IMAM KHATTAB’S VIEWS ON INTEREST AND BANKING

Interest and riba, I talked about it enough, I think, in the last ten years. But maybe we need to remind ourselves… I have talked about that topic in various meetings in and out of Toledo and a lot of people have described me as a kafir. And I’ll tell you something: we are always talking about Heaven and Hell but that is a matter for God. No human being can judge another human being—”actions are to be judged by the intentions.” Instead, let us talk about topics that concern us and in which we have to use our brain to arrive at a conclusion.
Last Sunday I was invited to a mosque building in Toronto. The people were after me for six months and I gave plausible excuses every month but they finally cornered me and said, “you fix the date”. On that Sunday, you had a sort of a general assembly and Dr Jabarin opened the floor to questions regarding finances and the new building. Two questions were posed for Dr. Jabarin last week: one related to interest and one related to mentioning the names of contributors and the dollar amount of their contributions in the Monitor. I am going to talk about these issues. A lot of people have asked how we built that addition to the mosque. Where did we get the money? I said to them: We borrowed money from the bank! And they responded: ‘How could you build the mosque with money on which interest or “riba” was paid?’ [Imam talks with mock seriousness] I replied: “You see, we like the interest–based system, our religion is half– half, so that is why we are acting that way”.
Ar–riba. We hear about this too often. What is ar–riba? What is the translation of the word riba in English? It is not “interest”. There is another word. If you look up the dictionary you’ll find that the word riba translates into English as “usury”. Instead for the word “fa–i–da” the translation is “interest”. This means there is a difference between the two. Riba and interest are not synonymous. So, we have to analyze these terms and concepts and understand them because our lives everywhere in the Muslim world are in turmoil because of that “riba”.
What is the difference between the riba and the non–riba? Let us be analytical now. We have about four Qur’anic verses, which talk about riba. Riba existed before the Prophet and continued to exist during the time of the Prophet so the revelations came to prohibit it: “Abandon what is left of the riba you have to give…”It is clearly stated and no one can argue that riba in not haraam. No Muslim can deny that. But the question is WHAT IS RIBA? What is the definition of riba? Our problem nowadays is our inability to decide whether the interest paid by the bank on money that you deposit in the bank, qualifies as riba or not? That is the question on which many people cannot agree. My personal opinion is that it is not riba. When it comes to the subject of interest, I am going to use the blackboard to explain how any one of you who deposits his money in a bank in an interest–bearing account, is losing at the end of the year, not gaining, even if the bank gave you 15%.
Many of the ulamas don’t like to give fatwas on this topic. Why? Because they are scared of somebody. If you are employed by any agency in Saudi Arabia you cannot say that interest is halal otherwise your check will be stopped. It is the same in other countries. This dependence on government is what hinders the ulama from talking about that topic. On the other hand there are some ulama who are giving fatwas out of ignorance because all they do is read old books. We need someone who has studied current books of economics and then to analyze them in the light of Islam.
I maintain that the interest paid by a bank is not riba and, in turn, is not haraam. What is the basis of my idea? What is the logic behind it? I am going to give you my analysis and leave the judgment up to you. I am not forcing my opinion on anybody. If it makes sense to you, accept it otherwise continue with your own convictions, it will be better.
God did not prohibit anything except if there is a harm accruing from it. Analyze every prohibition in Islam and you find that there is some harm in the prohibited activity either for yourself or for somebody else. Why was gambling prohibited? Because when I win your money you will hate me forever. Why was liquor prohibited? Because you lose the most important part in your body, which is your brain. You cannot think. Everything that Islam prohibited, it prohibited because there is some inherent harm in it. So why Islam prohibited riba? Because riba is based on exploitation.
I ask myself: Did the Prophet have banking? There was no banking system at that time. How and on what basis can we say that interest taken or given to the bank is haraam? The Prophet had no such institutions in his lifetime. Riba in those days was always the result of a rich man lending money to a poor man [one way traffic] and the more the poor man was in need, the higher was the interest rate charged by the rich man. There was an element of exploitation. The poor man was in need of money to meet his expenses i.e. to feed and clothe his children. So the rich man exploited his poor brother and imposed upon him interest or riba according to his degree of destitution. If he were in a bad shape then the rate would be 50%, if he was in a worse shape it would be 75% until it reached 100 percent. If you read the books of Fiqh, you will find that the fuqahaa [Muslim scholars] call this “Ar–Riba al–faahish”, which means rates of interest, which are not believable. That is what Islam prohibits because there is exploitation.
Now, if I put $1000 in Ohio Citizens Bank at 5%, am I exploiting the bank? You judge for yourself. If there is no exploitation then it is not riba. Islam prohibited riba because of the exploitation. So, what is the exploitation involved in dealing with the bank? Nothing! No exploitation!
If I go and buy a house for $100,000 and pay $20,000 as down payment and borrow from the bank the remaining $80,000, is the bank exploiting me? I did not borrow that money to eat, I did not borrow it to feed my children; I borrowed it for a business. Real estate. That real estate is going up in value. The house, which you bought for $15,000 twenty years ago, will cost you $150,000.00 today. It’s a business. And I am paying installments. A lot of people forget this and say: “O, you are paying $800 a month to the bank in interest”. I say: “Yes. What about you? You have to rent an apartment at $700 per month or 800 or 1000 if you are looking for something nice. So you end up paying the same amount for rent and every year the landlord is increasing your rent 5%. But when you buy the house, what ever you pay is the same all your life for 30 years”. So these are points just to make you think.
Some one from the audience asks: “If a person borrows $20,000.00 from a friend should he be paying interest?” Imam answers: It depends upon why that person is borrowing the money. If you are borrowing $20,000 to open a business then you have to give your friend his share by paying interest on the money he has loaned you. If you are borrowing it to feed your children because you are a poor guy then this will be exploitation to take interest from you. But if you are taking the money from me to make money why should I give you my money to make money on it for yourself. You should pay interest in that case and, no, I don’t consider that riba.
Nowadays some of our ulamas who have never read a book of economics are, nonetheless, giving fatwas regarding bank interest. But consider this: How could I translate the Arabic Qur’an into English if I don’t know the Arabic language? Get an American man very well versed and fluent in English and give him the Qur’an in Arabic and ask him to translate it into English. Can he do it? He cannot. He knows English very well but he doesn’t know Arabic. In the same manner the sheikh knows the Fiqh, and the hadith, and the Qur’an but he doesn’t know what is economics, or what capitalism is all about, or how the banking system works, what is the mechanism of interest rate, where it goes, who it serves, what it serves. Then how can you give a fatwa?
Here is the first very important point to keep in mind, and I would like you to open your brains very well for this. Nowadays we deal with plastic money. You go to JC Penny, buy what ever you like, hand the cashier a little plastic card, your money is there – fantastic! Or, you pick up a bill for $100— paper, a little bit of paper, valueless— and you hand it over and you get a suit and go out. Did the Prophet have any of these things? He had no paper money. There was no credit card at the time of the Prophet. The medium of exchange at the time of the Prophet was gold and silver. The Prophet used Islamic ad–Dinar made of gold, or Islamic ad–Dirham made of silver. Gold and silver, if their prices go up, their value will go up, if their prices go down their value will go down. So the currency at the time of the Prophet fluctuated in its value. But paper money— if tomorrow the Government of America demonetizes the paper money, you will have ten days to go to a bank and change your money for the new bill. If you don’t go to the bank to change your money within 10 days all the paper money you have is valueless. But gold will stay with you. If you find gold under the ground dating from the time of the Prophet— a dinar— it has significant value because it is gold. Ability to maintain value is a significant difference between gold and paper currency and represents an important element for consideration today but no one pays much attention to it.
I remember a little boy— my son— in grade six, one day came to me and… you know when those kids want a toy or some money from their Dads they talk nicely and sit beside Daddy— and he said: “Daddy, you know you are giving me a dollar every day for lunch while I am going to school but you are not accounting for inflation. I cannot buy anything with the dollar now. Can’t you give me an increase or something?” Grade six! Talks in the language of inflation! University graduates ten years ago didn’t know what inflation meant. The element of inflation is the second important point, which is not taken into account in the discussions regarding riba nowadays. Suppose you put $1000 in the bank today, the bank will give you 5 percent if you are lucky. Am I getting back more money than I am giving the bank? No. I am not. It may even be that I am losing money. If you get 5%, your $1000 next year will be $1050.00. With the $1000 last year I was able to buy three good suits. This year I need $1200 to buy the three good suits because of inflation. In the final analysis I am losing because the value of my money is going down—the inflation made your money lose $150 in the year. You did not make money! So what is the interest you are talking about? What interest? I lost! The ulama who are talking about banking and interest don’t know what inflation means, have never read a book of economics but are, nonetheless, giving fatwas regarding interest. So inflation is an economic concept, which did not exist at all at the time of the Prophet. Why? Because the gold and silver maintain their value. The third important point to keep in mind is that, at the time of the Prophet, the loan was for consumption. The poor borrowed money from the rich to feed and clothe their children. Today if I go to the bank and I say to the manager that I need $5000 he will ask me why? If I say to him: “To feed my children”. He will say: “Mr. Khattab I am very sorry I cannot take the stomach of your children as collateral”. But if you are buying a house or a car the bank requires that you pay at least 20 percent so the bank will then guarantee its loan fully. That’s how your loan is guaranteed. Nowadays the loan is for business and not for consumption.
The fourth very important point to keep in mind is that at the time of the Prophet money lending was one–way traffic: from rich to poor. The poor never lent money to the rich. So the rich always exploited the poor and the more the poor person was in need the higher the riba. The lender did whatever he wanted and however he wanted and there was no system to control it, so that sometimes it reached 100%. This does not happen nowadays. The interest rate is controlled nowadays by the government or what they call The Fed. Our banking system now is two–way; I borrow from the bank and I lend the bank. If I borrow a loan for a house or a car I am paying a certain percentage. This percentage is not controlled by the bank, which is lending me the money, but by the Fed —a government agency. The bank is not free to charge you whatever it wants. Secondly, the bank borrows from you in the form of deposits—you deposit into your savings account or CDs, for example, and YOU get a revenue from the bank. The difference between the two—what you take and what you give—is very small, because the rest is called service charge to cover the employees, to pay the utilities, to pay the building rent—there are many expenses involved in maintaining a bank. So in the final analysis the give and take is nearly equal. If that bank from which I am borrowing and paying interest is flourishing, I have a share in it. That share is in the form of building roads, building factories, increased employment – all these things from which I benefit when I am living in that community. This is different from what was prevalent at the time of the Prophet. It is two–way traffic now whereas at the time of the Prophet it was one–way traffic only, so how can you call it riba?
So, as Muslims living in America, I think we know a little bit more than our counterparts back home. I would like just to summarize for you so you take these ideas with you and think about them. Riba was a one–way traffic, always the rich man lending the poor man. Today interest transactions are bi–directional— that is one difference. The rate— the give and take—is nearly equal. The loans at the time of the Prophet were for consumption. Today if you go to the bank and ask them for $1000.00 to feed your children you will not get a penny and they will say: “My son, I need a collateral, I’m not going to catch the stomach of your children if you cannot pay the amount back”. This means that our borrowing nowadays is for business not for consumption. That is another difference. The riba used to be between individuals— one man to another man— but nowadays the interest is between agencies and the public.
Nowadays we have mortgage. What is mortgage? It is a new word for Muslims. How can we fit that word in Islamic lexicon? We have a whole chapter in Islamic Jurisprudence, which talks about mortgage but calls it another name. Mortgage is a loan given to you by the bank with a collateral. That collateral could be land, could be a house, or a car. Some people say the mortgage is haraam. Why? The concept of mortgage is employed in Muslim countries but they call it ar–rahn. For example: Salih Jabarin asks me for a $10 loan and promises to give it back to me after one week. I say okay. Give me your watch as “rahn” when you bring the $10 I’ll give you your watch back. That’s acceptable in Islam. So what is the bank telling me? It is telling me, take the loan for $90,000 to buy the house, but if you fail to pay me back I’ll take the house. It’s a collateral. Just read it (Imam quotes 2:283). The verse says: If you are traveling and there is no writer available to write that debt then ask him for rahn— to give you a collateral by hand so you can keep it until he pays back your money. Can’t we see mortgage in light of this verse? Yet some people still maintain that a mortgage is haraam. Okay, if so, then there is another section in Islam called mudarabah.
What is mudarabah? For example, there is a man who has money but he doesn’t know how to invest it, and there is a man who is well versed in the field of trade and business but he has no capital. So these two meet and agree that one will pay the money and the other will contribute his experience and the profit will be divided between them 50–50, 40–60, 70–30, or as agreed. That is called mudarabah. So when I deposit my money in the bank I am entering into a contract with the bank and they call it in Islam the contract of mudarabah, because I don’t know how to invest but the bank has people experienced in different sectors of the economy. The bank uses my money to invest it. So I am entering into a contract (mudarabah) with the bank. I give them my money but it is called a deposit. And the bank employs people who invest that money in the stock market, in buildings, in housing, in building roads for the public, in varied projects. And the bank agreed with me that it will give me five, six or eight percent on that deposit.
Every Muslim has a house and nearly every one of them is paying mortgage and it is okay. But, if we borrow some money to build the mosque they say: “Astaghfirullah Al– Adheem you build the mosque by ‘riba’?” Double standard! You built your house by ‘riba’. We have some examples not too far from us in Cleveland and Columbus. We are lucky here in Toledo; we are lucky because we hit it at the head by going to the bank and borrowing one million or more. But our brothers in Cleveland, Ohio, three–quarters of them are doctors in the heart clinic and, since I came here, they are in the process of building a mosque and they did not start yet. Why?
Each of those communities has half a million in the bank already. They have a plan and they invite bids on it. But when they get a contractor and tell him that they would like to build a mosque, the contractor tells them it will cost them $800,000. So the people are short of $300,000 and since it is “haraam” to borrow the money from the bank they say “Amr– e– ilallah” let us collect some more money. Let us collect that $300,000 before we start building. It takes them one or two years to collect the $300,000 and now they have $800,000. Come contractor we would like to build the mosque. The contractor says: “People, the material prices are going up and there is an increase for the labor, sorry, our bidding was two years ago. Now with the inflation it will cost you $1 1/4 million”. Again they did not build. They have to collect the $450,000. Now they work on it for another two, three years, collect the money, but now the contractor says the mosque will cost them two million dollars. And as a result they did not put one single brick in the ground until now and it has been 10 years since I came here. And when they phoned me and asked me I said to them: People, go and borrow the money from the bank, pay interest, and I’ll sign for the hell on behalf of you. [Laughter in the audience]
We borrowed 2.6 million dollars in the first stage of the building of this mosque. And we paid it, as you know, in 4 1/2 years. The total interest we paid the bank was about one–third of one million in the 4 1/2 years. When I asked the construction company how much they would charge us for this building if we are to build it today they said: “Double. Our contract was 2.6 million at that time but we’ll charge you now 5.2 million”. So, I saved 2 million and a half because I paid 350,000 in interest! So, if I don’t use my head I’ll be going down to the drain. And Islam is very open but our heads are not open that is the whole problem.
All that building which you see in front of you cost us what? $2.6 million dollars was our first contract. $1.4 million dollars our second contract. This adds up to $4 million dollars. But we built it by entering into an interest–bearing transaction with the bank. If you get an appraising company to appraise that building today, it is worth $10 million. That is what I call the element of inflation, which when we talk about riba we don’t take it into account. And when our ulamas give their fatwas they don’t know about inflation or what it means. Why am I saying all that? I am saying this because we need a new mind— we need a transplant with a Muslim mind! Because the Muslim mind, as I said to you before, is the most expensive one! Do you know that? Have I told you this before?
When they started doing organ transplants at the Medical College of Ohio, someone came who wanted a brain transplant. He went to the doctor and said to him that he would like to have a new brain. The doctor asked him what type of a brain he wanted? German, American, British, Muslim. He said it depended on the price because he had a budget for that operation. The doctor informed him that an American brain would cost $10,000, a British brain $5000, a German brain $2000, and a Muslim brain $500,000. The patient asked the doctor why the Muslim brain cost so much more. The doctor replied that it was so because it had not been used yet! The mileage is still on 00! What we lack as Muslims is a brain to be used; if we use our brain then we can understand our faith because our faith was revealed for every time and for every place. It means it is like clay and you shape it in every time and in every place according to the needs. We have to utilize our brain.
There are some people who say: “But nowadays there are Islamic banks, which do not deal with riba”. And I will tell you something about these so–called Islamic banks and this is not something that I am saying from my own. I have two nephews who are working in Islamic banks in Cairo and I know exactly how those Islamic banks work. I have an account in one of the Islamic banks myself and my nephew is taking care of it for me. All the Islamic banks are dealing in “riba” if we consider interest synonymous with riba.
I asked my nephews how those banks operate. They said: Whenever we have some deposits, which we cannot utilize, we deposit them in Chase Manhattan bank in New York at seven or eight or whatever percent. That is what is happening. Why they are resorting to that? Because they understand that the depositor expects some gains. He is waiting for some profit. Unless they fulfill that expectation he will withdraw his money from there and go to some other bank. So we come back to the same system on the international level. All the Muslim countries that have money, especially those who have oil, deposit their money in foreign countries with interest. So when our ‘new’ Muslim people here come and make our life miserable in every way by saying this is haraam, and this is haraam, and this is haraam then the easiest thing is to shoot yourself. That’s the easiest thing. Because if we are going to follow such people our total life in this country will be haraam: everything you eat is made by interest from the bank, every company is based upon interest and, therefore, all the clothes you wear are haraam based upon that thinking. So the best thing is to die so you get out of the haraam. Kill yourself! And even killing yourself is haraam! [Loud laughter].
We like to emphasize things ‘Islamic’ e.g. when some people would like to marry they say to you that you have to marry the “Islamic way”. What’s the Islamic way? There is no Islamic way in marriage. There is a marriage in Islam in which you have a proposal from one party and approval from the other party in the presence of two witnesses. [Imam laughs]. And note, in the area of marriage Islam does not ask for one man and two women, it asks simply for “two witnesses”: they could be two women only. That is another topic we will be talking about because a lot of people claim that, in Islam, every two women are equal to one man. That is wrong. There are areas in Islam in which a witness from among the men is not acceptable but a woman witness is acceptable. We are going to talk about that. And they analyze this and say this is so because the woman was created with less memory. However, when I look at those articles about business in the Wall Street Journal written by women or all those women broadcasting their ideas about the stock market on the television, personally I feel I don’t know, after my 17 years of studies, what she is talking about. And they would like to tell me she was created with less memory! She has memory seven times as big as mine! We have to find some other way; we have to utilize our heads.
A questioner from the audience is asking about the “Islamic Credit Union.”
Imam replies: Yeah, they laugh at God. They trick Allah.
I have experienced that thing in Canada. Some Muslim group in Toronto felt that we should not deal with the ‘riba’ in Canada. So they decided to establish what they call the Islamic Credit Union. Every member pays, for example, $500 a month until there is 10,000 dollars paid by each one and then they draw by lot who will get a house first. If my name is drawn in the lot to buy a house, for example, and my money in the credit union is $10,000 and the house is worth $100,000 then they say the credit union will pay the 90,000 while I pay $10,000. And the title will be “mushaaraka”. Mushaaraka means partnership. I and the credit union purchased the house 10% for me and 90% for them. Title is drawn up and everything finalized!
They said: “You would like to go to the house?” Yes. Take the key but let us write a rent contract. The rent contract is $1000 per month. So $100 for me [the 10%] and $900 for the credit union [because they own 90%]. Very good. Islamically there is nothing wrong with all that. After five or six years my grandfather died and I inherited substantial wealth, so I said to them “people I would like to buy the house now from you and pay you the total amount”. They said: Good. But get an appraiser. The appraiser will come and say that after five years the house is now worth $200,000.00. You know the houses in Toronto they go up vertical! Two hundred thousand dollars— they say you own 10%, which is $20,000 and we own 90%, which is $180,000. So I have to kill my second grandfather to pay that!
In this respect if I look at Ohio Citizens Bank I think it is a very, very, very nice relatively to that Islamic Credit Union or the so–called Islamic Credit Union. At least from the first minute you buy the house it is yours. You sell it for half million after wards— it is yours! Because you are carrying the risk and whatever installment you are paying it will be equal to the rent. These concepts truly need someone to utilize reason and think them over and not to take whatever is written in the books of three or four or five hundred years ago on their face value because times have changed.
There is a chapter in the Islamic Fiqh that is called Al–masaali–hil Mursala, which means “the benefits of the public”. We have never talked about that. What does “benefits of the public” mean? Sometimes you lend your money to the American government in the form of a treasury bill. Without all that money there will be no roads, no canals, no bridges, no factories, all these things that benefit the public. When you lend to the Government it is like lending it to yourself because you are part of the American public. This is something to think of also.
And don’t forget that at the time of the Prophet and also after his time, the people used to save their money and put it in a steel case. My grandfather used to do this. We found 13,000 Egyptian pounds in a steel case in a wall when we were demolishing our own house in order to rebuild. Some people buried the steel case in the ground for fear of thieves who might steal it. Even now in our villages when they demolish a house, they find money in thousands in the walls, but it is useless because it is cancelled money. This money was useless even at that time because it was not circulating so it could be used for building houses and new development etc. All this money was buried in the ground while the rest of the public in the village are starving to death and that is what the Qur’anic verse known as Ayat– ul– Kanz came to condemn: “… But as for all who lay up treasures of gold and silver and do not spend them for the sake of God—give them the tiding of grievous suffering [in the life to come. 9:34]. That is the idea of kanz: collecting money and putting it underground so that neither you nor the public will benefit from it. Their idea was that it is haram to put it in the bank.
But there are some fatwas at the present time, very recent fatwas and I know about them, that say: “Dealing with banks is haram” period— even if it is just a checking account. But why don’t we consider that dealing with banks enters in the circle of at–takaful al ijtimaa’i (the social co–operation). When you deposit your money in the bank and the bank is lending it to different agencies there is a circulation of money and there is a benefit for everyone. We are pooling our money in that institution to serve the public. Why we don’t look at it from that aspect? You are supposed to share the loss as well as the gain. When the bank known by its initials BCCI was shut down by the US Government, who got their money? YOU lost! When INTRA Bank in Lebanon (1951–1966) is finished who got his money back? No one. So there is a risk. You are sharing a risk. In the same way you share in the gain in the form of the five percent interest that they are giving you. If I put $1000.00 in the bank and you put the same and a third person puts the same then the bank will invest it all in several projects. Some projects lost money, some gained 20% some gained 5%. How will the bank know that my money is in that project and yours is in this project? Maybe your money in the bank didn’t make five percent but only two percent, while my money made 20% so we are sharing and making it five.
You are hearing these things from me because it happened, by chance, that I studied courses in economy. But before I came to this country, and while I was studying theology only in Egypt, I did not know what inflation is. We had never heard that term while we were in Al Azhar. And our ulama nowadays are giving fatwas in the field of economics like showers. You have to give a fatwa in your own area. When you need to consult for a sickness you see a doctor, when you want to consult for legal matters you ask a lawyer, when you want to sell your house you consult with a real estate agent, why EVERYONE is an authority on religion? And moreover they give fatwas in the most thorny and controversial areas. You have people who have never read about these things and they come and say to you “this is haram”, and “this is halal”.
I hope that these ideas will serve just to open our minds to think and not to take everything we read in books for granted. There are numerous books written about Islam, which are not even worth reading. The only book you must read is the book of God, therein is the truth, and use your brain, think. You know our brothers, who read the whole Qur’an in Taraweeh in Ramadan, read it like parrots— very fast, you cannot catch up with them, they are like an express train. Not only that. They have the Qur’an in front of them because they haven’t memorized it. What do they gain? The Qur’an is to be read as it was revealed. The Qur’an was revealed in installments, verse by verse over a period of 23 years. It didn’t come at once. So, also, when we read it we must take our time, contemplate, concentrate, understand what we are reading and think of how we can apply it in our life. But nowadays we compete in who will read the whole Qur’an first and when someone dies we gather a number of people to say “khatam” (reading of the entire Qur’an) on behalf of the deceased. What that reading of the Qur’an will help the person, if, during all his life he never prayed one rakat? There are many misconceptions and we take the traditions in our lives and turned them into religion.
It reminds me of a guy in our village while we were little kids. That man was a beggar. He used to extend his hand like that all the day and say, “for Allah, give me”. So the people out of kindness give him money. And he got rich. And whenever anyone in the village needed money, he would go and borrow from that man at 20%! One day that guy said that he would like to perform Hajj. So the big ‘alim’ of our village said to him “listen your money is from haram. You go to the city and if you have 1000 Egyptian pounds exchange them in the bank and get 1000 new money. But you cannot do Hajj by that old money.” That is the fatwa he gave him in order to legitimize the Hajj for him! Imagine how we have to utilize our brains in this respect.
posted 08/01/14