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I am under the impression that Islam technically bans loans. So one would have to do an investment instead of a loan with interest. Do you know if I have this r

I am under the impression that Islam technically bans loans. So one would have to do an investment instead of a loan with interest. Do you know if I have this right?

einarfd 6y ago
My understanding is that it isn't the loan that is banned but charging interest. A fairly simple workaround would then be to charge a monthly fee instead, and you would then end up with something that in practice is more or less the same.
- npteljes 6y ago
  This is my takeaway with religious practice. If something is desired, but banned, people will find something that is practically similar enough, and technically allowed by the religion.
  - gher-shyu3i 6y ago
    Except with Islam, since its texts are clear enough to warn about and prohibit what you're describing. Don't lump all religions together.
  - whiddershins 6y ago
    In practice, religions tend to have institutions that parse and interpret the text, and make a clear, unambiguous interpretation for a given situation. So people might tell themselves they are doing a workaround, but it is not really valid from the point of view of the organized religious body.
- gher-shyu3i 6y ago
  > A fairly simple workaround would then be to charge a monthly fee instead, and you would then end up with something that in practice is more or less the same. No. Islam bans all these workarounds. What you describe is still a money for money exchange. Interestingly enough, Islam does not just ban interest, it has a concept of Riba, which includes interest/usury, but encompasses other transactions as well. What you describe falls squarely under Riba.
gher-shyu3i 6y ago
In Islam, loans are purely an act of charity. A person lends another person a certain amount of money, and they are not owed anything in return (tangible or intangible) other than that same amount of money. In general, you're correct. People invest their money, with the possibility of profit or loss. One reason interest is prohibited is that the lender is contractually obligated to a profit regardless of the outcome.
fzil 6y ago
So I grew up in a traditional muslim household, here's my understanding of things as they've been taught to me. generally there are 2 types of loans, 1. Kharz Hasan (Loan of goodwill) given out to people/institutions without any collateral, sometimes even without a term limit. Its up to lender to decide if they want their money back or forgive the loan which then turns this loan into a "Sadqah" (charity). 2. Loan with a collateral: this is the standard loan where the two parties agree on a collateral and lend money based on that. Neither of these above loans involve any kind of interest. (My) Islamic Understanding of Mortgages: The risk profile is different compared to normal. Normally what happens is that institutions loan the amount of money and you buy the property and pay interest on the money. In the Muslim Model, the institutions BUY the property and you pay money. The money you pay goes partly towards buying the property and the partly towards paying "fees" to use the property that you don't completely own. You can see why people would say things like, "oh, they are skirting the rules by changing the name from interest to fees". However, a "proper" implementation would put more burden on the banks in case of a crash. Hope that clears up few things.
- gher-shyu3i 6y ago
  > In the Muslim Model, the institutions BUY the property and you pay money. The money you pay goes partly towards buying the property and the partly towards paying "fees" to use the property that you don't completely own. Check out what the Companions Ibn Abbas and Ibn Mas'oud said about such a transaction. It's still Riba (usurious) because the price of the house or asset is raised in exchange for postponing payment. It's only relatively recently with the heavy influence of Western banks that this "model" has gained some traction, but it remains a usurious transaction and many scholars have spoken against it.

I am under the impression that Islam technically bans loans. So one would have to do an investment instead of a loan with interest. Do you know if I have this right?

einarfd 6y ago

My understanding is that it isn't the loan that is banned but charging interest. A fairly simple workaround would then be to charge a monthly fee instead, and you would then end up with something that in practice is more or less the same.

npteljes 6y ago
This is my takeaway with religious practice. If something is desired, but banned, people will find something that is practically similar enough, and technically allowed by the religion.
- gher-shyu3i 6y ago
  Except with Islam, since its texts are clear enough to warn about and prohibit what you're describing. Don't lump all religions together.
- whiddershins 6y ago
  In practice, religions tend to have institutions that parse and interpret the text, and make a clear, unambiguous interpretation for a given situation. So people might tell themselves they are doing a workaround, but it is not really valid from the point of view of the organized religious body.
gher-shyu3i 6y ago
> A fairly simple workaround would then be to charge a monthly fee instead, and you would then end up with something that in practice is more or less the same. No. Islam bans all these workarounds. What you describe is still a money for money exchange. Interestingly enough, Islam does not just ban interest, it has a concept of Riba, which includes interest/usury, but encompasses other transactions as well. What you describe falls squarely under Riba.

gher-shyu3i 6y ago

In Islam, loans are purely an act of charity. A person lends another person a certain amount of money, and they are not owed anything in return (tangible or intangible) other than that same amount of money. In general, you're correct. People invest their money, with the possibility of profit or loss. One reason interest is prohibited is that the lender is contractually obligated to a profit regardless of the outcome.

fzil 6y ago

So I grew up in a traditional muslim household, here's my understanding of things as they've been taught to me. generally there are 2 types of loans, 1. Kharz Hasan (Loan of goodwill) given out to people/institutions without any collateral, sometimes even without a term limit. Its up to lender to decide if they want their money back or forgive the loan which then turns this loan into a "Sadqah" (charity). 2. Loan with a collateral: this is the standard loan where the two parties agree on a collateral and lend money based on that. Neither of these above loans involve any kind of interest. (My) Islamic Understanding of Mortgages: The risk profile is different compared to normal. Normally what happens is that institutions loan the amount of money and you buy the property and pay interest on the money. In the Muslim Model, the institutions BUY the property and you pay money. The money you pay goes partly towards buying the property and the partly towards paying "fees" to use the property that you don't completely own. You can see why people would say things like, "oh, they are skirting the rules by changing the name from interest to fees". However, a "proper" implementation would put more burden on the banks in case of a crash. Hope that clears up few things.

gher-shyu3i 6y ago
> In the Muslim Model, the institutions BUY the property and you pay money. The money you pay goes partly towards buying the property and the partly towards paying "fees" to use the property that you don't completely own. Check out what the Companions Ibn Abbas and Ibn Mas'oud said about such a transaction. It's still Riba (usurious) because the price of the house or asset is raised in exchange for postponing payment. It's only relatively recently with the heavy influence of Western banks that this "model" has gained some traction, but it remains a usurious transaction and many scholars have spoken against it.