Islam, Murabaha and Fixed Deposits

Islam and Usury
Written by Imran N. Hosein
(http://www.imranhosein.org/articles/islam-and-money.html)

Islam has declared war on the moneylender who demands interest. It did so in the very last divine revelation (al-Baqarah, 2:279) to come down in the Holy Qur’an. Here is that last revelation:

“O ye who believe! Fear Allah, and give up what remains of your demand for usury (i.e., the interest due on a fixed deposit, or on any other loan on interest), if ye are indeed believers.” If ye do it not (i.e. if you persist in your claim or demand for the interest due to you), then take notice of (a declaration of) war from Allah and His Messenger: but if ye turn away (from such claim or demand), then you are entitled to the return of your capital sum (placed in the fixed deposit or otherwise lent); do not enter into (such) unjust transactions, nor allow yourselves to be subjected to such.

If (you forgo the interest due to you and then find) the debtor in a difficulty (in respect of returning the capital sum that was lent to him on interest), grant him time till it is easy for him to repay. But if ye remit it by way of charity, that is best for you if ye only knew.

And (in this matter in particular, i.e., lending money on interest) fear the Day when ye shall be brought back to Allah. Then shall every soul be paid what it earned, and none shall be dealt with unjustly.’ (Qur’an, al-Baqarah, 2:278-281)

The Quran and the Prophet about Money Matters

MONEY MATTERS

On Interest

"Allah will deprive usury of all blessing, but will give increase for deeds of charity" (Quran 2: 276).

Narrated Jabir ibn Abdullah: Allah's Messenger cursed the accepter of interest and its payer, and one who records it, and the two witnesses; and he said: They are all equal (Muslim).

Abu Huraira related that the Prophet said: On the night of the Miraj I came upon a group of people whose bellies were like houses. They were full of snakes which could be seen from outside their bellies. I asked Gabriel who they were, and he told me that they were the people who had practiced Riba (Interest). (Ahmad, Ibn Maja)

Abdullah ibn Hanjalah related that the Prophet said: A dirham of Riba (interest) knowingly taken by a man is a sin worse than committing Zina (fornication) 36 times (Ahmad, Daraqutni).

Zakah-what you owe from your money

"And they are ordained naught else than to serve Allah, keeping religion pure for Him, as men by nature upright, and to establish worship and to pay the poor-due (Zakah). That is true religion." (Quran 98:5)

Abbas related that a man asked the Prophet, Tell me what should I do to be admitted to Paradise and he (the Prophet) answered: Worship Allah associating nothing with Him, observe Salat, pay Zakah and strengthen the ties of kinship. (Bukhari, Muslim)

Inheritance and wills

"And unto each We have appointed heirs of that which parents and near kindred leave; and as for those with whom your right hands have made a covenant, give them their due. Lo! Allah is ever Witness over all things" (Quran 4:33)

Ibn Umar related that the Prophet said: It is the duty of a Muslim man who has something which is to be given as a bequest not to have it for two nights without having his will written regarding it. (Bukhari, Muslim)

Anas related that the Prophet said: If anyone deprives an heir of his inheritance, Allah will deprive him of his inheritance in Paradise on the Day of Resurrection. (Ibn Maja)

How do you earn your money?

Abu Huraira narrated that the Prophet said: A time will come upon the people when one will not care how one gains one's money, legally or illegally. (Bukhari)

It is reported by Jabir that the Prophet said: The flesh and body that is raised on unlawful sustenance shall not enter Paradise. Hell is more deserving to the flesh that grows on one's body out of unlawful sustenance. (Ahmad).

Abu Said related that the Prophet said: The truthful and trustworthy businessman will be in the company of Prophets, saints and martyrs on the Day of Judgment. (Darimi, Tirmidhi)

Debts

It is narrated by Abu Musa Ashari that the Prophet said: After the major sins which must be avoided, the greatest sin is that someone dies in a state of debt and leaves behind no asset to pay it off. (Darimi)

Loans

Abu Qatadah related that the Prophet said: If anyone would like Allah to save him from the hardships of the Day of Resurrection, he should give more time to his debtor who is short of money, or remit his debt altogether. (Muslim)

Strive with your wealth

"Believers are merely those whose hearts feel wary whenever God is mentioned and whose faith increases when His verses are recited to them. On their Lord do they rely. Those who keep up prayer and spend some of what We have provided them with are truly believers" (Quran 8:2-4).

Asmah related that the Prophet said: Spend, and do not count, lest Allah counts against you. Do not withhold your money, lest Allah withholds from you. Spend what you can. (Bukhari, Muslim)

Abu Huraira related that the Prophet said: The Lord's commandment for every one of His slaves is, ‘Spend on others, and I will spend on you'. (Bukhari, Muslim)

The poor and your wealth

"Hast thou observed him who belieth religion? That is he who repelleth the orphan, and urgeth not the feeding of the needy" (Quran 107: 1-3).

Safwan ibn Salim related that the Prophet said: Anyone who looks after and works for a widow and a poor person is like a warrior fighting for Allah's cause, or like a person who fasts during the day and prays all night. (Bukhari)

Hoarding

"O you who believe! Lo! many of the (Jewish) rabbis and the (Christian) monks devour the wealth of mankind wantonly and debar (men) from the way of Allah. They who hoard up gold and silver and spend it not in the way of God, unto them give tidings (O Muhammad) of a painful doom" (Quran 9:34).

Charity and punishment

It is narrated by Anas bin Malik that the Prophet said: Verily charity appeases the wrath of Allah and eases the sufferings of death. (Tirmidhi)

Extravagance

"Give the kinsman his due, and the needy, and the wayfarer, and squander not (your wealth) in wantonness. Lo! the squanderers were ever brothers of the devils, and the devil was ever an ingrate to his Lord" (Quran 17:26-27).

Amr ibn Shuaib, on his father's authority said that his grandfather related that the Prophet said: When you eat, drink, give charity and wear clothes, let no extravagance or pride be mixed up with what you do. (Ibn Maja, Nasai).

Being a Miser

Abu Huraira narrated that the Prophet said: Every day two angels come down from Heaven and one of them says, 'O Allah! Compensate every person who spends in Your Cause,' and the other (angel) says, 'O Allah! Destroy every miser'.(Bukhari).

Abu Said Khudri related that the Prophet said: There are two habits which are never present together in a believer: miserliness and bad manners (Tirmidhi).

Jabir reported that the Prophet said: Avoid doing injustice to others, for on the Day of Judgment, it will turn into manifold darkness, and safeguard yourself against miserliness, for it ruined those who were before you. It incited them to murder and treating the unlawful as lawful. (Muslim)

Moderation in giving

"And let not thy hand be chained to thy neck nor open it with a complete opening, lest thou sit down rebuked, denuded" (Quran 17:29).

(In reference to the slaves of Allah) "And those who, when they spend, are neither prodigal nor grudging; and there is ever a firm station between the two" (Quran 25:67).

Bribery

"And eat not up your property among yourselves in vanity, nor seek by it to gain the hearing of the judges that you may knowingly devour a portion of the property of others wrongfully" (Quran 2:188).

Contentment

Abu Huraira narrated that the Prophet said: Wealth is not in having vast riches, it is in contentment. (Bukhari, Muslim).

Envy in wealth

Ibn Masud said I heard the Prophet saying: There is no envy except in two: a person whom Allah has given wealth and he spends it in the right way, and a person whom Allah has given wisdom (i.e. religious knowledge) and he gives his decisions accordingly and teaches it to the others. (Bukhari).

Women and Charity

Ibn Abbas narrated that the Prophet went out for the Eid prayer on the Eid day and offered a two Rakat prayer; and he neither offered a prayer before it or after it. Then he went towards the women along with Bilal. He preached [to] them and ordered them to give in charity. And some (amongst the women) started giving their forearm bangles and earrings. (Bukhari)

The Best Charity

Abu Huraira narrated that the Prophet said: The best charity is that which is practiced by a wealthy person. And start giving first to your dependents. (Bukhari)

On Begging

Narrated Hakim bin Hizam that the Prophet said: The upper hand is better than the lower hand (i.e. he who gives in charity is better than him who takes it). One should start giving first to his dependents. And the best object of charity is that which is given by a wealthy person (from the money which is left after his expenses). And whoever abstains from asking others for some financial help, Allah will give him and save him from asking others, Allah will make him self-sufficient. (Bukhari)

Abu Huraira related that the Prophet said: He who makes a habit of asking from others reaches out for a brand of Fire, so let him refrain or continue, as he desires. (Muslim)

Business conduct

Jabir related that the Prophet said: May Allah show mercy to a man who is kind when he sells, when he buys, and when he makes a claim. (Bukhari)

The Basics of Money in Islam

The Paying of Zakat and the Avoidance of Interest

When Prophet Muhammad (SAW) began relaying the messages of the Qur’an, a segment of society that benefitted immensely were the Muslim women. Islam allowed women to partake in the labour force; trade through their own skills and expertise; inherit money and property, and above all - they were given complete financial freedom from their male counterparts.

Today, many Muslim women earn and enjoy an income. Many own property and other forms of assets to their name. Women who do not work are provided for by their husbands.

However, with this right to financial freedom, comes responsibility. Through Allah’s wisdom, He advises women, as participating individuals of the economy, to comply with tenets regarding their money. Two canons that govern our money is the responsibility to pay zakat and the obligation to avoid riba (interest).

Have you paid zakat?

“The Believers must (eventually) win through, Those who humble themselves in their prayers; Who avoid vain talk; Who And who are payers of the poor-due.” (al-Mu’minun:1-4)

Paying zakat (Islamic tax) is one of the tenets of Islam and thus, obligatory to all Muslims (al-Baqarah: 277). There are several reasons for paying zakat.


Allah (SWT) provides for all of His followers regardless of their abilities and backgrounds. Many Muslims are less fortunate than others. Muslims who earn an income, need to remember that the ability to work comes from Allah (SWT). By paying zakat, Allah (SWT) provides for the less fortunate members of society.

Also, one of the seven categories of zakat recipients are reverts to Islam (at-Tawbah), sealing camaraderie between born Muslims and new brothers and sisters of the faith. This is similar to the bonds created between the Ansar and the Muhajireen during the emigration from Makkah to Madinah.

Money is also purified by the zakat deduction. Collectively, a community who diligently pays zakat works together to eradicate poverty in society. This emphasises the importance of having women contribute to an economy.

How much is zakat? According to prominent financial scholar, Monzer Kahf, 2.5% of a Muslim’s disposable income belongs to the zakat recipients. Besides income, zakat also applies to savings, property and gold.

The concept of riba

“O you, who believe, fear Allah and give up what remains due to you of interest if you are indeed believers.” (al-Baqarah: 278)

Riba is an element that contaminates your money. The Qur’an and numerous authentic Hadith remind that riba is strictly prohibited in Islam. Whether one is paying off interest, a recipient of interest on a savings account or facilitating the enactment of an interest-based contract, Muslims are liable to be frowned upon by Allah (SWT) (Bukhari).

Riba is defined as an increment in the repayment of a loan and a passive stream of income.

Car loans, housing loans, education loans, personal loans, and overdue credit card bills... all of these comprise interest. Preferably, Muslims should only engage in Islamic loans, those that are not riba-based. Where there is no choice, Muslims should look into repaying outstanding debt quickly. Funds or savings from investments such as unit trusts or other savings plans should be used to pay-off interest-ridden debt.

On the other hand, if savings accounts thrive on interest, Muslims are disallowed from keeping this money. “Do not earn from interest!” reminded Prophet Muhammad (SAW) in his final sermon.

Muslims are to save money in Islamic savings accounts (that pay dividend). Otherwise, interest income has to be disposed of to charitable causes in order to purify our money. This does not constitute zakat.

Make money more Islamic!

Islam has always advocated the rights of women – especially the exclusive right to income. However, it is inappropriate to abuse that right by ignoring Allah (SWT) commandments regarding money.

Paying zakat not only reminds Muslims of their ability to earn an income and curbs indulgences in aesthetics and material whims. By avoiding interest, Muslims avoid transacting with service providers that are fed by passive income.

The copyright of the article The Basics of Money in Islam in Islamic Practices is owned by Maria Zain. Permission to republish The Basics of Money in Islam in print or online must be granted by the author in writing.

Zakat - Islamic Economy System

Zakat - Islamic Economy Purpose in Islam

The economics of Zakat and its relevance to modern times is a hotly debated issue among both religious and liberal Muslims. This series of articles will attempt to explain the concept of Zakat in the light of only the Quran and the faithful implementation of this concept by our Prophet Muhammad (pbuh). We will see how a similarly implemented system can solve the current economic problems of not just Muslim Countries, but of the World.

Zakat - First Universal Welfare System

Contrary to the beliefs of both religious and secular Muslims, the Prophet Muhammad achievements were based not on ephemeral but on the permanent values of the Quran. He brought about the greatest revolution, even an economic and political miracle in human history (see Michael Hart, THE 100, pages 3-10). In a very short time after the prophet migrated to Medina and implemented the system of salaat and zakat, the economic condition of the people changed.

The Prophet Muhammad (pbuh) is reported to have said; If a single person were to sleep hungry in a town, then God's protection is lifted from that town -[Masnad Imam Ahmad]. This hadith emphasizes that no one (Muslims or non Muslims) under this system should go hungry. Thus this zakat system created the first universal welfare system in human history. It also gradually transformed the existing slave based economy to a universal welfare based economy. By the end of the Prophet's period, the entire Arabian Peninsula enjoyed economic as well as political security. This system reached its pinnacle during Khalifa Umar's time (again, see Michael Hart, THE 100, pages 261-265), a time when, history tells us, hardly anyone was in need of charity.

What has occurred then in the intervening years that the Muslims masses are suffering economic deprivation even though they live in areas with plenty of natural resources?


What Happened Then?

Muslims and non Muslims alike ask the question; If the system implemented by our Prophet Muhammad (pbuh) and Sahabaa (r) was so good, why did it not continue? The answer is simple, we changed or abandoned the system implemented by the Prophet Muhammad. Instead of deciding matters with open consultation, as the Quran requires, the Ummayad and Abbasid dynastic rulers created a dictatorship under the guise of " Shari'iah " and " Ijma'a ". This was a ploy to fool the people. The rulers first acquired illegal political authority, and then delegated religious authority to Imams appointed by themselves.

Thus they hijacked the train of Islam from the track of our Prophet (pbuh) and his Sahabba (r) and put it on a new track called " Shari'ah ." Since then, a minority of the rich and powerful has been riding this train and entertaining their friends while exploiting the vast majority of Muslims along the way. Consequently, common Muslims have continued to live in poverty and to suffer intergenerational economic misery. Islam's system of Zakat has had nothing to do with this sad state of affairs.


Zakat & Our Approach


Today, we are taught that zakat is one of the pillars of Islam. Zakat is generally translated as charity or poor due and it is required to be distributed according to the details given in the Shariah. However, the descendents of the Prophet (pbuh), generally known as "Syeds" in the Indian subcontinent are forbidden to take zakat according to this Shariah. No matter how poor, they are considered superior by birth compared to other Muslims due to their supposed relationship with the Prophet (pbuh). Obviously, this is against our Prophet's Sunnah since he proclaimed justice, fairness, and equality for all, regardless of family or blood relationship.

The dispensation of zakat is regulated by different rates (called shar'h ) for different items called (nisaab) whose details are given in books of hadith and Fiqh. Zakat on money is 2.5% of the savings over a period of one year according to the Shari'ah. There are many conditions attached to the giving and receiving of zakat. There is no uniformity even among the Sunnis in the restrictions, rates and even the items of zakat.

In addition, there are different books of Fiqh and Shari'ah for different Muslim sects or schools of thought! Although Islamic scholars know about these differences in zakah among the Muslim sects, they rarely bring them out into the open, since it is in the interest of these scholars to keep the people ignorant.

The differences in zakat among the four Sunni Imams are not as major as among the Sunni and Shi'ia Imams. For example, in Fiqh Jaffariah , there is no zakat on paper currency. So, for the followers of this Fiqh there is no Zakat on bank accounts. When General Zia-ul-Haq, the Pakistani military ruler instituted compulsory zakat in Pakistan, the Shi'ia 'Ulema revolted against it and refused to abide by the government's zakat ordinance. Ultimately the government excluded Shi'ias from the yearly bank account deductions. This led many Sunnis to declare themselves Shi'ias on their bank forms to avoid paying zakat on their bank accounts.


Zakat - Conclusion

Dear sisters and brothers! We must re-turn to the true spirit of the Quran; we must have the courage to follow the Islam of our Prophet Muhammad (pbuh), which requires real sacrifice and a drastic change in our lifestyles. We must go back to the Quran as the primary source, and not to the rulings of Islamic scholars from the time of the Ummayad and Abbasid rulers.

In Part 2 of this article we will look at the real meaning and significance of zakah - the Arabic word zakah with its root z-k-w , which means growth and development, not charity or poor-due. Keeping this meaning in full view, zakat is supposed to ultimately lead to growth and development of all human beings; it is supposed to remove the need for charity or poor-due in the long term. We will see how zakat not only leads to the economic progress of individuals and all human beings but to their spiritual progress as well. We will also note the difference between Sadaqaa and Zakat.