The bank taking the cost of construction with an increase
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The first question of Fatwa No. ( 19492 )
Q1: Some banks adopt a policy called “Islamic,” whereby they purchase the land on our behalf and deliver it to us in exchange for guarantees, conditions, and a specific period. They also agree with the contractor to develop it according to our wishes, for a period of one, two, or more years. In turn, this bank calculates an annual profit for itself, and if the borrower pays off the loan before the end of the period, the profit for the remaining time is deducted. Is this method considered Islamic, and what do you advise regarding it? Please issue a ruling, may Allah reward you.
A1: If the bank purchases the land and develops it for you, then recovers from you what it paid as the price of the land and the cost of development with an increase; this is clear riba (usury or interest); because it is a loan that yielded benefit, and the scholars have reached consensus that every loan that yields benefit is riba (usury or interest).
Q1: Some banks adopt a policy called “Islamic,” whereby they purchase the land on our behalf and deliver it to us in exchange for guarantees, conditions, and a specific period. They also agree with the contractor to develop it according to our wishes, for a period of one, two, or more years. In turn, this bank calculates an annual profit for itself, and if the borrower pays off the loan before the end of the period, the profit for the remaining time is deducted. Is this method considered Islamic, and what do you advise regarding it? Please issue a ruling, may Allah reward you.
A1: If the bank purchases the land and develops it for you, then recovers from you what it paid as the price of the land and the cost of development with an increase; this is clear riba (usury or interest); because it is a loan that yielded benefit, and the scholars have reached consensus that every loan that yields benefit is riba (usury or interest).
Source
www.alifta.gov.sa
The Arabic text is copied verbatim from the original source, without any edits.