Actually, banks consider people’s money as loans and not as money for investment in shared profitable projects. But loans which incur interest are definitely riba. It has nothing to do with any economic studies or fluctuation of prices. Moreover, riba is made unlawful by textual evidence and it is not subject to public interests.

Dr. Hussain Hamed, Professor of Shari`ah at the Faculty of Law, Cairo University, states the following: “The fatwa issued by the Islamic Research Academy is supported by some arguments that prove that predetermining the percentage of interest on money deposited in banks is lawful and there is nothing wrong with it at all. Hence, I will mention these arguments and the reply to them.

The first argument: Predetermining the percentage of interest is based on a thorough study of the conditions of the market.

In this concern the fatwa reads: “It is well known that banks’ pre-estimation of a certain percentage of interest on dealers’ deposits is based on well established study of the stock market and its conditions, and of the economic conditions of the society. Fixing interest thus differs according to the circumstances, the nature of each deal, and the average of gains.”

This justification is not a point of controversy in itself, because what matters is not the way of fixing the interest. Rather, controversy is on the ruling of interest given to depositors, disregarding its amount and the way of fixing.

Bank deposits are considered loans by law and by the consensus of jurists, and “any increment in a loan is riba,” as the Prophet (peace and blessings be upon him) states in his hadith. In reality, banks deal freely in people’s deposits; they unilaterally dispose of them by using them in lending to other people for interest. At the same time, banks are committed to pay that money back with interest. These are the characteristics of loans as stated in law, with no regard to how such interest is estimated, what its percentage is, or what the name given to it is. It is no matter whether such extra money given on the capital is called benefit, gain, earning, interest, reward, gift or whatsoever. What matters is the actual results effected by the contract between the bank and the dealers, because contacts are governed by the results they entail. Rulings are generally given to real matters not to hypotheses. Moreover, the claim that banks are just investors by proxy that invest money deposited therein in legal projects has already been refuted by law, Shari`ah, and by experience.

The second argument: The percentage of interest fluctuates.

The fatwa of the Islamic Research Academy states: “It is well known that the percentage of interest paid to depositors is not fixed, such as the case with investment certificates. The interest for investment certificates was given a specific estimation, then it was increased to 15%. Afterwards it was decreased to about 10%.”

This justification has nothing to do with the issue under discussion, as the discussion now is about the Shari`ah position on banks’ interest. It has been stated previously that banks’ interest is riba because it is an increment in a loan, usually a percentage of the amount loaned beyond what is due, granted by the debtor to the creditor in lieu of the delay in payment. This is definitely riba according to the previously mentioned hadith of the Prophet (peace and blessings be upon him). Also, there is a consensus that any increase given for delaying the payment of a debt is riba whether its percentage is fixed beforehand, as stated in the fatwa, or is estimated according to the rate of interest at all banks.

Money deposits are no more than loans that banks take and utilize, and banks have to pay them back in full. These are the characteristics of a loan as stated in Shari`ah and Law. So any excess beyond that which is due is riba, no matter what its percentage is, how it is estimated it, the name given to it, or its fluctuation.

Some may argue that a bank deals in people’s deposits as an investment proxy who utilizes them for his own benefit in legal projects, like buying and selling and other legal channels of investment. But this claim is untrue as observed in reality, and it is also banned by law.

The third argument: Fixing the percentage of interest falls within the category of public interests.

The fatwa goes: “In conclusion, prior fixing of the percentage of interest for money deposited in banks or any other investment proxy is lawful and there is nothing wrong in it at all. This is because such deals fall within the category of public interests and do not fall within the acts of worship or articles of `aqidah (Islamic belief), which are not subject to change or replacement.”

This argument can be refuted by the following:

Firstly, when a Shari`ah ruling is supported by evidence and its scope is well defined, then it can never be changed or altered. This applies to `aqidah issues, acts of worship, as well as dealings and transactions. However, in re
gard to transactions, the scholars may interpret any textual evidence in order to define the scope of application, considering the interest and wisdom it aims to achieve. As regards acts of worship scholars may apply their personal reasoning within the limits of the textual evidence, without going so far in interpreting it. This is the opinion of Imam Ash-Shatibi and others. However, in all cases once scholars reach a legal ruling through this methodology by working out their personal reasoning, then this ruling can’t be changed.

Hereby we notice that this is totally different from the wording of the fatwa. Saying that rulings of Shari`ah can be changed or altered bears the serious connotation that they are not obligatory or binding. This saying was attributed to At-Tufi Al-Hanbali, though he is innocent thereof. In fact, none of the Muslim scholars has adopted this opinion in the history of Islamic personal reasoning (ijtihad). (See: Dr. Hussain Hamed, Nazariyyat al-Maslahah (The Interest Theory), p. 533)

Secondly, such dealing has nothing to do with public interests because such deals depend on investment by proxy, as stated in the fatwa. In this concern, Islamic Shari`ah clarifies the conditions of proxy and all its rulings. Meaning, everything about proxy is stated in the Shari`ah texts. The rulings of proxy as agreed upon among jurists are:

1. The wage fee of the authorized proxy or business manager must be stated in the proxy contract, whether it is a specific sum of money or a percentage of the invested money.

2. All the profits of the invested money should be given to the auth
orizer (i.e., the owner of the money) and losses are his, as he is the owner of the money, not the proxy.

3. The authorized proxy must document the accounts of the investment operations in files, so that he can record the gains as well as the expenses of projects. Then he is to give the net profits to the owner of the money after deducing the payment of the proxy himself. So the proxy that is claimed in the fatwa does not accord with reality. It is nonsense, as it does not fulfill the legal conditions for proxy and authorization and does not meet the rulings that are stated in Islamic Shari`ah.

In conclusion, I would like to say that the fatwa in question is not applicable in respect to the functioning of banks working in Egypt and other Arab countries, because the conditions and scope of application of the fatwa are not materialized in these banks. Arab and Egyptian banks do not do investment by proxy; they do not have any authority to directly invest or trade in money deposited in them. They only lend such deposits with interest, which is intrinsically unlawful in Shari`ah. Even if we suppose that there exists a banking system that does invest by proxy, then it should fulfill the legal conditions of proxy and work within the Islamic rulings that govern it.”