Answered by Shaykh Muhammad ibn Adam al-Kawthari
I want to ask about this justification which I use based on understanding of some Ulema and majorly my own understanding, which I think could be wrong too, but if Ulema of Sunni Path concur then Insha ALLAH I will stick to it firmly, its about Riba and I want it to be clarified because Insha ALLAH I would be getting into Business field very soon. If a Bank gives you Service and takes a certain amount of money from you then would it be considered as Riba? Like for instance I am a Bank who says to Person X that I will secure your money of Rs 10,000 for the time period of 1 year and in return I take a calculated and fixed amount of money say for example Rs 1000, would this be considered as Riba?
My Second Question is regarding Loan, for instance I take loan of Rs 10,000 from a Bank and the Bank says it will charge me Only Rs 1000 at the end of tenor and I will have to return the money in any case even if my business goes in loss would that be considered as Riba?, because usually what happens in Pakistan is that you have to payback the loan with interest so kindly distinguish between these 2 kind of situations.
The companion Sayyiduna Fudhala ibn Ubayd (Allah be pleased with him) defines Riba in the following words:
“Any lending arrangement which derives benefit is riba.” (Sunan al-Bayhaqi, also see: Ibn Nujaym, al-Ashbah wa al-Naza’ir, Ibn Abidin, Radd al-Muhtar, 5/166)
Thus, in light of the above definition and in light of what the classical scholars have stated in their respective books, any extra payment on a loan is considered to be Riba, hence unlawful. It will be considered Riba regardless of which party pays the extra amount.
Therefore, if the bank offers to secure one’s money and charges an amount for this, then this will be considered extra payment on a lending arrangement. It should be remembered that money deposited in the bank is Islamically considered to be a loan forwarded by the depositor to the bank. The reason being is that, money deposited into the bank is secured and guaranteed (madhmun), and the bank is responsible to return it to the depositor. Thus, money put into the bank cannot be termed as a normal trust or deposit in a fiqhi sense (amanah), for that is not considered to be guaranteed.
Moreover, the bank is at liberty (conditionally or customarily) to make use of this money in various different investments and projects. A simple trust is safeguarded and not used, whilst a loan is something that is given with the permission of investing it, under the condition that it is returned safely to the one giving the loan.
In light of the above, it becomes clear that when the bank says that it is securing your money and charges you for this service, it is not allowed, because the money forwarded is not a trust, rather it is a loan that is being forwarded to the bank.
Moreover, if the bank actually safeguards and secures the money without investing it, it would still not be permitted to charge a fee for merely securing one’s money. Offering to safeguard one’s money is considered to be something that is voluntary, hence to charge a fee on merely safeguarding one’s money (amanah) or guarantying re-payment (kafalah) is not permitted.
However, if the bank has to actually bear costs in safeguarding one’s money, such as paper work, time, etc, then it will be permitted for the bank to charge a fee (as service charge) that reflects this work. However, this is when the bank actually keeps the money secure and does not invest it, as it does with other deposits.
As far as your second question is concerned, it is purely and simply a usurious transaction, hence unlawful. The bank charges an extra fixed amount for taking out a loan which is, without doubt, Riba.
And Allah knows best
Muhammad ibn Adam al-Kawthari
Darul Iftaa, Leicester, UK