Are Banks Allowed to Make Profit?
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Are Banks Allowed to Make Profit?



Reply Date

Dec 27, 2016


As-salamu `alaykum. When a bank is not supposed to make interest in Islam, does that mean it’s forbidden to make a profit?



Are Banks Allowed to Make Profit

Wa `alaykum as-Salamu wa rahmatullahi wa barakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear brother, thank you for your question that shows your care for learning Islamic rulings related to lawful (halal) money.

Responding to your question, Prof. Dr. Monzer Kahf, a prominent Muslim economist and counselor, states:

Allah Almighty prohibited riba in the Qur’an but did not prohibit finance. What is the difference? Riba is an increment in a debt whether when it is initiated by a loan or when its maturity is extended. Finance can be done through a loan or through other ways such as sale on credit, renting or putting financial resources together to create new companies, projects and ventures.

In Surat Al-Baqarah verses no. 275-283 where riba is prohibited with strong words, sale is said to be halal and debts resulted from such sale (being sale on credit) are regulated. Verse no. 279 defines riba as any increment above principal of the loan or debt.

Sale on credit is another form of financing where the price is higher than the cash price, leasing is also a form of financing because one gets an asset and uses it for the payment of a small periodical amount.

So is creating partnership; in all these forms the finance provider makes profit or return. This is the foundation of Islamic banking and their practices.

Allah Almighty knows best.

About Prof. Dr. Monzer Kahf

Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies

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