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In islam, what is the rational of not receiving interests from bank deposits?

What is islamic banking? Is is just a change interminology? Does it mean that it is pointless for muslims to invest their money?

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  • 1 decade ago
    Favorite Answer

    You do receive some benefits but not so much as interest. Islamic Banking focuses on sharing community benefits equally. Even their system of Loan and loan repayments are also quite different... the main aim is to benefit the community as a whole...

    But... Modern Bankers are still businessmen, and I am SURE they will be able to find a "loop hole" in this system, to gain a bigger profit margin... and the community... well, they're on their own

    Source(s): My dad is a retired general manager of a bank
  • 1 decade ago

    Islamic finance is about partnership. Islam allows for equity financing and profit&loss sharing but not interest bearing debt.

    The rationale here is that if u r interested in someone's project and they want funds for expansion, Islam says u just go partner with them and accept the same exposure. It's basically about becoming an owner/shareholder just like them.

    If u extend debt to them instead, the unfair notion that u will receive ur principal plus interest at all times is the reason why it is forbidden. Assume the project loses on a given year. As a debtor u will magnify the loss.

    Generally financial leverage also amplifies the procyclical nature of the economy by giving both profitable phases and non profitable ones a compounded magnitude.

    It's not pointless for Muslims to invest their money. According to the teachings of Islam, the stock exchange is an accepted intermediary. The bond market, however, is not.

    Islamic investors can and do always receive equity-type returns because their banks act mostly like private equity funds. Everyone knows that equity returns are riskier and HIGHER than debt returns.

    I know what ur mind must have suggested now. Given the current global financial architecture, applying Islamic finance in a macro context is impossible. That's partially true. Even all governments of Muslim countries now actually incur conventional interest bearing debts in huge amounts all the time (treasury bills, notes, ...etc.) but there is a large number of successful multinational Islamic finance corporations and their popularity is unbelievable. It's like a money manager that has access to unlimited funding and vast liquidity (not to mention not having a floor for annual return to depositors; or the endless limits on risk tolerance; or the need for rigorous hedging...). It's almost impossible to compete with those. Their activities have mushroomed over the Gulf and now Europe itself is being flooded.

    I'm a Muslim CFA finalist and I'm trying hard to sound simple here rather than throwing big conventions at u. If u r interested in knowing more about Islamic finance feel free to mail me.

    Peace.

  • 1 decade ago

    Be careful about the islamic banking on the internet. I read one bank's terms and conditions and they are still charging high prices on mortgages to make up for lost revenue etc.

    Anyway, there's a difference between interest and ribah. Interest makes up for the difference in the value of the currency. But usury (ribah) is there specifically for taking advantage of the situation. For instance - if someone is buying cars from the auction and fixing them and selling them for a high price and claiming he doesn't have interest then he's a thief. He's jacked up the price to make up for the interest he would have placed upon it and the consumer is out money. That's usury. I know many Muslims that go to these places because the place doesn't charge interest (they think of interest =ribah). lol! The other of interest would be your sales tax. It's a form of interest. You're charged it on just about everything. It make up for the current market trends and helps keep the economy afloat. (that's put it basically)

    Sure we should still invest. Look at the stock market. There isn't any form of interest there. It's investing money in various goods/services for the purpose of gaining wealth when the market increases. No it's not gambling either. Gambling is a game of chance. The stock market isn't chance.

    Hope this helps ....

  • 1 decade ago

    The prohibition against charging interest is very old. It is in the Hebrew scriptures. Christians also prohibited what came to be called "usury" as an unjust way of profiting from other people's need. In the Middle Ages, when Jews were forbidden to own land, they resorted to interest loans as one of the few effective ways to make a living, at the risk of damaging an already trashed reputation. But when Christians realized what they were missing out on, the banking industry was born. Only the Muslims continued to adhere to the ancient prohibition.

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  • 1 decade ago

    i dont really know anything about this but sounds fishy. would the bank loan me (a non-islam person) money at no interest? and if they do charge me interest and not sharing it with the owner of the deposits who keeps the proceeds?

    if they loan money at no interest, then i want to borrow to start a business so i can make money from their money.

    sorry for this ranting, but it sounds to me like those in power a long time ago imposed an idea that got them rich. today it is just benefiting the new powerholders.

  • TEK
    Lv 4
    1 decade ago

    Ali, there's good Biblical precident to show that interest is an immoral factor of taking advantage of the poor.

    That's one of those tenets of Islam I respect.

    Today's modern inflationary economy is designed to keep a few "Gurus" in control of the world.

  • 1 decade ago

    Trading is acceptable

    but lending is porhibited

    Islamis Banks use your money for trade & share the profit with you

    Islamic banks doesn't gives cash loans ever

    but they can sell u commodities with installements.

  • izak
    Lv 4
    5 years ago

    They are ignorant very similar to different people who do deeds which might be unacceptable in Islam. Like the Taliban bombing youngsters and mosques or Saudi governments whipping blameless people.

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