Last updated: 10 February 2025
I receive many questions regarding the ruling on interest—whether it is permissible to receive interest from banks, take interest-based loans, or obtain interest-bearing mortgages.
After extensive research on this matter, a detailed paper with a critical review and analysis of various positions will be published soon. Additionally, a comprehensive video essay will be released under our new initiative, Islamative Finance—in shāʾ Allāh. This research primarily focuses on the views of Indian Ḥanafī scholars, with comparisons to positions held by Arab scholars and others. The aim is to highlight overlooked points and spark discussions among scholars, particularly Indian Ḥanafī scholars. Detailed references and citations can be found in the research paper.
Summary of the Research
It is well known that ribā is ḥarām and a major sin—whether one is giving ribā or taking it. Both are explicitly prohibited. Any surplus charged on a loan principal that is imposed as a condition in the transaction is referred to as ribā. Charging such a surplus is ḥarām, and paying it is also ḥarām by consensus, as the Qurʾān categorically forbids ribā. All four schools of fiqh, of course, prohibit ribā. However, as with many rulings, they differ on the conditions under which ribā applies in a transaction. Each school has its own criteria for when ribā is present, agreeing on some points while differing on others.
A key discussion regarding interest, particularly in Western countries, revolves around transactions with non-Muslims. The four schools unanimously agree that ribā applies between two Muslims. However, they differ on whether ribā applies between a Muslim and a common non-Muslim. The Ḥanafī jurists hold that ribā does not apply in dealings between a Muslim and a non-Muslim, whereas the other three schools disagree, arguing that ribā applies regardless of the party involved. This is a matter of juristic difference between the schools, with each position based on evidence from primary sources.
The Ḥanafī Perspective in India – taking interest
In the late 1800s, prominent Indian Ḥanafī scholars, particularly Imām Aḥmad Riḍā Khān, analysed this issue in the context of British colonisation and the emergence of private and state-owned banks in India. When asked whether interest payments from these banks—owned almost exclusively by non-Muslims—were permissible, they referred to classical Ḥanafī fiqh texts, which state that ribā does not apply in a transaction between a Muslim and a common non-Muslim (this point is found in almost all classical Ḥanafī texts).
This ruling is derived from a ḥadīth (analysed in detail in the forthcoming research paper). Based on this, they concluded that accepting interest from such banks was permissible and did not constitute ribā, since these banks were non-Muslim-owned institutions, and ribā does not apply in transactions with non-Muslims.
However, it is crucial to clarify that they did not declare ribā itself to be permissible. Rather, they determined that the surplus given by non-Muslim banks did not meet the definition of ribā in the first place, based on the Ḥanafī school’s conditions. They applied this ruling to banks that were exclusively owned by non-Muslims, with the condition that not even a single shareholder was Muslim. At that time, British-run banks in India rarely had Muslim shareholders.
The Ḥanafī Perspective in India – Paying Interest
Early Indian scholars (pre-1950s) primarily addressed the permissibility of taking interest from non-Muslim-owned banks but did not extensively discuss paying interest on loans from such banks. Later Sunni scholars largely upheld the earlier ruling, agreeing that receiving interest from a non-Muslim-owned bank was not ribā and was therefore permissible according to classical Ḥanafī texts.
However, opinions varied on whether paying interest to such banks constituted ribā:
- Some scholars ruled that it was ribā and impermissible.
- Others argued that it was not ribā, since ribā does not apply in transactions with non-Muslims.
- A third perspective debated whether state-owned banks in India could be classified as non-Muslim institutions.
The dominant Ḥanafī position in India today is that ribā does not apply at all in transactions with non-Muslims. Consequently, both taking and paying interest are not classified as ribā. However, scholars have made an additional distinction:
- While paying interest to a non-Muslim bank is not ribā, it is still generally considered impermissible, as it results in financial loss to a Muslim without clear benefit.
- However, if taking a loan provides greater benefit than the interest paid, then it becomes permissible. Since the interest is not considered ribā in dealings with non-Muslims, and the reason for prohibition (financial harm to Muslims) is absent when the loan provides substantial benefit, taking such a loan is allowed.
This nuanced position is widely adopted by Indian Sunni Ḥanafī scholars and remains the basis for contemporary fatwās on interest-related questions in India and elsewhere.
Re-evaluating the Ownership of Modern Banks
Contemporary Indian scholars continue to rely on this position of permissibility, assuming that banks in India and Western countries remain solely non-Muslim-owned. They apply fatwās based on earlier scholarship from a time before globalisation when banks were exclusively owned by non-Muslims.
However, I argue that a thorough analysis of the ownership structures of modern conventional banks has not been conducted. As a result, the position of earlier scholars continues to be relied on without considering the significant changes in banking ownership. Today, banks in India and Western countries are multinational conglomerates operating as public limited companies (PLCs). Their ownership is determined by the distribution of shares—whoever owns shares in the bank, even if only a single share, is considered a part-owner.
This principle is also acknowledged by Indian scholars. According to their research, owning ordinary shares of a company establishes a valid Islamic partnership (shirkah ʿinān). Therefore, if a Muslim owns shares in a bank, they become part of its ownership structure.
The Issue of Muslim Shareholders
PLC banks issue millions of shares, which are publicly available for purchase by anyone, including Muslims. Given this, how can we confidently assert that a bank is entirely non-Muslim-owned? If even a single Muslim is a shareholder, all loan-based dealings involving surplus (ribā) become impermissible.
Moreover, with millions of shares in circulation, it is highly probable that at least some are owned by Muslims—whether directly or through investment funds, pension schemes, or institutional holdings. Large investment funds often hold stakes in major banks, and many Muslim investors contribute to these funds, making indirect Muslim ownership even more likely.
While it is sometimes possible to identify major shareholders—particularly institutional investors with significant stakes—determining every individual shareholder is nearly impossible due to the vast number of shares and the lack of publicly available data. Even if no prominent Muslim shareholders are identified, the probability of Muslim ownership remains high.
The Oversight in Contemporary Fatwās
I believe this critical issue—bank ownership and shareholder composition—has been overlooked in scholarly research. As a result, scholars have issued broad fatwās permitting interest-based transactions with banks in India and Western countries, assuming they are entirely non-Muslim-owned. However, this assumption no longer holds in the modern financial system.
To the best of my knowledge, I was the first to raise this concern with senior Indian scholars. Some acknowledged its significance and agreed that it warrants proper research. Given the severity of ribā as a major sin, I believe a more accurate position today would be:
Since bank shares are publicly traded, and it is highly probable that among the millions of shareholders there are Muslims, all interest-based transactions involving surplus—whether giving or taking—should be deemed categorically impermissible. Even if there is suspicion or doubt regarding the presence of Muslim shareholders, the severity of ribā necessitates that the ruling remains one of impermissibility. For instance, Muftī Jalāl al-Dīn Aḥmad Amjadī writes:
A bank that is owned by Muslims or is part-owned by both Muslims and non-Muslims, the surplus received from such a bank after saving money in their accounts is Islamically considered ribā and ḥarām… if there is doubt regarding the involvement of Muslims with non-Muslims, then to take a surplus or to give a surplus is ḥarām and impermissible as the Prophet ﷺ prohibited ribā and the suspicion of ribā… To use such an amount is ḥarām and to give it to a poor person hoping for reward is kufr [Fatāwā Fayḍ al-Rasūl 2/393;404;405;406].
A Case Study: Muslim Ownership in Barclays PLC
To illustrate this issue, let us examine Barclays PLC, the second-largest bank in the UK by assets.
Barclays is a major UK-based bank with approximately 14,225,413,525 free-float shares, representing 98.64% of its total shares. Each share represents proportional ownership in the bank.
One of its major shareholders is the Qatar Investment Authority (QIA), which currently holds 2.914% of Barclays’ total free-float shares (previously 6.5%). This makes QIA a 2.914% proportional owner of the bank, with a total of 420,120,691 shares (data accurate as of 10 February 2025 | data source: marketscreener.com).
Given this, if a Muslim takes an interest-based loan from Barclays or deposits money in a savings account to receive interest, it would fall under ribā. The presence of even a single Muslim shareholder disqualifies the bank from being considered “non-Muslim-owned”.
Therefore, applying the fatwās of earlier scholars without reassessing modern banking structures is a critical oversight. In light of contemporary financial realities, it is necessary to reconsider the absolute position of permissibility.
This concludes the summary of the upcoming research paper, by the grace of Allāh. The detailed paper will further explore the evidences, juristic perspectives and implications of these rulings in modern financial contexts. It will also provide practical solutions for Muslims given current financial realities as well as include discussions on necessity (ḍarūrah) and need (ḥājah), with a critical examination of what is meant by Dār al-Ḥarb in modern contexts. May Allāh accept this effort.
Muhammad Kalim Misbahi
Update: 10 February 2025
Changes: Corrected Barclays PLC free-float shares amount as well as QIA ownership percentage based on updated information. Added data source.
