Category Archives: Q&A

Sheikh Nizam Yaquby answers common questions relating to Shariah-compliant halal mortgages

Sheikh Nizam Yaquby answers common questions relating to Shariah-compliant halal mortgages

To what extent do contemporary Islamic mortgages comply with Shariah Law:

How important is it for Muslims that their money comes from permissible (halal) sources:

Do Sharia mortgages really address the ethical concerns of Muslims about what is happening to their money:

Will Islamic mortgages lead to greater social inclusion:

Rationale for the Prohibition of Riba: Answered by Sheikh Yusuf Talal DeLorenzo

Rationale for the Prohibition of Riba: Answered by Sheikh Yusuf Talal DeLorenzo

Question: While I understand that the shariah is strongly opposed to riba in all its forms, I was considering what the rationale for this is. The Quranic text and prophetic tradition are clear in prohibiting it but I haven’t yet seen a clear explanation of why it is problematic. I also fail to see WHY asset-backed ownership is the only permissible type in Islam and exactly what the problem is with other purely financial instruments. Are there any other readings you could recommend to help answer these questions?

Answer: Please keep in mind that the prohibition is very much a moral issue, and that it is closely related to the concept of khilafah or stewardship. The Islamic concept of monotheism views the Almighty as the Fashioner and Possessor of all creation.

His is all that is in the heavens and on earth. Everything submits to Him (2:116).

When the earth and everything in it belong to the Almighty, the role of humankind is no more thanthat of caretakers. Even so, humankind has been granted an awesome responsibility, one which, in the poetic language of the Qur’an, even the mountains dared not accept.

The terms of this stewardship are that the Almighty allows humankind the use of the physical universe, hopefully for good (though possibly for evil, because humans have the ability to choose), and in return humankind agrees to be accountable for how the physical universe is used.

This agreement is the foundation of all worldly justice, and this leads to the Shariah orreligious law which includes guidelines for using the Almighty’s property for profit and acceptable gain. Unjust enrichment, according to the Shariah, may take many forms; but the most iniquitous of all is enrichment at the expense of others, and this includes lending for profit.

Money lending and financing belong to two entirely different spheres; one is charity, pure and simple, and the other is business. The repercussions of this bifurcation range far and wide, and shape much of what is unique about Islamic notions concerning economy and society.

Equity investing offers Muslims the opportunity to profit, not by lending at a guaranteed rate of return, but by sharing in ownership, and thus commiting to share in the risks associated with ownership. Such a commitment is clearly in consonance with the concept of stewardship, and this, more than anything else, explains how the Islamic prohibition against interest is as much a moral matter as it is a legal one.

Investing in the Financial Sector: Answered by Sheikh Yusuf Talal DeLorenzo

Investing in the Financial Sector: Answered by Sheikh Yusuf Talal DeLorenzo

Question: I was particularly interested to know what kinds of sectors islamic investors should avoid, like the financial sector. I assume that some smaller banks generate more revenue from profits arising investment returns on deposits received.

Does it make sense to say that in a scenario where 80% of the bank’s revenue is generated from investment returns (from financing development projects), then from whatever returns I might make as a Muslim investor in this bank, I would have to cleanse 20%?

I know that I am oversimplifying the scenario for most banks am not taking into account the fact that halaal investment projects in the bank might constitute only a small part of the bank’s overall profit. But assuming a direct relationship (each % of halaal investment by the bank contributes 1% of profit to the banks bottom line), is my reasoning correct.

I am also wondering to what extent my assumptions about the ratio of halaal to haram (investment vs loan financing) business dealings in a typical bank are sound.

Answer: The financial sector in general, and banks and insurance companies in particular, represent dangerous ground for Muslim investors owing to their involvement, in a very fundamental way, with riba. As a result, the entire sector has been declared “off limits” by most Shari`ah boards. The Dow Jones Islamic Market Indexes, for example, include no banking or insurance securities.

If, however, you are considering an investment in a bank that transacts with a minimum of riba, your answer is at least theoretically correct. However, the real problem is determining the amount of the income the bank actually earns from riba and this, in practical terms, is nearly impossible.

Therefore, my advice would be to stay away from such an investment. In addition, several of our most respected Shariah scholars have given the opinion that it is unlawful to deposit in riba-based banks (if an Islamic alternative is available) because to do so encourages and supports the riba-based system of finance. Then, when this is their opinion on deposits, their opinion in regard to investing in such banks is that to do so is clearly unlawful.

And Allah knows best.

Mufti Taqi Usmani: Lecture and Q&A session on Riba

Lecture on Riba:

Q&A session: