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Is Banking in the West allowed in Islam? Is dealing with interests allowed in Islam?
The sections of this article are:
1- Loans and some history.
2- Living in the West and the impractical option of "renting".
3- I am not for dealing with interest if it can be avoided.
1- Loans and some history:
It is important to know why most of today's Muslim Ministers don't allow accepting interests in the banks. During Prophet Muhammad's time, 1400 years ago, and before Islam, people used to take advantage of each others. The strong used to literally eat the weak.
It used to be when the rich lends money to the poor, the rich would put so much interest on the money (like the Capitalist system does today with their excessive interests by forcing you to pay 3 times the value of your house by the time you finish paying off your loan), that the poor would spend a long time paying it off, and in many times he would end up giving up his mule, or even his children as slaves depending on how big the loan was.
When Prophet Muhammad, peace be upon him came, he prohibited addition of interests to any loan so people won't be able to take advantage of each others. This is all beautiful and still valid today and will always be valid if we're dealing with each others on one to one or personal level.
For instance, if I lend you 1,000 dollars, then according to Islam, it is totally sinful for me to take advantage of you and have you sign an agreement saying that you will return 1,500 to me with in let's say 1 year. Taking interest from personal loans is what Islam prohibited.
2- Living in the West and the impractical option of "renting":
Some might ask: Why not rent a house instead of buying one, so that one doesn't have to deal with banks?
It is first of all important to know that when one lives in non-Muslim countries, then it is not always possible for him/her to follow Islam to the full extent.
Having said that, my response to the "rent" option is that it is a total waste of money. Here in the West, you get tax breaks (money back at the end of the year) for owning real estate property such as a home or land. Those who rent, however, end up paying money to the Federal government at the end of the year. Also, when you own a home, your money goes in it and you build acuity. The value of the home also rises with time and so do your profits. With rent, on the other hand, you're just wasting money.
So my answer is, since one doesn't live in a Muslim land, because he/she has no choice (thanks to the corruption in the Muslim world), then I personally believe that dealing with the Western banks is Halal (lawful), because you have to live also. You can't possibly live in poverty or in constant financial disadvantages and not be able to save or build solid money all your life when you are forced to live in non-Muslim lands. Allah Almighty did Say:
"On no soul do We place a burden greater than it can bear: before Us is a record which clearly shows the truth: they will never be wronged. (The Noble Quran, 23:62)"If one doesn't live in a non-Muslim system or country, then the situation would be different, because then we can start talking about riba (interests) and it being haram (not allowed, sinful), since the environment and the situation would be different.
This is my answer, and Allah Almighty Knows best.
3- I am not for dealing with interest if it can be avoided:
Unfortunately today, people pay too much interest for taking mortgage loans. They literally end up paying 3 times the house value by the time they finish paying off the loan. If I had a choice, I wouldn't deal with any bank.
But you can't ask every Muslim family to live in an apartment to avoid buying a house. Some families are too large to be accepted to live in any apartment building, and they're too poor to rent houses (sometimes buying a house is actually much cheaper). Other families might want that special comfort and privacy in the house that the apartment doesn't have. For what ever the reason is, if a Muslim family decides to buy a house, then they must deal with the interest the banks charges.
The only way a family can avoid the banks and still buy a house is to save up the money for the house, which is virtually impossible for most people, because not anyone can save 100,000 to 400,000 or more to buy a house in a descent neighborhood all in cash.
As some scholars agree, banking in the West for those Muslims who live in the West is allowed in Islam. Muslims in the West have no choice but to live according to the laws of the countries they reside in. If a Muslim can avoid dealing with bank interests, then he should certainly do so, even though I am certain there is almost no way he can.
Therefore, since most Muslims have no choice but to deal with banks' interests one way or another, then for them it is not sinful as long as they try their best to avoid it.
And Allah Almighty certainly knows best.
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