Saving Account Interest

Q: Is interest accruing from a savings bank account haraam if the rate of inflation exceeds the rate of interest? If yes, please explain the reasons.
Danyal Kazi
([email protected]) Bangalore

Issues Involved are Complex
We need to go beyond Halaal and Haraam
Maqbool Ahmed Siraj replies:

Dear Mr. Kazi
There is no straight answer possible for your question which raises a host of issues which need to be discussed and debated threadbare by the religious scholars as well as those who deal with finance and economy. Unfortunately, not much discussion has taken place within the community on the issue and an atmosphere has been created in which current interest-based banking has been condemned. This has left the community confused as to the status of interest accruing in their savings bank accounts.
We at Islamic Voice do not issue rulings. We just offer opinion and provide a platform for varied kind of opinions to be exchanged. With this preface, following views are being offered for debate.
The Holy Quran has made it illegitimate for Muslims to deal with Riba. Firstly, we need to discuss if Riba applies to modern day ‘interest’. Riba was a form of economic exploitation of the poor by the rich and was between two individuals, in contrast to between individual and institutions today. If a moneylender lent 100 dinar to a person for a year, he would collect, say 110 dinar in return after a year. Let us bear in mind that the dinars were made of gold. Today, the loan transactions take place between an institution (which is in most cases banks, or insurance agencies or finance companies) and in terms of paper currency. Since the paper currency loses its value over a period of time, we need to discuss if the bank interest is a coverage for inflation.
Third, in olden days, the money was borrowed by poor individuals from wealthy individuals. Today the terms have reversed. Today, it is the small man who lends the money to affluent persons i.e., daily wage workers, salaried class and middle class people deposit the money in the bank which in turn lends it to people like Tata, Birla and Mafatlal. The element of exploitation comes into picture when a big man lends money to small man and collects Riba, but not the vice versa. In this light, it needs to be discussed whether the interest accruing on savings bank account is illegitimate.
Fourth, since paper based currency loses its value over a period of time, it would be quite appropriate to ask why not the return be made commensurate to the value the money originally carried. Conversely, it could also be asked if the borrower will not be committing exploitation of the lender by returning devalued money. For instance, A lends Rs. 1,000 to B for the period of 365 days. The money could buy 25 kgs of rice when it was given to B. But when B returns the money to A after 365 days, it will be worth only 20 kgs of rice. Is it not worthwhile to ask if the Islam disapproves of exploitation of any kind, how could the borrower be allowed to exploit the lender.
These are a few issues that need to be discussed in today’s context. It is for the whole community to debate. The interest-free banking has led the community nowhere. Fly-by night operators have vanished after gobbling away depositors of their principal. In some cases, the interest-free lending agencies have been charging operation cost far in excess of the rates of interest in banks. Several interest-free investment companies such as Barkat Investments and Al-Ameen Islamic Financial Investment Corporation, Bangalore; Ittefaq and Falah investments, Delhi; Baitun Nasr Cooperative Credit Society, Mumbai; have either collapsed or disappeared after defaulting on depositors money. All these lead to suspicion that either the interest-free transaction they promised was not based on sound economic principles. It could also be a case of merely exploiting the depositors with the emotive appeal of Halaal business or borrowers exploiting the lending agencies and devalued returns proving to be their nemesis. Whatever be the case, the community should not be led by half-baked economists who are unaware of the changed context of monetary economics.
Readers are invited to offer opinion on the subject.

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