Interest-Bearing Transactions in the U.S. Dr. Main Al-Qudah Assistant Professor Islamic American University

Introduction 1 The only sin in the Quran in which Allah (SWT) and His Prophet (PBUH) are declaring war against those who commit it. (يا أيها الذين امنوا اتقوا الله وذروا ما بقي من الربا إن كنتم مؤمنين،فإن لم تفعلوا فاذنوا بحربٍ من الله ورسوله،وإن تبتم فلكم رؤوس أموالكم لا تظلمون ولا تُظلمون)

Introduction 2 Allah (SWT) and His Prophet (PBUH) curse those who are involved in usurious transaction. (لعن الله اكل الربا ومؤكله وكاتبه وشاهديه) (لعن رسول الله صلى الله عليه وسلم اكل الربا ومؤكله وكاتبه وشاهديه،وقال:هم سواء) Taking Riba and giving it to others are the same !even witnesses and the one who documents the usury are cursed too !

Introduction 3 Dealing with Riba is one of the seven major sins, where the Prophet (PBUH) was warning His nation from committing them: اجْتَنِبُوا السَّبْعَ الْمُوبِقَاتِ قَالُوا يَا رَسُولَ اللَّهِ وَمَا هُنَّ قَال الشِّرْكُ بِاللَّهِ وَالسِّحْرُ وَقَتْلُ النَّفْسِ الَّتِي حَرَّمَ اللَّهُ إِلا بِالْحَقِّ وَأَكْلُ الرِّبَا وَأَكْلُ مَالِ الْيَتِيمِ وَالتَّوَلِّي يَوْمَ الزَّحْفِ وَقَذْفُ الْمُحْصَنَاتِ الْمُؤْمِنَاتِ الْغَافِلات

Introduction 4 American's economy is a Capitalist economic system in which Riba is a built-in pillar in this system, and structured in a way that it is hard to be avoided. Difficulty of having balance between living in America, conducting business, transacting from one side , and avoiding Riba from the other side.

Introduction 5 However, living in a non-Muslim country does not allow Muslims to be involved in any usurious transactions. The difficulty of avoiding Riba can NOT be taken as a justification to permit it, because it could be avoided. Transacting with Muslims or with non-Muslims in usurious transactions are the same, both are prohibited.

Transactions at a glance 1-Bank Loans 2-Late Fees or Charges 3-Credit Cards (unsecured cards) 4-Security deposit credit card 5-Debit Card 6-Saving Account

7-Checking Account 8-Financing 9-“lease to purchase” option. 10-Charging an employee when withdrawing from his 401(k) plan 11-Investing In (401)K Plan

12-Buying a house via conventional mortgage 13-Late registration fees 14-Status of money generated through usurious transactions before repentance.

15-Monetary Gifts 16-Non-Monetary Gifts 17-Saving Plan 18-Cashing checks 19-Warranty purchases

20-Facilitating prohibited transactions for non-Muslim customers . 21-Online currency exchanges. 22-Membership fees. 23-Student loans.

1- Meaning of Usury (Riba) Usury (Riba) in Arabic lexicography: Excess,addetion, increase ,to add. Example from the Quran ”ويربي الصدقات“ In Islamic jurisprudence: increase or delay in specific assets (liquid or non-liquid) in specific transactions. الزيادة أو التأخير في أموالٍ محدودةٍ في معاملاتٍ محدودةٍ

2- The two kinds of usury: A - Riba of increase ربا الفضل: When the amount paid back exceeds the original debt or, gaining any benefit out of the debt B - Riba of delay ربا النساء: When the payment is delayed or deferred after its due date.

3- Usurious Transactions Interest-bearing transactions might occur in only two different transactions in Islam: Loan contractعقد القرض Sale contractعقد البيع

4- How Does Usury Occur in Loan Contracts ? A-Riba of increase: If the lender stipulates extra money by the borrower-either when he pays on time or when he delays his payment--this is “riba of increase ربا الفضل” . This includes even the stipulation of providing help, service, a gift, food or anything because of the loan - A well known rule: “any loan that derives stipulated benefit is usury.” كل قرض جر نفعا فهو ربا

B- Riba of delay: If the borrower delayed his payment after receiving a loan, this is riba of delay. But since the purpose of a loan contract is to help others, and it’s among non-profit contracts (عقود التبرعات) where profit is not intended, as in “charity, lending, will …” contracts; this kind of riba is exempted and absolutely lawful. Rather the lender is anticipated to be rewarded because lending to others is an obedience and a good deed.

5- How Does Usury Occur in Sale Contracts? Usurious sale is limited to two items only: money and food. To avoid interest, the following conditions must be satisfied: A- Trading in the same category and the same item, like rice for rice, wheat for wheat, American dollars for American dollars and Jordanian dinars for Jordanian dinars. There are three conditions:

Equality التماثل: It should be the same amount, to avoid Riba of increase. Mutual Submission التقابض: It should be exchanged at the same time, to avoid Riba of delay. Finalization “ الحلول”: The completion of the transaction without deferring to the future (in other words, it has to be effective immediately).

B- Trading in the same category but with different items: like rice for sugar, American dollars for Jordanian dinars, etc. This has to satisfy two conditions: Mutual submission التقابض“” Finalization “الحلول” Equality is not required .

C- Trading in the two different categories (money and food): Like American dollars for rice, Jordanian dinars for sugar, etc. Only one condition must be satisfied: At least one of the two items must be submitted during the contracting. نهى رسول الله صلى الله عليه و سلم عن بيع الكالئ بالكالئ

D- Trading in a non-usurious assets: In this case, at least one of the two assets is a non-usurious asset: “A car for a house, a house for a land, or money for a house.” There is one stipulation: one of the two items must be submitted while contracting for the same reason mentioned above, which is the prohibition of contracting without submitting one of the traded items.

If any of the aforementioned conditions are not completely fulfilled, then the transaction is an interest-bearing contract, and it’s definitely prohibited. Usurious sale “ربا البيع” is less common today than it was before.

6-Different levels of prohibition Usury of increase (ربا الفضل) is less prohibited than the usury of delay. It is prohibited because it leads to the usury of increase (ربا النسيئة) Usury of delay (ربا النسيئة) is prohibited by itself. قال صلى الله عليه وسلم ”لا تبيعوا الدينار بالدينارين ولا الدرهم بالدرهمين ولا الصاع بالصاعين فإني أخاف عليكم الرما“ والرما في الحديث هو ربا النسيئة

7-Why Islam prohibits Usury? If the debtor suffers a loss, it is unjust for the creditor to claim a fixed rate of return. If the debtor earns a very high rate of profit, it is unjust for the creditor to take a small proportion of the profit. The creditor did not exert any effort to be entitled to profit. Usury and injustice are synonyms !!

”يا أيها الذين امنوا اتقوا الله و ذروا ما بقي من الربا إن كنتم مؤمنين“ Practical Examples 1- Bank Loans: Borrowing with a predetermined lump sum or percentage to be paid by the borrower is an interest-bearing loan. The prohibition of this kind is declared in the Qur’an and the Sunna ”يا أيها الذين امنوا اتقوا الله و ذروا ما بقي من الربا إن كنتم مؤمنين“ ”لعن رسول الله صلى الله عليه وسلم اكل الربا، وموكله ، وكاتبه،وشاهديه،وقال هم سواء“ Borrowing to invest or to purchase does not change the rule.

2- Late Fees or Charges: Any late fees paid out of the loan, utility bill, deferred payment sale, payment plan (paid on monthly basis) is riba. A Muslim must make sure to pay on time to avoid involving himself in any interest-bearing activity.

3- Credit Cards (unsecured cards): a- Definition: A credit card is a contract between a credit company and a client that allows the client to borrow money either by withdrawing cash, or using the card to pay bills as well as make purchases.

b- The contract-some times- indicates the obligation of paying extra money by the client in case of: Delayed payment (one time payment). Cash withdrawal (when withdrawing from the ATM machine of the credit company).

Payment plan (on a monthly basis -settlement). Purchasing from over-seas (out side the unites states) c- The above condition is a usurious condition. Agreeing to this condition is prohibited.

d- Scholars differentiate between two kinds of prohibited matters: حرام لذاته prohibited by itself, like paying riba for others, taking it from others, adultery, drinking alcohol, etc. حرام لغيره prohibited because of its consequences, like agreeing to pay late fees (without paying it yet).

e- The reason behind this classification is that: whatever is prohibited by itself would be permitted in case of necessity, while what’s prohibited because of its consequences becomes permissible in case of true and public need.

f- In our example, a “credit card” is a true and public need in general to build a good credit history. Having a good credit is essential to facilitate daily transactions in the U.S.

g- Based on the above conclusion, having a credit card is permissible under the following conditions: Reaching a stage of a real need; Abstaining from withdrawing cash from the credit company if it is a chargeable service; Paying bills in full before the due date; Refraining from using it when having a sufficient “credit scores.”

h- When it comes to annual fees, then these fees are considered as a service charge, because it is not affiliated with using the credit card. So it is allowed to pay it. i-Some credit companies charge a percentage even without delaying the payment. Having a credit card through these companies is prohibited.

J-Paying service fees for (cash withdrawal) from any ATM machine does not belong to the same credit company of the client is permissible, because the new company is not the lender of the client (the borrower in this case), rather they save his time by withdrawing the money on his behalf from his original company , and charging him because of this service . (عقد وكالة)

K- A credit company does not pay the full amount to the merchant when its client uses his credit card for purchasing, it deducts(1 or 2%) justified as a (service fee). The above is one of the ways credit companies make money.

Since the three parties (the merchant, the client, and the credit company ) know and agree on that in advance ,and this deduction is in the opposite of usury, then it is lawful. Deducting a lump sum or a percentage is the same, both are permitted.

L- Credit transfer: Transferring debt from one credit company to another is a chargeable service . The new company would charge the client (0% APR) for the debt, but there is a transfer fee . This fee is Riba because the new company is the lender, and the paid-back money should not exceed the original debt.

4- Security deposit’s credit card (secured card): a- It’s a credit card, the only difference is that it is issued for those who don’t have sufficient scores or do not have a credit history. The same rules applied for non-secured credit cards are applied here. b- A Muslim client might receive extra money (interest) with a deposited amount without taking his permission after the expiration of his secured credit card. This extra money is riba. - The rule in this case is that the extra money must be spent for Muslim public benefits (Masajid, Islamic schools,… etc.)

5- Debit Card: a- It is an easy way to withdraw from the client’s checking account. b-Annual fees are allowed. c- Service fees for withdrawing cash are allowed too.

d- Using it is allowed as long as the depositor has sufficient funds. e - Withdrawing via debit card without having sufficient fund would result in an overdraft charge, where the bank would pay the money on behalf of its client ,and then charge him the original amount plus the (over draft charge), which is riba.

F-Multiple card (Credit and debit): Basically, it is a debit card which can not be issued for those who do not have checking account. It helps delaying the payment if it is used as a credit, as will as allowing the purchaser to use it in any point of sale where the debit card is not accepted. It has the same rules of the debit card.

6- Saving Account: a- A pre-determined percentage of interest is given to the client when opening such an account. b- This percentage is Riba, and it’s unlawful. c- Spending this extra money for Muslim public benefits does not change the rule because of the absolute prohibition of such a contract, regardless of the pre-intention of getting rid of this prohibited extra money.

D- Protecting money against (Identity theft) could not legitimize having a saving account . The alternative is to have another checking account without using it for purchasing or paying bills, only to save the money. Using the new checking account will publicize its information, and eventually being subject to Identity theft.

7- Checking Account: a- A public need to secure money and facilitate daily transactions. b- Usually, banks use a percentage of the deposited money to lend to other clients with interest and without taking the permission of the account holder.

c- Indirectly, all account holders help banks to conduct interest-bearing activities. But because of the need and lack of a viable Islamic substitute, having a checking account is permissible. d- A Muslim client should make sure to have interest-free checking account, since some banks offer interest even on the checking account.

d- In case of having Islamic banks, a Muslim is prohibited from having a checking account in any conventional bank, ومن يشفع شفاعة ً سيئة ً يكن له كفل ٌمنها meaning, “Whoever participates in conducting bad deeds ,will share in the punishment.“

8- Financing a- Offering two different prices for the same commodity based on the duration of the payments is permissible, as long as the two parties come up with an agreement on one of the two prices. b- This permissibility is stipulated with three conditions: The two parties have to agree upon only one of the two options. No third party is allowed to finance. No late fees are allowed.

c- Purchasing through a third party in the U c- Purchasing through a third party in the U.S means that the third party—i.e. bank, credit company, etc. would pay the amount on behalf of the buyer and eventually charge the original amount plus a percentage. This transaction is an interest-bearing loan. d-Car Dealership & Finance Department of the same company (i.e. Honda or Toyota) are two different entities. If one of them filed for bankruptcy, the other one will keep operating normally.

e- Buying through a (0%APR) finance is permissible. It means that the client is borrowing a free of interest loan. f- Even in case (0% APR) is not available, usury could be avoided by paying a down payment to make it 0%. Eventually, it becomes permissible. # Make sure the loan you take after the down payment is 0% interest loan .

g-Late fees are Riba as long as the price is determined and agreed upon. Muslim clients should find another provider with no late fees. If he can not find any (which is most probably the case), he can buy and avoid late payment by paying on time.

9- Car purchase through a “lease to purchase” option. Some car dealers lease a car for a specific duration and give the priority for their clients to purchase at the end of the lease contract. The price of the car is pre-determined and agreed upon in advance. This transaction is lawful, since (lease contract) is not subject to Riba.

10- Charging an employee when withdrawing from his 401(k) plan if he withdrew before due time (disability, death, or retirement) to spend or invest . #The charged amount will be added to the employee’s account, in another words, he pays the money from himself to himself. # This transaction is not a loan, but it is called so because of a legal Tax evasion purposes.

11-Investing In (401)K Plan Employees have the right to choose from different categories of investment, they can be: Stable Value Fund ( saving account), (certified deposit) Balanced Fund (50% stocks,50% bonds) Aggressive stock Fund International Stock Fund Emerson Stock as a part of the Employee Stock Ownership Plan (ESOP)

Restrictions: Any guaranteed profit is not allowed (Like stable value fund and bonds ) Possession or even transaction with stocks of companies who conduct prohibited business (Obscene ,Alcoholic,Tobaco ,or Gambling materials, conventional bank, casino, mortgage company, musical Instruments, etc..) is prohibited. (Social responsible fund) companies might help in determining companies who conduct lawful business.

12- Buying a house via conventional mortgage: a- Any conventional mortgage contains two different transactions: Loan contract : Where the mortgage company pays the price of the house to the owner on behalf of its client and then charge him the original amount plus a percentage on a long term basis. Mortgage contract : Where the mortgage company holds the title (deed) as a (Lien holder) to secure their money.

b- The first contract of the above transaction is absolutely prohibited since it is the exact Riba mentioned in the Qur’an, Riba of loans “ربا الديون” c- To permit such a contract, the bank should buy the house, write its name on the title as an owner, and NOT as a lien holder, assume the risk of any possible damage, and completely own the property.

In a different, independent, and non-stipulated contract, the bank can sell the house to the client, نهى رسول الله صلى الله عليه و سلم عن بيع ما لم يقبض و عن ربح ما لم يضمن meaning: “Selling a commodity before possessing it is prohibited and gaining profit without assuming the risk is prohibited too.”

d- Foreclosure Houses: No third party involved to finance. The bank/mortgage company repossesses the property after the default of the client in paying the mortgage. The bank sells the house to the new client by lending him an interest loan to pay off the price on a long term installed payment.

AMJA Fatwa Committee is still discussing the status of this contemporary transaction.

e- AMJA Fatwa committee does not agree with the fatwa of The European Council for Fatwa and Research, declaring the permissibility of buying houses via conventional mortgage process for residential purposes. f- No necessity exists to buy a house in the U.S, even for residential purposes. The only necessary thing is to find a place/domicile to live in, safely and securely, which could be achieved through renting a house.

g-Failure in paying the mortgage payment would result in terminating the contract, consequently, the house will be lost ! Buying is like renting in this regard. So, buying a house does not secure the future of the children, or even the parents.

h- In case of lacking the ability of the following: Renting an apartment because of having a big household. Renting a house because of the high expense. Increasing the income or having an over- time work to afford a house. Moving to another state/ country for a better situation. Finding an Islamic finance to buy a house. Support from the Muslim community to find a solution. Then; buying a house via mortgage will be permissible.

13- Late registration fees: a- Some academic institutions offer three options of payment for their students: Discounted fees for early registration; Regular fees for on-time registration; Late fees for late registration. b- All three options are allowed since no contract or agreement has been done yet.

c- The only case where late fees are prohibited is when the fees are already determined based on one of the three options, and the institute charges the client a financial penalty because of his late payment, or when the monthly payment is agreed upon and there is a penalty for delayed payment.

14-Status of money generated through usurious transactions before repentance. Two different cases : A- Previous transactions Buying a house via conventional mortgage is prohibited, but if a Muslim wants to repent to Allah by selling his house and paying off the capital of the loan to the mortgage company and he gained some profit out of selling the house, “due to market demand ” then taking this money is allowed.

فمن جاءه موعظة من ربه فانتهى فله ماسلف و أمره إلى الله Meaning, “So whomever receives an admonition from his Lord and stops taking Riba shall not be punished for the past, his case will be judged by Allah. But whomever returns to Riba, such are the dwellers of the fire.”

B- Current transactions It is not the case if a Muslim is a lender who has an on-going usurious loan. Repenting in this situation must prevent him from taking any extra money over the original debt. (وإن تبتم فلكم رؤوس أموالكم لا تََظلِمون ولا تُظلمون) Meaning (…and if you repent, then you should take back your capital only, without oppressing others or being oppressed by them).

15- Monetary Gifts Examples: A store refund of $20 when purchasing a minimum of $300; A $50 credit when opening a new bank account. The above examples and many more are in the opposite of usury, since the seller in the first example and the bank in the second example are waving there rights to attract more costumers.(هبة ٌ مشروطة ٌ) Taking advantage of this offer is permissible.

16-Non-Monetary Gifts Air mileage with minimum amounts of purchasing. Gifts when purchasing from a store /opening a bank account. Entering into a lottery to win a car when purchasing with minimum amount. “Buy one, get one free.” Using a coupon with the discount. The above examples and many more are in the opposite of usury, since the financer, credit company, and the seller are waving there rights to attract more costumers.

17- Saving Plan Savings plans offered by credit companies when subscribing that includes a monthly fee and discounts for purchasing at specific stores. This transaction is not like the previous one. The customer here must pay a monthly fee to take advantage of this offer. Because of the inequality of the money exchanged, this transaction is not allowed.

18- Cashing checks A percentage or lump sum is charged for the check holder when cashing a check. Many contemporary scholars consider this transaction as a currency exchange. They declare the impermissibility of such a transaction because of the inequality of the money exchanged. However, this transaction could be interpreted as a (charged service) out of spending time going to the bank and cashing the check.

According to this description, charging for cashing checks is allowed. To be in the safe side , it is better for a Muslim business man to cash the check first, submitting the whole amount back to the client, and then ,he can charge his client.

19- Warranty purchases Warranty is a kind of commercial insurance, the contemporary scholars are almost unanimous that commercial insurance is prohibited. If the warranty is included in the item purchased for no charge, then the transaction is permissible.

Even if the warranty is optional and included in the contract for a fee, it’s also permissible; for a well known rule (يغتفر في التابع ما لا يغتفر في غيره) If the warranty offered in an independent contract, then it is impermissible because of the reason listed above.

A Muslim should not be involved in any usuries transaction. 20- Facilitating prohibited transactions for non-Muslim customers . Example: A Muslim car dealer would connect his non-Muslim client to any credit company or conventional bank for financing. A Muslim should not be involved in any usuries transaction.

In our example, a Muslim dealer should verify and provide all needed information to the bank to proceed with the sale. The aforementioned is an explicit involvement in Riba, where a Muslim should avoid.

21-Online currency exchanges Immediate mutual submission is a condition for the soundness of currency exchange. Online currency exchange dose not fulfill the above condition realizing that depositing the money will take some time. The above transaction is allowed under the following stipulations. A) No intentional delay. B) The buyer would take the risk of any loss of the money after transacting and before receiving the money.

22-Membership fees It gives an access or subscription to some stores or businesses. (Sam's club,…) It is not connected with the actual usage of the service. As long as the service provided is not a loan (lending money to the subscriber/member) ,then it is permissible.

23-Student loans A- Subsidized Loan In the United States, there are two different kinds of student loan: A- Subsidized Loan The government pays the interest on the loan while the student is in school, during the six-month grace period, and during any deferment period. Subsidized loans are awarded based on financial need.

B-Unsubsidized Loan: An unsubsidized loan is a loan for which the government does not pay the interest. The borrower is responsible for the interest on an unsubsidized loan from the date the loan is disbursed, even while the student is still in school. Students may avoid paying the interest while they are in school by capitalizing the interest, which increases the loan amount. Unsubsidized loans are not based on financial need .

Subsidized loan is allowed as long as the student : 1-Needs the loan. 2-pays the loan back during the grace or deferment period. Failure in paying in full before the due date will convert the loan into an interest-loan from the date the loan was disbursed

As of the unsubsidized loan, it is prohibited since it is an interest-bearing loan. Studying in a university ,and having a degree is not a necessity in which prohibited matter could be permitted. Subsidized loan is the alternative.

Conclusion Almost, all the contemporary usurious transactions are among the ( usurious loan contract) ربا الجاهلية أو ربا الديون. Usury could be avoided, even in a capitalist economic system. Our responsibility in providing the Islamic alternative.