As an assistant to the Ulema responsible for answering Shari‘a-related enquiries, I have the unique
opportunity to get a bird’s-eye view into the common issues and questions believers in the
umma are commonly facing. Along with the regular run-of-the-mill queries, recently there has been
a sudden surge of questions regarding Islamic finance. With the precipitous rise of cryptocurrencies
and a booming stock market, Muslims rightfully want to know which methods of investing are halal
for them and which ones are not. The ongoing pandemic which has caused hundreds of thousands
of people to lose their livelihood has only compounded the interest in seeking other methods to gain
financial independence.
For maximum benefit, the focus of this article will be on simple and broad principles of Islamic Finance
which could easily be understood and applied by the average person. The reasoning for this is
simple: as humans, we tend to forget a lot of information we learn. In fact, people tend to forget most
things they learn after only a short period of time. Explaining and teaching through short and simple
principles has been proven to be an effective method of teaching to improve retention. Individual
and specific issues should be referred to a qualified Islamic Finance expert or scholar. I pray that
Allah accepts this humble effort and makes it a means of benefit to the ummah at large. Ameen.
Principle #1: Any added benefit stipulated
along with the repayment of a
loan is deemed interest from a Shari‘a
perspective. This stipulated benefit
may be in the form of extra cash, an
extra service, or an extra commodity.
Scenario: Zayd wants to buy a new
Mercedes G-Wagon. However, he
does not have nearly enough money
to pay for it. He asks his friend Umar
for $50,000 needed to purchase the
car and promises to mow his lawn for
the entire year along with repaying
the loan in installments.
Ruling: Haram
Explanation: Generally, when one
thinks of interest, they think of the
conventional form of interest in
which extra cash is paid in addition to
the principal loan. It is important to
note that while that also constitutes interest
from a Shari‘a perspective, it is
not the only form of interest in Islam.
Furthermore, just because something
constitutes interest in the conventional
sense does not entail that it
would constitute interest in Islam
and vice-versa. In the scenario above,
the extra service being stipulated in
the loan contract might not be called
interest in the conventional sense but
would be deemed so in Shari‘a. Simply
put, all loans in Shari‘a must have
no strings attached.
Another point worth noting is that
extra renumeration on top on the
principal loan would only be deemed
interest if it were explicitly stipulated
or implicitly understood. If Zayd
was to gift his friend Umar an extra
$2,000 as an ‘Eid gift without any
prior agreement or common understanding,
that would be completely
permissible.
Proof: Ibn Seereen narrates that a
person once loaned five hundred
dirhams to another and stipulated that
the debtor would also allow him (the
creditor) to use his horse. Abdullah
ibn Mas’ud g was made aware of this
and declared such a stipulation to be
interest (Ibn Abi Shayba).
Abu Hurayra g narrates that a man
came to the Messenger of Allah a
to collect a camel which was owed
to him. The Messenger of Allah a
instructed us to repay him. However,
the only camels available were of a
higher quality than what was owed.
The Messenger of Allah a instructed
by M. Omar Baig
Islamic Finance
Principles and
Applications
of Islamic Finance
22 July – August 2021 | AL-MADINAH