Question

Assalamualaikum Sheikh.

Inshaallah I hope you’re doing well.

I will be going to university in the UK for my UG for 4 years. My father has decided that he wants to take a loan from the bank with a fixed interest of an agreed amount (about 1% which he’s happy with) in order to pay for the tuition without worry during those 4 years. He’ll pay for the first part and he said I’ll pay once I’ve finished.

Is this Riba? Can you please help me define Riba in layman’s terms and what is the halal way of loans and banks?

Al Azhar University fatwa allows for fixed returns on Bank deposits

I’m trying to get another opinion because I’ve linked a fatwa by al-Azhar that seemingly says that it’s permissible? Inshaallah you can clarify this for me as I may have misunderstood. I thought it’ll be better if I ask directly.

Please make du’a for me and may Allah reward you. Assalamualaikum.

Answer

If a loan is given out and in consideration for the loan the lender demands that the borrower returns the original sum as well as an additional benefit, then this additional benefit will be interest and unlawful. The additional benefit can be monetary or non-monetary like a service. An example of monetary would be giving £1000 as a loan and demanding £1050 in return. An example of non-monetary would be giving £1000 and demanding that the borrower gives the £1000 as well as provides a service for free.

Conventional banks will generally not provide halal loans. You will need to speak to an Islamic bank to see if they can help you with financing your studies. Alternatively, you may want to borrow from family and friends and then pay that off by working in your free time.

As for the article attached we do not believe that deposits in conventional banks are investments with the bank, rather they are a loan advanced to the bank. The reason for this is that in the case of an investment the investor cannot guarantee the capital and the profit and loss must be shared amongst both parties. Hence, if after investing the deposited amounts, if the bank made losses, these losses would be shared between the customer and the bank and the bank would not be required to return the deposit to the customer. On the other hand, if it was a loan, the bank will have to return the amounts regardless of how the investment did.

Hence, if the conventional bank guarantees the amounts advanced then it will be a loan. This would then mean the customer cannot take any additional sums from the bank beyond the original deposits as that would be interest.

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel