Borrowing from the Bank

Question

Is it forbidden to take a usurious loan from the bank if the borrower does not intend to pay the usurious interest but has signed documents committing to it?

Answer 1

Peace be upon you and God's mercy and blessings.

Grand Ayatollah Sayyid Sistani (may God protect him):

Banks in Islamic countries fall into three categories:

1. Private: Capital is owned by one or several individuals.

2. Government: Capital is composed of state funds.

3. Joint: Capital is formed by both the state and the public.

- It is not permissible to borrow from private banks with the condition of paying interest, as it is forbidden usury. If one borrows under such conditions, the loan is valid, but the condition is void, and it is forbidden to pay or receive the interest as fulfillment of the condition.

There are methods mentioned to avoid usury:

One method is for the borrower to buy goods from the bank or its authorized agent at a price higher than their actual value (e.g., 10% or 20% more) on the condition that the bank lends them a specific amount of cash for a predetermined period agreed upon. Alternatively, they could sell goods to the bank at a price lower than the market value, stipulating that the bank lends them a specific amount for a certain period. In this case, borrowing is permissible and does not involve usury.

However, this is not without issues, and it is safer to avoid it. The same applies to gifts, leases, and settlements conditioned on a loan.

Another method is to exchange the loan for a sale, such as the bank selling a specific amount (e.g., 100 dinars) for more (e.g., 120 dinars) on credit for two months.

However, while this may not be a usurious loan, its validity as a sale is questionable.

It is permissible for the bank to sell an amount (e.g., 100 dinars) on credit for two months and set the deferred price in another currency that exceeds the 100 dinars according to exchange rates, allowing the bank to collect the agreed currency or its equivalent in dinars at the end of the term, thus fulfilling the obligation in a different form.

Another method is for the bank to sell goods for 120 dinars on credit for two months and then buy them back from the buyer for cash at a lower price (e.g., 100 dinars).

This is also invalid if the first sale stipulates that the bank must buy the goods back for cash at a lower price, even if the contract is based on that condition. However, if there is no such condition, it is permissible.

It should be noted that these methods, if valid, do not achieve the bank's primary goal of claiming an additional amount from the debtor if they delay payment, as charging interest for delayed payment is usury, even if framed as a condition in a sales contract.

- It is not permissible to borrow from government banks with the condition of paying interest, regardless of whether the loan is secured or not. If one borrows under such conditions, the condition is void, and the loan itself is invalid, even without the interest condition, because the bank does not own the money it holds to transfer ownership to the borrower.

To avoid this, a person may receive money from the bank without the intention of taking a usurious loan and should refer to the legal authority. We have permitted believers who receive it in this manner to use it according to the prescribed lawful purposes in one of two ways:

Either they take ownership without liability, but they cannot refuse to repay an equivalent amount to the bank unless it is waived.

Or they can consider it a loan to themselves (without interest), and it suffices to repay the bank directly to discharge their obligation, even if they know the bank will demand interest. If the bank requests it, they may pay it.

- Joint banks share the same rulings as government banks, as the funds they hold are treated as ownerless property, and it is not permissible to use them without the permission of the legal authority.

- As for banks funded by non-Muslims, whether private or otherwise, borrowing from them with the condition of paying interest is forbidden. One can avoid this by receiving the money from the bank and taking ownership without the intention of borrowing, allowing them to use it without needing the legal authority's permission.

Source: Minhaj al-Salihin, Vol. 1, New Issues, Borrowing - Depositing

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Grand Ayatollah Sayyid Khamenei (may God protect him):

Usurious loans are religiously forbidden, even if taken to fulfill personal needs, assist a believer, or for any other permissible purpose. However, this does not invalidate the loan; it remains valid despite the sin, and the condition of interest is void. Therefore, one wishing to borrow from the bank can resort to the following method:

The borrower requests the loan and seriously intends not to repay the interest. If they are unable to avoid paying the interest when due, they may pay it out of necessity. In this way, the loan is valid, and they incur no sin, but the bank is not permitted to take the interest.

Source: Fiqh al-Wali: Rulings on Usurious Loans, Usurious Loans from the Bank

May you be successful in all good things.