Bank interest and Islamic banking

The modern bank account mixes lawful service (deposit, transfer, card) and interest mechanisms. Contemporary fiqh has worked out a clear daily method, backed by named academic verdicts and banking standards.

The current account: lawful with rules

• The deposit: the non-remunerated current account is lawful, treated as a loan in the service of the deposit (the bank uses the cash); the jurists admit the modern bank as a case of common usage ('urf) under conditions on the use of funds.
• Interest paid by the bank (savings book, credit balance): unlawful as income; the approved method of the scholars: pay it entirely to charity without intending reward (purification, not sadaqa), never re-injecting it into one's assets.
• Bank fees: lawful for real services; overdraft fees at an interest rate are to be avoided, the overdraft being an interest-bearing loan.

Classic bank credit

Allah has cursed the one who consumes riba, the one who pays it, its two witnesses and its writer.Muslim 1598

• The academic qualification: the International Islamic Fiqh Academy (OIC), resolution No. 10 (10/2) (2nd session, Jeddah, 1985), declares that any surplus stipulated on the principal of a loan is forbidden riba, whatever its purpose (consumption or production), and whether the lender is an individual, a bank or a state.
• Interest-bearing lending is therefore forbidden at both ends (borrower and lender) according to the majority of scholars; the academies point to the alternatives (see murabaha, ijara).
• An emergency loan with no alternative: necessity may release according to some scholars (the rule of darura), with the duty to leave it quickly; it is a case-by-case scholarly matter, never a comfort.

The Islamic bank

• The standards that frame it: AAOIFI has codified Islamic finance products in its Shari'a standards: No. 8 (Murabaha), No. 9 (Ijara and ijara muntahia bi-t-tamlik), No. 12 (Sharikah and modern corporations), No. 13 (Mudarabah), completed by No. 17 (investment sukuk).
• Its products: murabaha, ijara, mudaraba, musharaka, sukuk: all asset-based and risk-sharing (see the corresponding pages).
• The pioneering institution: the Islamic Development Bank, created by the OIC and established in Jeddah in 1975, proved the viability of riba-free finance at multilateral scale.
• Its deposits: current account without interest, investment account with profit and loss sharing (mudaraba): compliant when the Shari'a committee is real.
• Its honest limits: the scholars' criticism bears on the formal compliance of some products; choose institutions with an independent Shari'a committee and published religious audit reports.

Practical note

Daily method in a non-Islamic zone: current account without a savings book, transfers and card for services, no interest credit (or framed emergency), any interest received paid to charity, and compliant productive saving as soon as possible.