The nature of Riba and rationale of prohibition : interest free commercial banking

Fatawa Question

As Salaamu 'Alaikum Wa Rahmatullah, I have been reading the book Interest free commercial banking by A.L.M. Abdul Gafoor. and in it he separated the cost of borrowing (CoB) into a few parts i.e. 1. Interest 2. Service Cost 3. Overheads Cost 4. Risk Premium 5. Compensation for inflation 6. Profit. In his explanation of the above he said the following : the bank, being a commercial profit making concern, should receive some profit. Naturally it should be charged to the customer and therefore there should be no objection to including it in the cost of borrowing. The question is, on what basis ? If we rule out charging a percentage of the loan, because it may smack of interest, what are the other alternatives ? A good practical alternative seems to be to fix it as a percentage of the services and overheads costs, increase these costs accordingly and, call them services and overheads charge respectively. (p9) This seems to be extremely similar to the interest system. Can you please offer your thoughts. Yours in Islam

Fatwa

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Publication Date

2006-07-18

Main Subjects

Economics & Business Administration
Islamic Studies

No. of Pages

2

Data Type

Fatawa

Language

English

Record ID

BIM-790192

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