When is money earned from banks considered riba’ (interest)?

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Last Updated on 23rd September 2022

A lady asked Hazrat Amirul Momineen, Khalifatul Masih Vaa about the profit received from state-owned and private banks and whether it fell into the category of interest [riba’] or not. Huzoor-e-Anwaraa, in his letter dated 23 August 2021, provided the following response to this question: 

“Depositing money in a bank or another financial institution with the condition that one will only get dividends on it at a pre-determined fixed rate is an impermissible arrangement as this profit falls into the category of interest [riba’]. However, if money is deposited in a bank or financial institution with the condition of profit and loss sharing, as is the case with PLS i.e. profit-and-loss-sharing bank accounts in Pakistan, the profit received from such an account is not considered interest and the person can utilise it for his personal needs.

“Moreover, since state-owned banks and financial institutions invest their capital in philanthropic projects for the sake of the whole country, not only does the individual who deposits his or her money in them derive benefit but so do all other citizens. Moreover, the investment of these state-owned banks and financial institutions leads to growth in the country’s economy and generates more employment opportunities, which leads to an increase in state revenue. In such a scenario, where these state-owned banks and financial institutions share their profits with the public and private individuals who deposit money with them and give a certain portion of their profits to their account holders, it is permissible. This profit does not fall into the category of interest and the person can utilise it for his personal needs.”

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