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Is there a difference between interest and usury? Are both prohibited?

QUESTION

1)    Is there a difference between interest and usury? Are both prohibited?

2)    Can we buy a house through a bank on a fixed rate of interest?

ANSWER

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

1)    When a debtor borrows money from a creditor, the creditor will typically charge interest. However, there are certain regulations that a creditor must follow when developing the loan contract and determining its interest rate. If the lender charges an interest rate that is higher than the rate allowed by law, he has committed usury.

Legally, there might be a slight difference between the two. However, interest and usury are the same according to Shariah. The word Ribaa is used. Imam Jasaas (Rahimahullah) explains that Riba refers to when the creditor charges the debtor excess from the principal borrowed.[i] Hence, interest and usury are two words interchangeably used.

2)    In principle, entering in to a Riba based transaction is prohibited. There are clear Nusoos from Quran and Hadith to prove this. Hence, irrespective if the interest rate is fixed throughout the contract, or the interest rate fluctuates, the transaction is a Riba based transaction, hence prohibited.

One could opt for an Islamic bank which offers different alternatives to a Riba based loan, like Murabaha or diminishing Musharakah. These are alternatives to the conventional loans offered by banks.

3)    You could listen to the discourses of Mufti Ebrahim Desai on Islamic commerce. The discourses could be found on these links https://darulmahmood.net/category/discourses/

https://www.musjidnoor.za.net/sound/special/

And Allah Ta’āla Knows Best

Mahmood Suliman

Student Darul Iftaa
Gaborone, Botswana

Checked and Approved by,
Mufti Ebrahim Desai.

 

 

 

 


[i] أحكام القرآن للجصاص ت قمحاوي (2/ 184)

وَالرِّبَا الَّذِي كَانَتْ الْعَرَبُ تعرفه وتفعله إنما كان قرض والدراهم وَالدَّنَانِيرِ إلَى أَجَلٍ بِزِيَادَةٍ عَلَى مِقْدَارِ مَا اُسْتُقْرِضَ عَلَى مَا يَتَرَاضَوْنَ بِهِ

https://smallbusiness.chron.com/difference-between-usury-interest-35863.html#:~:text=Definitions,you%20owe%20on%20the%20loan.&text=Usury%20refers%20to%20interest%20that,state%20allows%20lenders%20to%20charge.

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