The Ruling on Dealing with Islamic Banks and Murabahah Sales

The questioner : I am a merchant who pays the price to the bank and receives the documents?

The Shaykh : May Allah protect you from the bank.

The questioner : I mean, through financing or something; there is no dealing except through the bank, there is no solution, O Shaykh.

The Shaykh : O Shaykh, this is how everyone is, and therefore they permit people to deal with riba.

The questioner : Permitting riba is not the case, but dealing with the bank, is there something wrong with it?

The Shaykh : And what does the bank do?

The questioner : You open a credit line against your money, is there something wrong with that?

The Shaykh : What do you mean, may Allah reward you? You are a merchant and I am not a merchant. What does it mean to pay a credit line?

The questioner : I mean, you confirm the goods; the credit line is a document meaning that you agree with the bank to send to the company that so-and-so wants a thousand dashiki suits and the price is with me, so he delivers the letter to the company, and the company, based on this letter, ships the goods. When the goods are shipped, the documents are delivered to the bank, and the bank pays them in exchange.

The Shaykh : You are saying the price is with you.

The questioner : The bank says the price is with me.

The Shaykh : You are now, I missed something from your words and you missed something from my words, which means you delivered to the bank.

The questioner : The bank either is a merchant of trust with him and opens it for him without compensation, or he pays the full value.

The Shaykh : Let us now proceed to what you said, which means that you delivered the price of the goods to the bank.

The questioner : Yes, you pay the full value of the goods. I mean, there are two types of trade in the bank: either you pay the full value of the goods, or you are a person of trust and the bank opens a credit line for you against original documents, and you pay the value upon arrival.

The Shaykh : What is this, sir? We have heard it and we will pause, but now we assume the first scenario: that you paid the price of the goods to the bank in full. What does the bank do with this price? With the money.

The questioner : Either it utilizes it or something; usually it utilizes it, of course.

The Shaykh : You are a merchant and you are saying this. Either it is or it is not; either way, surely it utilizes it. So, is it in the halal or in the haram?

The questioner : There are two types of banks: there is an Islamic bank and there is a ribawi (interest-based) bank.

The Shaykh : What type is the Islamic bank? What does it do?

The questioner : The Islamic bank is according to the Shari'ah.

The Shaykh : For example.

The questioner : For example, if the documents arrive, the goods are shipped, and the documents arrive, and you are not paying the amount, it does not take interest from you.

The Shaykh : Stay with me; we agreed on this thousand dinars in this transaction. What does the bank do? What is the difference with the Islamic bank?

The questioner : This is utilized in murabahah by the Islamic bank?

The Shaykh : What is this murabahah?

The questioner : It brings you goods via murabahah and takes a certain percentage for a specific period. For the specified period, and if you did not pay the amount, it does not take more than the amount from you. And if you pay early, meaning you bought the goods for three months and paid after a week, it will not return any of the profits it took.

The Shaykh : How does it not return anything?

The questioner : I mean, for example, you bought goods for a thousand dinars and said I want them for three months. It calculates three months of profit on them, for example, thirty dinars. You sell the goods after a week and the amount becomes available to you. You say, I have the thousand dinars; this thousand and thirty dinars is available. It tells you, the amount is complete. It takes from you, for example, in circumstances where the amount did not become available to you. In a period of three months, you did not pay him; you stayed for six months. It does not take more than the amount from you.

The Shaykh : Well, when they agree for after three months, it takes a certain profit. If they say after four months?

The questioner : Does it increase the amount?

The Shaykh : Why?

The questioner : Because the period increased.

The Shaykh : What is this? Is it not riba?

The questioner : By Allah, according to the religious men, they will tell you this.

The Shaykh : Leave us and the religious men, because in Islam there are no religious men. There are men of knowledge. It is not my concern how this is; is it not riba?

The questioner : It will tell you, no, sale on credit is permitted in Islam.

The Shaykh : It is permitted, but it takes an increase in exchange for what? The longer the term, the greater the profit. Yes, this is what they call murabahah. Well, calling it murabahah, with the observation that the increase is proportional to the increase in the term of payment, this is the riba.

The questioner : If, for example, you pay before the period, it will not return anything to you. And if the period increases, it will not increase anything for you.

The Shaykh : I want to address this scenario: in three months, the profit is seven; in four months, the profit is ten; in five months, the profit is fifteen, and so on. This increase is certainly not legitimate.

The questioner : By Allah, those who legislate, the men of Shari'ah, say that it is permissible. Of course, there is a second type. There are two types of trade with them. The second type opens a credit line for you. If you pay the amount, for example, in full to the Islamic bank, a thousand dinars, and the documents arrive, it does not take anything from you; it takes a commission only. There are two types of credit lines.