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Loan with Profit from Islamic Bank: Riba?

13 September, 2017
Q As-salamu `alaykum. I would like to know: In Islamic banks where they say they follow the Islamic rules and regulations but in reality what made me shock is when they give loans, they charge the fixed rate as an interest but the name changes to profit instead of saying interest. Could you, please, explain how I can know that a bank follows the Islamic rules and regulations properly? Thank you.


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.

In this fatwa:

Islamic banks don’t give loans with either interest or profit. It’s therefore one’s duty to check whether or not his or dealings with banks are Shari`ah-compliant.

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In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

Islamic banks do not give loans; in Islamic finance banks buy goods and assets and sell them to you on credit. They make profit from the difference between the buy and sell prices.

Some Islamic banks in Malaysia give what they call “personal finance”. They use a trick of buy and sell between the customer and the bank and claim it is not riba. This is called either tawarruq or “bay` al`inah”; it is purely riba hidden in the name of sale and profit which is haram.

Allah Almighty knows best.

About Prof. Dr. Monzer Kahf
Dr. Monzer Kahf is a professor and consultant/trainer on Islamic banking, finance, Zakah, Awqaf, Islamic Inheritance, Islamic estate planning, Islamic family law, and other aspects of Islamic economics, finance, Islamic transactions (Mu'amalat). Dr. Monzer Kahf is currently Professor of Islamic Finance & Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey