Banking: Halāl Status of Interest Charged on Loans Given for Property and Agriculture in Islamic Banks

Practical Laws of Islam as per the teachings of Imam Khamenei

Banking: Halāl Status of Interest Charged on Loans Given for Property and Agriculture in Islamic Banks

English:

Question #1907:

Is the interest taken by the banks in the Islamic Republic on loans granted to people to buy property or livestock, agriculture etc. ḥalāl?

Answer #1907:

If it were true that the banks grant these amounts for building or buying property or other purposes under the title of loan, there would be no doubt that the paid interest was ḥarām according to shar‘. Therefore, the banks would have no right to demand payment of such interest. However, banks give the money, apparently, according to one of a host of shar‘ī contracts, such as silent partnership, partnership, ju‘ālah, or rent.

For example, one way could be that the bank shares the property as a partner by paying part of the constructing expenditure. The bank then sells its share to the other partner to be paid by the latter by installments within, say, twenty years. Another way could be by renting the property to the other partner for a given period of time and rent. Accordingly, there is no problem in taking the money or paying the mark-up which the bank puts for such a transaction. Thus, such transactions have nothing to do with the loan granting and the interest levied thereof.

-Imam Khamenei, Practical Laws of Islam, Importance and Conditions of Banking