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Questions & Answers

1)      What’s the difference between the financial transactions between the conventional banks and the Islamic banks or Islamic financial institutions?

 Conventional banks work based on two basic principles which are borrowing and lending. The concept is simple, the banks borrow money from the clients who deposit their money into the bank’s accounts, the bank on the other end, lend that money to other clients who are looking for liquidity and the bank charges them interest which represents the profit of the bank.

2)      Many people wonder if usury (Riba) is only when the payment is postponed. True or false?

 1)      It is well known that conventional bank are not allowed to buy and sell goods, and that prohibition is by the law. The allowed functions of the conventional banks are lending and borrowing. Financing through conventional banks is considered borrowing, and any benefit generated from lending money is prohibited by the Islamic jurisdiction (Shariah).

2)      Usury (Riba) which is prohibited by Islamic Shariah, was practiced in the early years before Islam and did not only include the postponing of payments, it has also included the benefits generated from lending the principal amount even when payments are settled on maturity.

3)      In deferred sale (Bai’ Ajel) is it allowed by the Islamic Shariah to add on the original price in order to postpone payment?

1)      Usury is the increase of one of the fixed elements on the other (money more than money, gold more than gold) but the increase in sale is an increase in the price of a good and this increase occurs on two separate objects.

2)      There is no increase in the deferred price even in the case of postponing payments, on the other hand there is an increase in the money whenever postponing payments in usury.

3)      From an economic point of view, deferred prices are supposed to be higher than current prices and that is due to the change in the prices of the goods over time. The seller has that right to secure himself against any decrease in the prices that is why it is allowed to sell with a higher deferred price.

4)      The public’s needs are met through this kind of sales because whoever has inability to provide cash at the moment will not be able to buy at all, and that will lead to recession.

4)      What’s the purpose of owning a good before selling it in Islamic financial institutions?

Holding the good before the sale enables the Islamic financial institution to determine the moment it starts taking responsibility of any possible risks that could face the goods.

5)      What’s the purpose of previewing the goods prior to the sale?

To avoid (Gharar) this means to avoid the presence of any defects in the goods.

6)      What’s the definition of (Bai’ Al-aina) and why is (Tawaroq) allowed?

(Bai’ Al-Aina) is to buy a good at a price, then to re-sell it to the original seller at a lower price to generate cash, which is considered usury.

Tawaroq is to buy a good on installments and to re-sell it to whomever other than the original seller.

7)      Are the Islamic financial institutions allowed to re-buy a car from a client that the institution has financed? (it is to be known that the transaction has been made over a year ago and some of the installments have been paid and the car has been used by the client|)

 Yes it is allowed, and that is because the care has been used so the purpose of (Bai’ Al-Aina) is absent in this case.

Yes it is allowed, and that is because the care has been used so the purpose of (Bai’ Al-Aina) is absent in this case.

(Bai’ Al-Aina) is to buy a good at a price, then to re-sell it to the original seller at a lower price to generate cash, which is considered usury.

Tawaroq is to buy a good on installments and to re-sell it to whomever other than the original seller.

To avoid (Gharar) this means to avoid the presence of any defects in the goods.

Holding the good before the sale enables the Islamic financial institution to determine the moment it starts taking responsibility of any possible risks that could face the goods.

  1. Usury is the increase of one of the fixed elements on the other (money more than money, gold more than gold) but the increase in sale is an increase in the price of a good and this increase occurs on two separate objects.
  2. There is no increase in the deferred price even in the case of postponing payments, on the other hand there is an increase in the money whenever postponing payments in usury.
  3. From an economic point of view, deferred prices are supposed to be higher than current prices and that is due to the change in the prices of the goods over time. The seller has that right to secure himself against any decrease in the prices that is why it is allowed to sell with a higher deferred price.
  4. The public’s needs are met through this kind of sales because whoever has inability to provide cash at the moment will not be able to buy at all, and that will lead to recession.
  • It is well known that conventional bank are not allowed to buy and sell goods, and that prohibition is by the law. The allowed functions of the conventional banks are lending and borrowing. Financing through conventional banks is considered borrowing, and any benefit generated from lending money is prohibited by the Islamic jurisdiction (Shariah).
  • Usury (Riba) which is prohibited by Islamic Shariah, was practiced in the early years before Islam and did not only include the postponing of payments, it has also included the benefits generated from lending the principal amount even when payments are settled on maturity.

Conventional banks work based on two basic principles which are borrowing and lending. The concept is simple, the banks borrow money from the clients who deposit their money into the bank’s accounts, the bank on the other end, lend that money to other clients who are looking for liquidity and the bank charges them interest which represents the profit of the bank.