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Securing Sources of Credit Without Interest: Possible?

29 October, 2017
Q As-salamu `Alaykum. As is the example of Christian Europe, in particular Italy where the practice of lending at interest was forbidden by Christian authorities, there were problems in generating capital.The solution to this problem was that Jews were the source of credit because of the fact that they are prohibited to lend at interest to one another, but to non-Jews there is no prohibition.In essence, the Jews were "flush with cash" from Riba and the Christians saw them as a strategic asset who could provide something that was forbidden in the Christian law at that time.Presuming that under the Islamic system we are to use gold and silver and possibly platinum as money, what is the solution to the problem of securing sources of credit without resorting to the practitioners of Riba as that source? Shall we monetize other scarce metals like platinum?

Answer

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.

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In this fatwa:

A Muslim is not allowed to resort to interest-based finance. Islamic finance, therefore, creates credit with no interest loans.


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

Islamic finance creates credit similar to conventional interest-based finance but while the latter uses the loan contract, the Islamic finance uses other credit creating contracts such as sale and leasing.

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There is a big difference between lending and sale on credit. In brief, it is tied to the real market while loan only transfers ownership.

The Islamic system does not need the Jews to give loans because it is based on giving credit through the real production (sharing contracts, i.e., venture capital) and through exchange on credit (sale and leasing).

Loan remains only an act of charity or benevolence while earning through finance is air-tied to real production and exchange.

Allah Almighty knows best.

Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.

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