The answer to the above is linked to a primary question related to the description of a bank deposit. If it is considered a loan with the assumption that the financial institution (i.e., the bank) guarantees the loan and is obligated to return the principal value, then any increase (i.e., interest) over the original amount is considered prohibited usury (ribā), whether the percentage is fixed or variable.
Similarly, if the bank deposit is considered a trust (᾽amānah), because the default principle in trusts is that they should be returned in the same form (i.e., the entrusted item itself), not in value, unless the entrusted item is damaged due to the depositor’s actions, negligence, or ignorance. It is stated in the Journal of Legal Judgments (Mecelle) that: “Trust is not guaranteed, so if it is lost or disappears without any act or negligence on the part of the trustee, the trustee is not obliged to guarantee it.” Therefore, whoever is entrusted with a dollar should return a dollar, and whoever is entrusted with gold should return gold.
The difference between a loan and a trust lies in two aspects: guarantee and permission to use. These aspects are part of the loan but not of the trust.
Those who consider a bank deposit as a form of agency (wakālah) or partnership in profit-loss sharing (muḍārabah) permit the increase (i.e., interest) over the principal amount. In muḍārabah, the working partner and silent partner seek to generate profit and growth, with each entitled to a share of the earnings.
The correct view, in our opinion, is that a bank deposit is a new transaction that shares similarities with and differs from the four types mentioned earlier. It resembles a loan in terms of guaranteeing repayment but differs in that it occurs at the request of the depositor, not the receiver, unlike a loan. Additionally, it (i.e., bank deposit) can be retrieved at any time, unlike a loan which may have a set term that cannot be expedited without the consent and approval of the borrower.
In this context, bank deposit shares characteristics with trust in that it can be retrieved at any time in the same form paid (we do not mean cash in the sense of specifying the exact cash, as currency is not entitled to be paid in the same exact cash) – meaning in dollar if it was in dollar and gold if it was gold. On the other hand, bank deposit differs from trust in that the bank has the right to use the money unlike the case in trust.
Bank deposit also bears some resemblance to profit-loss sharing (muḍārabah) because the bank benefits from investing the deposits and generates earnings. However, it differs in that the burden of losses falls solely on the bank and does not affect the depositor.
It also bears some resemblance to agency (wakālah) because it involves the permissible delegation of authority to manage what falls under the agency, which is the deposited money. However, it differs in terms of guarantee and the obligation to repay in-kind.
Therefore, current bank deposits in their present form were not known in classical Islamic jurisprudence, and we cannot categorize them under a single ruling. Instead, we are trying to determine their ruling based on their characteristics. Given that they encompass elements of profit-loss sharing (muḍārabah) and agency (wakālah), it is permissible to take the increase over the principal amount on the basis of generating profit, whether the interest rates are variable or fixed, as long as these rates are expressed as percentages rather than specific amounts.
There is nothing in Islamic jurisprudence that prohibits specifying a fixed percentage for profit and increase. In fact, it may fulfill welfare for someone who relies on the increase to meet their essential needs, so they do not have to fluctuate with changes in the percentage if it is variable not fixed.
As for those who might argue that many depositors rely on their bank deposits with fixed monthly returns that they live on. As a result, the banks collapsed as in Lebanon, and became unable to pay returns or assets to the depositors. Moreover, the depositors could not even access their deposits, as if all their money had disappeared. This is a reality experienced by depositors, all because of the greed of banks and their rush into unsecured investments with depositors’ money. Even if the state guarantees depositors’ funds, it does not guarantee the full deposits but only a portion of them, and that portion might be small. Does not this reality necessitate a reconsideration of the aforementioned fatwā?!
To this objection, I would say: What is indicated by the collapse of the financial system in some banks confirms what we have concluded regarding considering the increase over the capital as part of the profit-loss sharing (muḍārabah) money for the following reasons:
- The rule of risk-based gain (al-ghunm bi-al-ghurm): If the depositor is exposed to financial fluctuations in banks, why should they suffer losses without benefiting from profits? For example, in Lebanon, if the banks achieved profits, in case we prohibited taking the monthly or annual interest by saying it is forbidden usury, is the bank bound to return all the capital in case it faces financial risks?!
If the depositor is involved in such risk in this way, they should be entitled to take a fixed or variable percentage of the bank’s profits.
- It is necessary to consider the change in the value of annual, monthly, and weekly inflation in some cases. Every interest given by banks, no matter how much it exceeds the capital, does not equal the value of the significantly variable inflation nowadays. For example, someone who deposits a thousand [dollars] at the beginning of amonth might find that its value is not even two-thirds by the end of it. The rule in repayment is: “To you your principal [capital].” [Al-Baqarah 2:279].
Therefore, there is nothing to prevent taking the increase [i.e., the interest] on the savings account considering the aforementioned.
Fatwa issued by Dr. Khālid Naṣr
