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In Islam, it is forbidden for Muslims to both receive and pay interest (Riba). This means Muslims cannot charge interest on debts or money owed. Bank accounts typically accumulate interest over time which means many Muslims inadvertently acquire interest without actively seeking to. 

As per the Qur’an, in addition to it being haram for Muslims to charge interest, they cannot spend interest money in a way that benefits themselves. This means if Muslims accumulate interest through inadvertent ways, they must spend it in a way that does not provide them with any benefits. 

“O you who believe! Fear Allah and give up what remains [due to you] of interest, if you should be true believers.” (Qur’an 2:278)

Types of Riba

There are two types of Riba

  • Riba al-Nasiyah
  • Riba al-Fadl

Riba al-Nasiyah refers to interest that is paid on transactions that not immediate. For example, when a rich person lends a poor person money and the poor person pays the rich person back over a period of time, paying Riba as a result of the delay, this is Riba al-Nasiyah. 

Riba al-Fadl refers to when interest is paid through goods. For example, if Person A lends Person B 10 bars of gold, Person B cannot repay Person A 11 bars of gold as the additional bar of gold is considered Riba al-Fadl.

Why is Riba Haram?

Interest is forbidden in Islam for several reasons, namely because the concept of interest exploits the poor. When a person is wealthy enough to lend someone in need money, they are not in a position where they should profit from a poor person. In addition to this, Riba is perceived as greed and given that so much of Islam is rooted in the promotion of giving charity, knowingly accepting Riba goes against these teachings. 

Can You Give Interest Money to Charity in Islam? 

An acceptable way for Muslims to spend Riba is to donate it to charity. Rewards will not be received for doing so, but by donating Riba to a charitable cause, your wealth will be cleansed and you will have disposed of the haram Riba in a way that does not benefit yourself. For this, you will be rewarded for cleansing yourself of haram. 

Can Riba be Spent as Zakat?

Interest money may be donated to charity, but it cannot be spent as Zakat. When Zakat is given, the donor does so out of a religious obligation under the third pillar of Islam. In addition, when Zakat is given, the donor can expect to receive a reward, but a person who gives Riba to charity should do so without intending or expecting to receive a reward (sawab). 

Can Riba be Paid on Loans?

If you take out a loan from a credit company or a bank, there is a chance that you will be charged interest on it by the lender if you default on your payments. Whether or not the act of borrowing money through a credit card or loan is haram based on the potential for interest payments depends on the school of thought you follow. Some argue that borrowing money isn’t haram so long as you pay it back and are not required to pay interest through defaulted payments. Other Muslims argue that taking out a loan or borrowing credit knowing that there’s a possibility you might need to pay interest is haram. It depends on your school of thought. 

Is a Mortgage Considered Haram?

The question of whether a mortgage is haram largely depends on your school of thought. Some Muslims agree that a mortgage isn’t haram and is in fact halal, therefore any interest paid on a mortgage isn’t considered Riba. Other Muslims believe that a conventional mortgage is considered haram because of the interest payments and the belief that owning a home isn’t a necessity when a person could just as easily rent a property. 

In the UK, the Al Rayan Bank and United Bank Limited UK provide Islamic mortgages which are mortgage alternatives. An Islamic mortgage is when the bank buys the property and you pay them back monthly as if you were paying rent, but you are not charged interest. Eventually, you should have bought the bank out and legally own the home without having paid any interest on the property. 

Can a Poor Person Receive Riba?

As soon as the Riba money is given to charity, it is cleansed and is no longer considered haram. This means it is permissible for a person in need to receive Riba. 

What Can Riba be Used on?

In addition to donating your interest money to a registered charity, there are other ways you can spend Riba, including giving the money directly to a poor person or buying clothes, food and essential supplies for them. 

As a result of Riba being haram, it is not permissible to spend Riba on buying a Qur’an or building a mosque. 

Donate Your Riba Today

If you have accrued Riba automatically through your bank, you may donate it to ILM. Your wealth will be cleansed and we will use your interest money to help those most in need. Donate your Riba to ILM today or contact us to find out more.

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