Original Question: Is interest from hard-earned savings in banks considered riba and so haram? Can any part of it be used to finance a personal asset for e.g. a house?
Answer:
Waalaikumsalam,
Thank you for your question. It reflects your sincere effort to ensure that your earnings remain halal while striving for a livelihood.
To address your question, we must first understand the concept of riba. Riba refers to an unlawful source of income that requires purification. Any income derived from riba is deemed impure. This prohibition is emphasised repeatedly in the Qur’an, such as in the verse:
وأحل الله البيع وحرم الربا
“Allah has permitted trade and forbidden usury (riba).”
(Surah Al-Baqarah, 2:275)
Lexically, riba means “to increase.” In the context of the Shariah, it typically refers to the surplus gained from a loan contract, either as a condition of the loan or as a requirement for extending its maturity. While loans are recognised contracts in Shariah, they must be repaid with an equivalent amount, as any excess would be categorised as riba.
Unfortunately, conventional banks and their savings accounts in Singapore operate on the basis of loans and interest income, which falls under the category of riba and is therefore deemed impure in Islamic law.
However, that being said, hard-earned savings and effort hold great virtue in Islam.
Islam promotes the growth of wealth through effort and fair dealings, which aligns with one of the Maqasid al-Shariah—hifdh al-maal (preservation of wealth). This principle is exemplified in various parts of the Sunnah. For example, a hadith mentions:
“اتجروا في أموال اليتامى حتى لا تأكلها الزكاة”.
“Trade with the wealth of orphans so it is not consumed by zakat.”
(Al-Muwatta’ :660)
This hadith demonstrates that Islam encourages the growth of wealth and savings through lawful means to address issues like inflation and the erosion of wealth over time due to zakat. However, such growth must occur through real economic activities, such as trade, or other Shariah-compliant avenues. This principle is further reinforced in the Qur’anic verse above where Allah permitted trade and forbidden riba.
Thus, while engaging in interest-based products is unlawful, engaging in investments or savings/deposit accounts that are Shariah-compliant is not only lawful but encouraged. Products based on contracts like Murabaha (cost-plus financing), Mudharaba (profit-sharing), Musharakah (partnership), and several other Shariah-compliant contracts provide lawful alternatives.
Furthermore, investing in Shariah-compliant stocks or funds is also an encouraged way to grow wealth while ensuring that you are aligned with the requirements of the Shariah. These avenues ensure that the wealth growth aligns with ethical and religious standards, supporting both personal and societal well-being.
These avenues can be explored by consulting local Muslim financial planners who are knowledgeable about Shariah-compliant products available in Singapore. You may also approach banks such as Maybank or CIMB, which offer Shariah-compliant financial products designed to align with Islamic principles.
To return to your original question, income derived from riba is considered unlawful in Islam and must be disposed of. Do refer to our previous FAQ #35 on ways to dispose impure income here. This also means you cannot gain any personal benefit from this impure source of income such as financing a personal asset. Nevertheless, it is important to note that disposing of impure wealth is not regarded as an act of charity, since the funds do not rightfully belong to the individual in the first place. However, one may still be rewarded for striving to obey Allah’s command by purifying one’s wealth and removing unlawful elements from one’s possessions.
It is also important to emphasise that Islam is not opposed to the growth of wealth or savings, especially when derived from your hard-earned income. Islam encourages wealth growth as long as it complies with Shariah requirements, ensuring it is both lawful and ethical.
Wallahu A’lam (And Allah knows best).
