Answer
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.
In this fatwa:
1- It is clear that riba (usury) is strictly impermissible (haram) in the Islamic Shari`ah. Therefore, a good Muslim is highly recommended to avoid it with all means even though he is to bear hardships in his financial affairs.
2- There are cases of necessities where a person, for satisfying a basic need, may have to resort to interest-based borrowing. This may apply to housing in societies/communities where Islamic finance is not available or does not cover the whole market.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
To the best of my knowledge, there is an Islamic bank in Sri Lanka where finance for vehicles and houses is made available in Shari`ah compliance ways.
In this case, it is really difficult to claim that there is a need to resort to conventional banking.
I, therefore, understand this question as a matter of using the facility of internal loan at a lower rate and more convenient than the finance of the Islamic bank of Sri Lanka.
Accordingly, any amount of interest, small or big and at a low or high rate, is haram in the Islamic Shari`ah. The prohibition of interest in Islam is based on its being unjust not on the amount of riba or its rate.
Interest is unjust because it is not generated by the asset of the creditor which is the debt. Debts do not generate any increment and therefore any increment imposed in a debt contract is oppressive and unjustified.
Of course, I recognize that there are cases of necessities where a person, for satisfying a basic need, may have to resort to interest-based borrowing. This may apply to housing in societies/communities where Islamic finance is not available or does not cover the whole market.
Almighty Allah knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.