Proceedings of International Islamic Finance Conference 2010

IiFC 2010

HAVING INTEREST FROM CONVENTIONAL BANK OF NON-MUSLIM

COUNTRY: THE VIEWS OF FIQH

Issa Khan♣ , Noor Naemah Abd Rahman

Academy of Islamic Studies, Department of Fiqh and Usul

University of Malaya, Malaysia.

Talukder Golam Rabby

Faculty of Economics and Administration, Department of Economics

University of Malaya, Malaysia.

_____________________________________________________________________

Abstract
This is 21st century, the world is more liberal and open which promotes people move
around and hence getting economic benefits, saving, investing and doing businesses
where Muslim are not different in frequently using conventional banking system
which is ‘Riba’ (interest) imbedded. The ‘Riba’, whatever the modes or types, is a
matter of prolonging debate between different schools of Islamic thought. This
research apprises critically the issue- whether the interest earning from banks
rendering services in non-Muslim countries is acceptable or not. In this contention the
paper analyses the fact from the views of different Islamic scholars and finds
ambiguous result. The content analysis between views reveals that the concept of
liberal orthodoxy is refutable where as fundamentalism is grounded on the light of
Quran and Sunnah.

Keywords: Riba; Conventional bank; Thought; Fatawa; Quran; Sunnah

_____________________________________________________________________

1. Introduction
The monetary transaction and ‘Riba’ (interest) are persistence to each other and retain
interactive relationship in any prevailing financial system in this deceptive world.
Among others, Muslims are also readily engaged in this traditional conventional
system whether intensionally or of ignorance or of fallacy as a result of religious
hazard. Though the fact of Riba, any types of, whether it is acceptable, disputable or
rejectiable has drawn numerous attentions in Islamic research, but from different
points of views (e.g. Fiqh) it demands further enquires that is the contention of this
♣
Corresponding Author: Master’s Student, Academy of Islamic Studies, Department of Fiqh and Usul,
University of Malaya, Malaysia, Email: shahaalam83@yahoo.com
 Khan, Abd Rahman and Golam Rabby

research. Specifically, the main objective of this study is “Riba from the conventional
banks of non-Muslim country and Islamic stand in views of Fiqh” which codify the
Muslim stakeholders definitively in having that Riba.

The prohibition of Riba is a devine restriction imposed by Almighty Allah (Usmani

2008) which is followed by Islamic Bank. But in conventional Bank, interest is an
inevitable element and legitimized by human being. Different financial institutions,
though, have provision of interest in savings, loan and investment, however, in this
paper ‘interest’ is certainly considered that incurred from the institute of bank. To
narrow down the focus of this research into the core of contention, the institutes of
bank are meant those conventional banks which are located and rendering services in
any non-Muslim country. The country to be defined as non-Muslim if she is neither
controlled nor ruled by Muslim, does not have any mutual treaty and stable
relationship with league of Muslim brotherhood( Al-Zarqa 2004).

Of identifying any boundary as a notion of country and adopting financial system,

there are no such evidences prevailing in the Holy Quran and Sunnah to be followed
rigidly in differentiating countries and financial institutions. As a result there are
stretching discord found between Imams (Abu Hanifa, Abu Yusuf, Mohammad Ibn
Hasan Al-Shaibani, Malik, Shafi and Ahmed Ibn Hanbal) and scholars (e.g. Tantabi,
Shaltout, Al-Zarqa, Usmani, Al-Qaradawi, Al- Khalizi, Rahman- the name a few)
which revitalized the ration of doing further research in this field.

The fundamental thesis of this research is grounded on the Sura Al-Baqarah, among
others, in the Holy Quran. Admissible income has been encouraged and the effects of
yields have also been manifested by Allah Almighty.

2. Methodology
In broad view, a qualitative method is followed in this research. For the great concern
of in-depth analysis, specifically content analysis approach has been adopted and for
relevant information- non-Muslim country, lawful and unlawful Riba, different
Fatawas, personal opinion etc- various books have been studied, different articles
have also been reviewed and above all the Holy Quran and Sunnah have been
followed throughout the analysis.

In content analysis, three different trends of thoughts, concerning around the research
topic, - generous (more adoptive), robust (strict and straight into principle) and in
between has been identified. In analysis equal importance has been given on these
thoughts but differentiated on the basis of the Quran and Sunnah and Fatawa as
always since these are together instructive to the Islamic way of life.

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3. Analytical framework

Books Journal Articles Newspaper and Magazine

Information Flows

Refinement
Personal Opinion

Barrier
Fatawa

Quran and Sunnah

Information Prong

Liberal Ideology Conservative Ideology

Moderate Ideology

Figure 1: Framework of information accumulation and dissemination.

The figure (1) illustrates the analytical framework of this research. As this research
follows the content analysis approach hence the sources of information are logically
secondary in character. Collecting and designating those information presses to
recognize the whole model into two parts which are unidirectional one-sided. The
upper part of the model is the engine of information demand mechanism working in
accumulating resources where as the lower part is the domain of supply mechanism
helping in disseminating information into three categories- adoptive, in principle and
in between. The process of dissemination is conditional in prong and subject to a
refinement barrier which is based on the instructions of Islamic way of life. The
information passes through this sorting boundary and is heading towards individual
line of thought. The two part of the model together unveil the understanding of three
different contemplations in which the analysis is round about.

4. Analysis
In analysis, the framework developed in the preceding section is followed strictly.
Three streams of ideologies have been recognized so far in this part of research. In
testing the hypothesis in question- whether having interest from non-Muslim
country’s conventional bank is lawful or not- attempt has taken into the
epistemological enquires to unveil the rations of those ideological jurisprudences.
For the philosophical understanding of hypothesis in question, the grounded theory
has also been considered in judgment of the following three stems of thought.
Recognized steams of thought are-
• Liberal line of thought
• Conservative line of thought
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 Khan, Abd Rahman and Golam Rabby

• Moderate line of thought.

Liberal line of thought

This line of thought supports the hypothesis in question positively. All sorts of Bank
interest (Riba) are admissible either it is accrued from banks located and rendering
services in non-Muslim or Muslim country. The group of scholar who are in this trend
are namely- (Shaltout, Taantabi) and supporting their opinions by the following
judgments-
a. Interest accrues from ‘investment certificate’ and spawns from either
industrial or agricultural loan are admissible since both types of transactions
are analogous to Mudarabah* which is legalized by Islam (Hossain 1996;
Suaidath and Susi 2006; Al-Qaradawi 1994; http://ghoraba.bet, January 2010;
http://www.ahl-alquran.com, January 2010).
b. Conventional bank system is modern, transparent and comprehensive to adopt
which confidently expelled out the dubious pre-modern formal and informal
financial system. If the objective of any financial activity or intension, to get
interest, is to be better off without making other worse off than it is
permissible by Islam and so in restraining this principle having interest from
conventional bank is lawful (Suaidath and Susi 2006; Al-Qaradawi 1994).
c. Sheikh Shaltout stated that accepting ‘Riba’ incurred from savings of
traditional bank is lawful as debtors are paying such type of interest willfully
according to compliance (agreement) (Suaidath and Susi 2006). In addition,
such savings accumulation amounts into a huge financial capital which
provides extended scope to government in further investment- this approach is
commensurate to Mudarabah and doing so does not reveal unlawful ascription
at all.

Moderate line of thought

The scholars (Al-Zarqa, Jaddi) of this line of thought follow in between approach of
other two opposite thoughts in supporting the hypothesis in question. Especially this
supportive manner is dominated by Al-Zarqa who does embolden the following logics
on behalf of his jurisprudence-
a. The interest (Riba) incurred from conventional bank of non-Muslim country is
lawful if Islamic bank service is not available there (Al-Zarqa 2004).
b. In a non-Muslim country, when Muslim start to live permanently and securely
and do engage in business and inbound Muslim travel to visit then the incurred
benefits from any given effort can be lawfully holdup with the complacent of
the citizen of that non-Muslim country. In subject to above condition, the
accruing benefits must not be unlawful even if it comes and mounts up as
interest or from bets. In case of business, moreover, Al-Zarqa also adduces
that Islamic Banks of Muslim country can easily accept and collect those Riba
(interest). In a Fatawa he iterates that the most accepted view in Hanafi
Mazhab is- in between Muslim and enemy though benefit from any
conditional transaction seems spawning interest but that benefit might not be
considered as analogous to conventional bank interest. This judgment is given
by Imam Abu Hanifa and Imam Mohammad Ibn Hasan Al-Shaibani (Imam
Mohammad) but the contradictory views are also exposed by Imam Yusuf and

* ‘Mudarabah’ is a special kind of partnership where one partner gives money to another for investing it

in a commercial enterprise (Usmani 2008).

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other three Imams- Malik, Shafi and Ahmed Ibn Hanbal. The proponent
elucidate that whichever and whatever lawful it should be admissible
everywhere whether the country is Muslim or non-Muslim and in case of
unlawful contention the same suggestion have to be followed. Sharia law is, in
all respect, equally applicable to all Muslim and accordingly as interest is
prohibited and unlawful in Islamic Muslim country so that interest should
similarly be unlawful in non-Muslim country (Al-Zarqa 2004; Kassani 1982).
c. According to the jurisprudence of Imam Abu Hanifa and Imam Mohammad as
having interest from traditional bank of non-Muslim country is lawful so it
must not be immoral to take hold of that interest (Al-Zarqa 2004; Jaddi 2001).

Conservative line of thought

This trend of thought is tightfisted to the hypothesis in question. A number of Islamic
scholars ( Usmani, Al-Qaradawi, Rahman, Hossain, Al-Khalizi-the name a few)
express their views in against of bank interest which is incurred from savings or assets
accumulation irrespective to country. This group is holding stand negatively of the
preceding two ideologies and their basis of judgments are followed as-
a. Both savings and fixed account in any bank is not legitimate to Muslim since
interest accrued from such sources is access of principal amount hence
unlawful all the way (Usmani 1998; Al-Azhar Fatwa Committee in Al-
Qaradawi 1994, p. 71).
b. Though some present-day scholars (Sheikh Shaltout, Al-Zarqa), as mentioned
in previous two thoughts, support both putting liquid and assets as a deposit
and accruing germane interest are legitimate but as having interest, all types
of, is clearly unlawful (Sura Al-Baqarah: Verse-275) so accepting interest
means engaging in a willful battle against of Allah Almighty and his Rasul
(SM) (Sua Al-Baqarah: Verse 289) (Rahman 1429 hizri; Usmani 1998, 2008).
c. Usmani (1998) states that as now a days the western non-Muslim countries are
dominating the Muslim world and predisposing economical and political
exploitation in using of Muslim’s money saved in western banks, so the
interest, though, is not lawful but need to accept as a mode of withdrawing
capital and require to spend for the great benefit of poor or any generous
public activities and adduces the necessity of further research on such
contentious international matter.
d. Generally, savings accumulate capital which is disbursed further as a mode of
loan. In this respect Al-Khalizi (2003) conserves that the loan which produce
interest is not admissible.
e. A more conservative view profound that the Muslim Ummah (community) is
unanimously agreed (Al-Qaradawi 1993, 1994) that the emerging access
amount in principal is unlawful and unfair to attain (Zahrah 2006) and this rule
is applicable to all asset deposited in any country(Kibbi 2006: p 270).

5. Discussion and result

From the above analysis it is identified that, overall, two opposite concepts are
prevailing in Islam which are-
• Reformist
• Fundamentalist
Reformists are supporters of modern Islam and reformism is to be achieved in
reforming of Islamic learning system and revitalizing Islamic faith and practice
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 Khan, Abd Rahman and Golam Rabby

(Rahim 2004). The aim of reformists is- (1) to bring Islam out of fundamentals in a
rational and liberal manner and emphasis on the basic ideals of Islamic brotherhood,
and (2) to utilize the dynamic character of Islam within the context of the intellectual
and scientific progress of the modern world (Smith 1966 in Rahim 2004).

In contrary the fundamentalist concept is based on the firm belief that the commands
given by the divine revelations through the Prophet Mohammad (SM) are to be
followed in letter and spirit and cannot be violated or ignored on the basis of one’s
rational arguments or his inner desires (Usmani 2008).

The line of thoughts discussed in the analysis section can be reorganized in

accordance of above two concepts (Table 1).

Table 1: The views and concepts of Islamic thoughts

Line of Thought Concept
Order Views
1st Optimistic Reformist
2nd Moderate
3rd Pessimistic Fundamentalist

The analysis of content reveals that first two views are analogous to modernist school
of Islamic thought. The scholar views expose easy-going character of Islamic
orthodoxy and extensive liberal capacity of Islam in adopting contemporary demand
of daily life.

The third view strongly supports the rigidity of Islamic unorthodoxy in question of
fundamental principles and hold stand against of rational incarnation and is
unanimous to traditionalist school of Islamic thought.

Since the articulated analysis does not augment any rigid result (direction) hence in
the proceeding paragraphs attempt has taken to testify the argument (hypothesis in
question) of this research from the light of the Holy Quran and Sunnah and at end the
gleaned up results have been arranged in the following table-2 and lined up with
appropriate contentions.
• There has not been any supporting document found for the first line of
thought. These views are based on personal opinion and Fatawa which is not
legitimately acceptable.
• Though second line of thought is also based on personal opinion and Fatawa
as well but having somewhat a stretch of support from a hadith-
‘if Muslim do transaction with non-Muslim of non-Muslim country
then the incurred riba is admissible’ (Kibbi 2002, p. 157; Al-Misri 2001, p;
183).
As it is a Mursal (posted) and Dowaif (weak) hadith (Nabobi n.d.), so this
view fails to establish the ground of acceptability.
• On behalf of third line of thought, there are numerous supportive documents
has been found in the Holy Quran and Sunnah, such as-
o In the Quran a thick devine commands like- Al-Baqarah (verse-
275,276,278,279), Al-Imran (verse-130), An-Nisâ has been found to
support the Islamic fundamentalism.

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o Insight of various hadiths reveals that riba is unlawful and one of the
worst from seven great vices sin. Example of some hadith are- (Zia-Ur-
Rahman 2001, Vol. 5, p.2 6), (Al-Hamidi in Ali Hussain Al-Bawwab
2002, Vol. 3, p.83), (Al-Tirmizi in Ahmed Mohammad Shaker and
Associates, Vol. 5, P. 273), (Ishaq in Mostafa Al-Adhami 1970, Vol. 4,
p. 251), (Abdullah in Mustafa Abdul Kader Atta 1990, Vol. 2, p. 43)
etc.
Thus, clearly, the above mentioned documents recognized the common truth that
‘Riba’ (interest) is not admissible at all.

Table 2: Summary of analysis and result

Views Concept/ Supportive School of Scholar/s Remarks
Activist Document/s Thought
1st Reformist Personal Modernist Shaltout, Refutable
Opinion, (Liberal and Taantabi and not
Fatawa Neo-liberal) acceptable
2nd Personal Imam Abu
Opinion, Hanifa,
Fatawa, Imam
Mursal Mohammad,
(posted) and Al-Zarqa,
Dowaif Jaddi,
(weak)
hadith
3rd Fundamenta Personal Traditionalist Imam Acceptable
-list Opinion, (Conservative) Malik,
Fatawa, Imam Shafi,
Quran and Usmani, Al-
Hadith Qaradawi,
Al-Khalizi,
Rahman

6. Conclusioin
The very nature of life induces people to accumulate wealth which conduces to satisfy
latent desires of human being. With the progress of civilization different institutions
have been emerged and established to exchange different forms of wealth securely.
Bank is such a secure institution which does not only keep wealth intake but also
increase which is generated under man-made provision. If such increase mounts up as
interest (Riba) from any conventional bank which is rendering services in non-
Muslim country then it is lawful or not- is the quest of this research. This research
reveals that on the above contention, though, Islamic scholars are diverted but the
actual fact is that all are working for the great benefit of humanity. Three different
divergent lines are oriented towards two particular concepts- Reformist and
Fundamentalist. The former conceptualists are generous to adopt ‘Riba’ incurred from
conventional bank of non-Muslim country whereas the latter group is rigidly denied
the distortion of fundamental principles of Islam. The research concludes that ‘Riba’,
whatever the modes or types, is not refutable only but rejectable also.

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