, the lender/sukuk bond purchaser also stomachs a loss.

Therefore, typical bonds - which involve the face value of the investment and periodic interest payments being paid to the lender/bond purchaser - are considered haram.

 

[uberkoen]

Yes, you are losing money in that case, but the 3% that you are making through the interest rate you mentioned does not involve you taking significant risk. Now if inflation results in that money being worthless is another matter but you profited from that 3% return without any risk.

The rewards are low because the risk is low. This is how investing works. You can take the same money and put it in something extremely risky and end up possibly making 50% returns or losing everything. Higher risk means higher rewards. Not sure what your point is here. Are you saying it's haram because the risk is low?

 

[FastBowlingAllrounder]

Riba is not permitted. Islamic Banks charge interest, they might not use that word, but its basically the same thing. You cant lend someone $10,000 , and expect the same thing to be paid back in 5 years and consider that fair. You need to take into account time value of money, a reasonable profit that the lender should make.

Sir Syed Ahmed Khan, to give an example of a Muslim from the subcontinent, made the same argument that interest was not the same as Riba.

Taking into account the time value of money is a fair argument - the lender should receive the equal value of what they lent back.

However, the lender should not make a profit until they assume some type of risk.

 

[uberkoen]

Taking into account the time value of money is a fair argument - the lender should receive the equal value of what they lent back.

However, the lender should not make a profit until they assume some type of risk.

Again, banks do assume risk. They assume the risk of the person taking the loan defaulting for example. Interest isn't risk free and I don't understand why people this of it as such. Interest is low-risk. Low-risk investments yield low returns.

 

[FastBowlingAllrounder]

The rewards are low because the risk is low. This is how investing works. You can take the same money and put it in something extremely risky and end up possibly making 50% returns or losing everything. Higher risk means higher rewards. Not sure what your point is here. Are you saying it's haram because the risk is low?

But with interest, the rewards are guaranteed. As for the risk of the loan defaulting, depending on the loan terms, the lender can take legal action against the borrower or accelerate the return of the remaining balance to recover their money. In today's world it is unlikely the lender will have pity on the borrower for not having the funds and forgive the remaining balance.

 

[CricketCartoons]

But with interest, the rewards are guaranteed. As for the risk of the loan defaulting, depending on the loan terms, the lender can take legal action against the borrower or accelerate the return of the remaining balance to recover their money. In today's world it is unlikely the lender will have pity on the borrower for not having the funds and forgive the remaining balance.

The moment you lend someone, you have taken a risk. What if the borrower dies?

 

[FastBowlingAllrounder]

The rewards are low because the risk is low. This is how investing works. You can take the same money and put it in something extremely risky and end up possibly making 50% returns or losing everything. Higher risk means higher rewards. Not sure what your point is here. Are you saying it's haram because the risk is low?

The only risk involved in fixed-income/interest based assets is when you trade them. If I buy a bond now at 3% interest rate, then the interest rate goes to 4%, then I won't be able to effectively trade my bond and therefore it is likely to de-valuate, that is a risk, granted.

However, the actual 3% returns you make on that bond (or other asset, whether it be cash in a bank or whatever) do not involve a significant risk. As for the risk of the loan defaulting, that isn't a real risk as the lenders always take legal actions and undergo other means to get their money back.

 

[FastBowlingAllrounder]

The moment you lend someone, you have taken a risk. What if the borrower dies?

Actions such as possessing the person's asset or other means are undertaken to recover the amount.

 

[uberkoen]

But with interest, the rewards are guaranteed. As for the risk of the loan defaulting, depending on the loan terms, the lender can take legal action against the borrower or accelerate the return of the remaining balance to recover their money. In today's world it is unlikely the lender will have pity on the borrower for not having the funds and forgive the remaining balance.

How are the rewards guaranteed? What is the borrower is bankrupt? Legal action will do nothing if the borrower has no money. This happens a lot. People default on loans all the time. There is risk involved when you put your money in a bank and earn interest and there is a risk involved when the bank lends money and earns interest.

One is a risk related to time value of money and the other is a risk related to the borrower defaulting. Obviously, we are discussing these concepts in very simple terms and not going towards a discussion where we involve insurance or credit checks etc. but even with all of these things a risk is there. Banks do make losses and go bankrupt as well. Look at what happened to ABN Amro for example

 

[FastBowlingAllrounder]

The moment you lend someone, you have taken a risk. What if the borrower dies?

I believe there are also certain types of insurance on some loans. Where, if the borrower does meet unfortunate circumstances, the insurance firm steps in and then repays the necessary amount to the original lender.

 

[uberkoen]

The only risk involved in fixed-income/interest based assets is when you trade them. If I buy a bond now at 3% interest rate, then the interest rate goes to 4%, then I won't be able to effectively trade my bond and therefore it is likely to de-valuate, that is a risk, granted.

However, the actual 3% returns you make on that bond (or other asset, whether it be cash in a bank or whatever) do not involve a significant risk. As for the risk of the loan defaulting, that isn't a real risk as the lenders always take legal actions and undergo other means to get their money back.

Again, you're mistaken. People default on loans all the time and it is not always collected by banks.

and again I will go back to my simplistic example where if the interest rate is 3% and inflation is 5% you're losing money leaving it in the bank and thus there is a risk.

 

[CricketCartoons]

Actions such as possessing the person's asset or other means are undertaken to recover the amount.

Probably you have not heard of NPA. Banks are not always able to recover their losses from defaulters. It is rare if they do.

 

[CricketCartoons]

I believe there are also certain types of insurance on some loans. Where, if the borrower does meet unfortunate circumstances, the insurance firm steps in and then repays the necessary amount to the original lender.

If there was zero risk in giving loans, banks would be disbursing loans to everyone. So why doesn't that happen?

 

[FastBowlingAllrounder]

How are the rewards guaranteed? What is the borrower is bankrupt? Legal action will do nothing if the borrower has no money. This happens a lot. People default on loans all the time. There is risk involved when you put your money in a bank and earn interest and there is a risk involved when the bank lends money and earns interest.

One is a risk related to time value of money and the other is a risk related to the borrower defaulting. Obviously, we are discussing these concepts in very simple terms and not going towards a discussion where we involve insurance or credit checks etc. but even with all of these things a risk is there. Banks do make losses and go bankrupt as well. Look at what happened to ABN Amro for example

When people do default on such loans, it is unlikely they have absolutely no money to pay back. Assets are seized and the loan terms are re-written and the borrower spends a large period of time working to pay off that loan.

With that school of thought, there is risk involved in holding any currency due to the slight yet ever-present risk of that country's economy collapsing or something or the other happening but these external/far off risks. When you buy a stock, you accept the fact that it may go up or down after you purchase. If it goes up you profit and if it goes down you lose money.

With loans, from the get-go you are lending money to a borrower under certain terms (which in most cases outline exactly what happens in given circumstances - such as the borrower finding themselves on the street and whatnot) and they expect to make that money back with a return. That return - in theoretical terms of the investment - is guaranteed.

In typical investments, the return isn't guaranteed. You won't take legal action against a company because their share price went down. You will take legal action against a borrower who defaulted due to the financial and legal systems being oriented in that manner these days.

 

[uberkoen]

When people do default on such loans, it is unlikely they have absolutely no money to pay back. Assets are seized and the loan terms are re-written and the borrower spends a large period of time working to pay off that loan.

With that school of thought, there is risk involved in holding any currency due to the slight yet ever-present risk of that country's economy collapsing or something or the other happening but these external/far off risks. When you buy a stock, you accept the fact that it may go up or down after you purchase. If it goes up you profit and if it goes down you lose money.

With loans, from the get-go you are lending money to a borrower under certain terms (which in most cases outline exactly what happens in given circumstances - such as the borrower finding themselves on the street and whatnot) and they expect to make that money back with a return. That return - in theoretical terms of the investment - is guaranteed.

In typical investments, the return isn't guaranteed. You won't take legal action against a company because their share price went down. You will take legal action against a borrower who defaulted due to the financial and legal systems being oriented in that manner these days.

If there is no risk involved then why do banks go bankrupt? What happened to ABN Amro? If there is 100% surety that they will recover all their money then a bank should never have to go through crisis but they do because the risk is there.

There are ways you can mitigate your risk as is the case in any business. You can mitigate the risk of your investments by investing in a portfolio. You can mitigate the risk of losing items you are shipping by buying insurance. There are countless measures to mitigate risk.

Any business you do, it is done under certain terms from the get-go. If you're selling clothes to a buyer you would do so under certain terms where you expect payment from the customer one way or another whether it is immediate or over one year or over ten years. There are ways you can mitigate the risk of non-payment of this amount but in the end the risk is there that the person might not be able to pay.

 

[FastBowlingAllrounder]

If there was zero risk in giving loans, banks would be disbursing loans to everyone. So why doesn't that happen?

Do they expect to take proper risk on the loans they do give though?

I see what you're saying regarding that giving a loan to someone with bad credit history is a bad idea as they are likely to default.

If I give a loan to someone who is unlikely to pay it back, then yes there is a risk there. But if I give a loan to someone who is likely to pay it back, then I am lending them money with the assurance they will pay it back with interest, therefore I am not taking any significant risk.

 

[uberkoen]

Do they expect to take proper risk on the loans they do give though?

I see what you're saying regarding that giving a loan to someone with bad credit history is a bad idea as they are likely to default.

If I give a loan to someone who is unlikely to pay it back, then yes there is a risk there. But if I give a loan to someone who is likely to pay it back, then I am lending them money with the assurance they will pay it back with interest, therefore I am not taking any significant risk.

In a business would you sell your items to someone who you know won't be able to pay you? So you're not taking risk either, as per your example.

 

[FastBowlingAllrounder]

In a business would you sell your items to someone who you know won't be able to pay you? So you're not taking risk either, as per your example.

The risk you take in a business is regarding whether people buy your product or not. If I open a clothing store with $10,000, then the risk I am taking is that people will come to my store and buy my products in return for money. No one is obligated to come and buy from me. If I fail, I risked my $10K and I lost it.

In a loan, the borrower is obligated to pay you back with interest.

Furthermore, in a business the transaction and the payments should happen on the spot, you have the money and you give it to me (in full) and I give you the product.

 

[FastBowlingAllrounder]

If there is no risk involved then why do banks go bankrupt? What happened to ABN Amro? If there is 100% surety that they will recover all their money then a bank should never have to go through crisis but they do because the risk is there.

There are ways you can mitigate your risk as is the case in any business. You can mitigate the risk of your investments by investing in a portfolio. You can mitigate the risk of losing items you are shipping by buying insurance. There are countless measures to mitigate risk.

Any business you do, it is done under certain terms from the get-go. If you're selling clothes to a buyer you would do so under certain terms where you expect payment from the customer one way or another whether it is immediate or over one year or over ten years. There are ways you can mitigate the risk of non-payment of this amount but in the end the risk is there that the person might not be able to pay.

The reasons most banks go bankrupt is because of a lack of transparency in investments - the GFC is an example of many investors not knowing the full story behind the Mortgage Backed Securities, therefore, they created a chain where they bought debt and sold debt and eventually when the loans defaulted the whole system collapsed.

However, if there was transparency in this marketplace, then banks would not give their loans to the people who would be unable to pay them back - granted. They would give loans to people who will pay them back but then the borrowers are obligated to do so. Such dodgy investments/crisis situations happen when exuberance sets into a marketplace and a market failure occurs due to a lack of proper information.

 

[uberkoen]

The risk you take in a business is regarding whether people buy your product or not. If I open a clothing store with $10,000, then the risk I am taking is that people will come to my store and buy my products in return for money. No one is obligated to come and buy from me. If I fail, I risked my $10K and I lost it.

Isn't is the same with a bank. You could spend money to open a bank and hire staff but no one is obligated to take a loan from you. Also, banks take a risk by taking your deposit and paying you interest on it but what if no one takes a loan out then they are making a loss on the interest being paid to you.

In a loan, the borrower is obligated to pay you back with interest.

In a business the customer is obligated to pay you as well. Not sure what the issue is here. Again, if you give the customer certain payment terms there is risk the customer will not pay and hence you will assess and see whether to give payment terms or not and mitigate your risk. Similarly, banks mitigate their risk by assessing who to give loan to and whom not to.

Furthermore, in a business the transaction and the payments should happen on the spot, you have the money and you give it to me (in full) and I give you the product.

No, this does not happen. B2C maybe however when you're doing business B2B there are always payment terms involved.

 

[uberkoen]

The reasons most banks go bankrupt is because of a lack of transparency in investments - the GFC is an example of many investors not knowing the full story behind the Mortgage Backed Securities, therefore, they created a chain where they bought debt and sold debt and eventually when the loans defaulted the whole system collapsed.

However, if there was transparency in this marketplace, then banks would not give their loans to the people who would be unable to pay them back - granted. They would give loans to people who will pay them back but then the borrowers are obligated to do so. Such dodgy investments/crisis situations happen when exuberance sets into a marketplace and a market failure occurs due to a lack of proper information.

No, that's not the only reason banks go bankrupt. That is one of the reasons.

and again, you would not sell your product to someone whom you know cannot pay then why do you expect a bank to take that risk and why is mitigating that risk haram for a bank but halal for any other business?

 

[FastBowlingAllrounder]

No, that's not the only reason banks go bankrupt. That is one of the reasons.

and again, you would not sell your product to someone whom you know cannot pay then why do you expect a bank to take that risk and why is mitigating that risk haram for a bank but halal for any other business?

With a business, you develop a product or service and then offer that to customers, in return for which they pay you. With loans, you are not offering any product or service, you are merely giving the borrower money and then charging them a higher amount of money in return (ignoring time value of money here).

The bank is fine in mitigating risk regarding who they give money to. Once the money has been lent, theoretically they make a return on that through interest.

With a business I am taking on a risk by developing/manufacturing and then distributing that product. The loan of a bank is more like an investment where they make a return on it rather than give a set product or service for a set price.

In that investment itself, once the bank has decided "this is a great person to lend it to", they lend the money and (as the borrower was a good borrower) they get that money back plus interest.

With investment if I say "you're a great entrepreneur (because of xyz reasons), I'll invest in your business" that doesn't mean I while make any returns, that doesn't mean I will make my initial investment back either. Therefore I am assuming the risk.

With the loan, once I have decided who to give the loan to, then there is no real risk as the person will pay you back with interest and that interest comes under riba.

 

[FastBowlingAllrounder]

No, that's not the only reason banks go bankrupt. That is one of the reasons.

and again, you would not sell your product to someone whom you know cannot pay then why do you expect a bank to take that risk and why is mitigating that risk haram for a bank but halal for any other business?

With a business, you develop a product or service and then offer that to customers, in return for which they pay you. With loans, you are not offering any product or service, you are merely giving the borrower money and then charging them a higher amount of money in return (ignoring time value of money here).

The bank is fine in mitigating risk regarding who they give money to. Once the money has been lent, theoretically they make a return on that through interest.

With a business I am taking on a risk by developing/manufacturing and then distributing that product. The loan of a bank is more like an investment where they make a return on it rather than give a set product or service for a set price.

In that investment itself, once the bank has decided "this is a great person to lend it to", they lend the money and (as the borrower was a good borrower) they get that money back plus interest.

With investment if I say "you're a great entrepreneur (because of xyz reasons), I'll invest in your business" that doesn't mean I while make any returns, that doesn't mean I will make my initial investment back either. Therefore I am assuming the risk.

With the loan, once I have decided who to give the loan to, then there is no real risk as the person will pay you back with interest and that interest comes under riba.

 

[CricketCartoons]

With the loan, once I have decided who to give the loan to, then there is no real risk as the person will pay you back with interest and that interest comes under riba.

If I lend money to a relative/friend for 5 years without any contract, and want him to pay the normal interest (say 5%), does that come under riba or not?

 

[CricketCartoons]

If I give a loan to someone who is unlikely to pay it back, then yes there is a risk there. But if I give a loan to someone who is likely to pay it back, then I am lending them money with the assurance they will pay it back with interest, therefore I am not taking any significant risk.

Likely means good probability, but it does not eliminate risk.

From no risk you have now moved to no significant risk.

 

[uberkoen]

With a business, you develop a product or service and then offer that to customers, in return for which they pay you. With loans, you are not offering any product or service, you are merely giving the borrower money and then charging them a higher amount of money in return (ignoring time value of money here).

The bank is fine in mitigating risk regarding who they give money to. Once the money has been lent, theoretically they make a return on that through interest.

With a business I am taking on a risk by developing/manufacturing and then distributing that product. The loan of a bank is more like an investment where they make a return on it rather than give a set product or service for a set price.

In that investment itself, once the bank has decided "this is a great person to lend it to", they lend the money and (as the borrower was a good borrower) they get that money back plus interest.

With investment if I say "you're a great entrepreneur (because of xyz reasons), I'll invest in your business" that doesn't mean I while make any returns, that doesn't mean I will make my initial investment back either. Therefore I am assuming the risk.

With the loan, once I have decided who to give the loan to, then there is no real risk as the person will pay you back with interest and that interest comes under riba.

Okay, what about the business where you're a middle man? You're just connecting two parties? What about for example if I'm a marketing firm where I get a contract for digital marketing and give that off to another small firm and keep the difference as my profit? A business does not have to be a product. It can be a service. Providing a loan is a service.

From your post it seems that if you're not manufacturing something then its not a legit business. This then puts the entire service industry into the haram category because they are not manufacturing anything but just providing a service with no risk in developing, manufacturing or distributing a product.

A loan is a service which is provided at a set price. Consider the interest rate on the loan a set price.

I don't understand the points you're making. When you decide to sell a product to a person first you assess whether he can pay or not and then if he can you sell the product or service for the cost of the service plus your own margin. Banks sell loans as a service in a similar way.

Again, even once a loan is provided there is risk of the person defaulting on the loans. Not sure why it is so difficult for you to understand this. What if the person has no property? What if the property is sold and the money spent and the person then dies? How will they recover the money. The risk is always there and so it does not come under riba.

 

[Technics 1210]

Dividends from a stock are halal if the company is paying the dividends through their earnings and if they earn/conduct business in a manner that is Islamic compliant.

So, for instance, if they produce and distribute alcohol, and then issue dividends, it is likely that those dividends are from their alcohol based earnings and therefore it is haram.

On the other hand, if it is something like a textile firm who pays out of their halal earnings, then it is halal.

However, if the same textile firm conducts halal sales practice, but pays their dividend from the return they get on company-owned assets, then it depends on those assets. If the assets are interest based, then the resulting dividend will be haram. That's why Islamic investors are encouraged to look into the debt-equity ratio and financial basis of companies before investing.

Regarding the dividend payment itself, again, you take on risk in investing in that business/stock (because if their business goes bust they're unlikely to pay you your dividends).

Bonds are usually haram. There is an Islamic substitute/"halal" bond by the name of Sukuk which involves the lender/purchaser of the bond getting a cut of the profits of whatever project/business the funds went into. Therefore, if that firm/business/project does not generate a profit, the lender/sukuk bond purchaser also stomachs a loss.

Therefore, typical bonds - which involve the face value of the investment and periodic interest payments being paid to the lender/bond purchaser - are considered haram.

Thank you for the info.

 

[Itachi]

Dividends from a stock are halal if the company is paying the dividends through their earnings and if they earn/conduct business in a manner that is Islamic compliant.

So, for instance, if they produce and distribute alcohol, and then issue dividends, it is likely that those dividends are from their alcohol based earnings and therefore it is haram.

On the other hand, if it is something like a textile firm who pays out of their halal earnings, then it is halal.

However, if the same textile firm conducts halal sales practice, but pays their dividend from the return they get on company-owned assets, then it depends on those assets. If the assets are interest based, then the resulting dividend will be haram. That's why Islamic investors are encouraged to look into the debt-equity ratio and financial basis of companies before investing.

Regarding the dividend payment itself, again, you take on risk in investing in that business/stock (because if their business goes bust they're unlikely to pay you your dividends).

Bonds are usually haram. There is an Islamic substitute/"halal" bond by the name of Sukuk which involves the lender/purchaser of the bond getting a cut of the profits of whatever project/business the funds went into. Therefore, if that firm/business/project does not generate a profit, the lender/sukuk bond purchaser also stomachs a loss.

Therefore, typical bonds - which involve the face value of the investment and periodic interest payments being paid to the lender/bond purchaser - are considered haram.

Life is too complicated for muslims.

 

[sweep_shot]

Life is too complicated for muslims.

It is not complicated at all. There are certain rules and regulations we have to follow. I don't find these complicated; I actually find these very logical and beneficial.

These things may seem complicated to non-Muslims but that's understandable.

 

[sweep_shot]

If I lend money to a relative/friend for 5 years without any contract, and want him to pay the normal interest (say 5%), does that come under riba or not?

Yes. That counts as riba based on what I have seen from most preachers/scholars.

I never want to charge interest if I lend money to someone. If the person can't pay back, I have to treat it as sunk cost.

For me, it is better to lend no money than lending money and charging interest.

 

[Itachi]

Yes. That counts as riba based on what I have seen from most preachers/scholars.

I never want to charge interest if I lend money to someone. If the person can't pay back, I have to treat it as sunk cost.

For me, it is better to lend no money than lending money and charging interest.

so... you only lend that amount of money, which if not return, doesn't give you any trouble or only a little?

 

[sweep_shot]

so... you only lend that amount of money, which if not return, doesn't give you any trouble or only a little?

For me, yes.

I don't know about others.

 

[Bigboii]

Taking into account the time value of money is a fair argument - the lender should receive the equal value of what they lent back.

However, the lender should not make a profit until they assume some type of risk.

So in defense of Islamic banking

yes they make profit with the fact that you have to pay rent plus a share to take control of the asset but in case of foreclosure or defaulting on a loan both party share the risk equally (depending on their shares) so borrower is not responsible for paying back all of that loan

It's more like a partnership in a business than a conventional loan

 

[PetroDollars]

I am listening to her lectures and the concepts are very new to me. I do not want to agree with her but what she says does make sense.

I dont agree with everything she says, but what she is talking about is MMT, its not a new concept, its just a restructure of the current system, where money is created and pumped into the top (elite class) and hopes it trickles down, then you tax the public to remove the money and fund social programes,

MMT says, just print the money and fund the social programes, according to ray dalio this is where we are heading.

 

[FastBowlingAllrounder]

If I lend money to a relative/friend for 5 years without any contract, and want him to pay the normal interest (say 5%), does that come under riba or not?

Theoretically yes, because then they are not giving you "like for like". That 5% return will mean the amount that was returned you exceeded the amount that you initially lent, hence it comes under riba. When you say normal interest, I assume you mean simple/non-compounding interest.

 

[FastBowlingAllrounder]

Life is too complicated for muslims.

To each their own.

 

[FastBowlingAllrounder]

Okay, what about the business where you're a middle man? You're just connecting two parties? What about for example if I'm a marketing firm where I get a contract for digital marketing and give that off to another small firm and keep the difference as my profit? A business does not have to be a product. It can be a service. Providing a loan is a service.

From your post it seems that if you're not manufacturing something then its not a legit business. This then puts the entire service industry into the haram category because they are not manufacturing anything but just providing a service with no risk in developing, manufacturing or distributing a product.

A loan is a service which is provided at a set price. Consider the interest rate on the loan a set price.

I don't understand the points you're making. When you decide to sell a product to a person first you assess whether he can pay or not and then if he can you sell the product or service for the cost of the service plus your own margin. Banks sell loans as a service in a similar way.

Again, even once a loan is provided there is risk of the person defaulting on the loans. Not sure why it is so difficult for you to understand this. What if the person has no property? What if the property is sold and the money spent and the person then dies? How will they recover the money. The risk is always there and so it does not come under riba.

Okay, let's assume I am doing online marketing for other firms. I myself do not know anything about online marketing, therefore any clients that I am able to secure (let's say; a cake baking business) I outsource the work (say, making a website and then marketing their products on that website) to another freelancer who is good at making websites.

In that case, I cannot take the payment from the initial client, until I have completed the service they require from me. Therefore, if the freelancer I hired makes the website, I must take that website (therefore I pay the freelancer out of my own pocket, so at this stage, I am in a net loss position) and then transfer it to the initial client. Once I hand over the website to the initial client, I can take my payment. Let's say my payment from the client exceeded the payment I made (out of my pocket) to the freelancer by 20%, then that 20% is the profit I bag.

Now let's say the cake bakers want me to market their website online. Then, I must establish a system, such as a monthly membership or a time-based campaign (e.g. we will conduct a $10,000 campaign for 6 months) and then I can only take that payment from the client once my outsourced worker has completed the service and therefore I have provided the service to the client. Only then can I take the payment.

I cannot take payment before providing the product or service. If I clean your carpets for $60, I take the $60 once I've cleaned he carpets. To insure you give me the money, we establish a contract.

That's why drop shipping falls into a grey area, because you take the payment from the customer, then you purchase the product. You shouldn't take payment for something you don't have.

Therefore, with the service, I should get the outsourced firm (as you mentioned) to do the services (and establish some type of product based payment system, in the case of marketing, a 3 month campaign with such and such terms can be worth $5,000 or whatever), pay them, and then take payment from the initial client.

The reason I can mark up and take a (reasonable) profit on the service that I 'bought' and 'sold' is because it holds different values in the eye of the business. The business felt it was valued at $10K while the freelancer felt his work was worth $5K. With a loan, money is money and is the same in the eyes of all people. Yes, if I'm poor and you're rich, I'll care more for $10 but the market equally valuates money in the eyes of all stakeholders in that market.

With a loan, it is more of an investment as you are getting a set return on it. I'm not going to clean your carpets for 20% of the value of your carpets. And regarding the person dying and whatnot, as I mentioned previously; draw parallels with a loan and an investment.

With a loan, I won't lend to someone who has bad credit history but I will lend to someone with a good credit history.

Similarly with an investment, I won't invest in a company with poor sales (or whatever metric), I will invest in a company with good sales. Despite that the investment can fail and I take the loss.

With loans, the legal and financial systems are oriented in such a manner that theoretically, you will not be taking a loss.

The interest rate isn't the set price of the loan as then, the value that is paid back exceeds the initial value that was lent, even adjusting for inflation (otherwise how would banks make money). And as the item in question that is trading hands is money, we can dispute its value (like we can with services) because the market has valued the money for this moment in time. Therefore, even if it is a service, you are giving a set amount of money that the market and everyone in it understands holds a certain value and then taking more value in return for it, hence it is not jaiz.

 

[Slog]

To each their own.

It really is though.

My parents are insistent on never investing in bonds or investment in most stocks or those with an interest component and resultantly they have lost a lot of value over the years because cash just sits there and loses due to zakat and time value of money. Especially with the 50% depreciation on Pak tipee