BANK INTEREST AND RIBA - SOME DISSENTING VIEWS
Shaikh Muhammad al-Ghazzali
(rahimahullah), the venerable Egyptian scholar of Islam, visited New York
shortly before his death and ruled that bank interest was not riba
because banks invested their money and paid interest from the profits realized from
the investments. He therefore equaled bank interest with dividends which are
paid to share-holders of a company. In fact banks are financial institutions
which lend money on interest. They do not usually invest money. The principle
involved in an investment is that the investor will receive a share of the
profits, if the business realizes a profit, but will also share in the loss, if
there is a loss. What a bank does is to borrow money from its depositors at a
lower rate of interest and then lend that money to others at a higher rate of
interest. The difference between the borrowing and lending rates (of interest)
is pocketed by the bank as its profits. Sometimes, though very rarely, a bank
commits itself to pay to depositors a higher rate of interest than the bank can
itself get when it attempts to lend that money. This is one of the reasons why
banks sometimes collapse.
The ruling of Shaikh
Ghazzali was made, perhaps with a defective understanding of how banks operate.
If banks were to invest their money, rather than lend, that would have a tremendously
beneficial impact on the market. Prices will immediately fall. The reason
why the banks would rather not invest their money is because investment is a
form of business, and like all other forms of business, it involves risk. Risk,
in turn, opens up the possibility of losses.
The govemment-appointed
Mufti of Egypt, Shaikh Tantawi, who has now been appointed by the Egyptian
government as Shaikh al-Azhar, also holds the view that bank interest is not riba.
He delivered a fatwa, published in the Egyptian newspaper, Al-Ahram, on
September 8, 1989, declaring lawful, under Islamic law, the Interest on savings
and on certificates of deposits issued by banks. They are known in Egypt as
investment certificates. Such investments may have a variable rate of profit,
but because they are immune from loss they are essentially risk-free
investments and hence constitute riba.
to be continued . . . .
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