how to request a loan without riba

[phoenixaug4]

hi guys!
i was looking for banks that give the possibility to request a loan without interest, however i don't live in the uk, qatar, uae, etc.
there aren't any islamic banks in italy and moroccan banks call themselves islamic but they all have interest.
Any suggestions to where i could ask for a loan?
(it's not even a lot, approximately 20k)

 

[rahenson]

@phoenixaug4 0% interest credit card might be a start?

 

[beloved926]

@phoenixaug4 All so called Islamic banks deal in Riba and those that claim they don't simply use clever jargon to hide the fact

 

[annache]

@phoenixaug4 You will probably find that the Islamic "interest free" banks are more expensive than the conventional banks. The Islamic banks will put a markup on the loan amount "murabaha' that is the same or more expensive. Why Islamic scholars allow themselves to be fooled by this is strange.

 

[goldengal]

@phoenixaug4 Most loan providers make money on the interest. You're basically saying "give me money" and "ill pay you back over time"... They have almost no incentive to do it in modern capitalism if they cant make even a small profit... Being from the US, i would suggest a Credit Union... where the interest go back to all members including yourself... (at least then your interest helps everyone (the community) including you) As we all hold a stake there. I don't think a lot of capitalist systems have better choices... but if others know better, id love to learn.

 

[jamilet]

@goldengal Curious how this so called credit union is different from a conventional bank? Do they offer very low interest (or maybe termed as profit) rate than standard banks?

 

[goldengal]

@jamilet An example: https://www.maunfcu.org

Credit unions are run by the members the members make the rules, populate the board determine what profit is made and how it is used. Unlike banks run for profit of a single entity or board under their own rules.

 

[jamilet]

@goldengal Appreciate the references. I am still confused. How lending $X and charging more than $X is permitted under a credit union, when it is not permitted under a conventional bank?

Why do you assume banks make profit for single entity? I have no savings account in any bank in the US, but the bank also shares the profit to its depositors who carry saving account with them, that is bank distributing the profits as well. So why a credit union’s charging more than lended amount is permitted?

 

[goldengal]

@jamilet So in this example every member of the credit union is an investor of the credit union. It is not for profit by its charter. In their loan process they charge an application fee for the loan to cover expenses.

1. Fees for Loans
   We are offering interest-free loans. However, in order to help cover the expenses of this not-for-profit institution, we charge a small, 1-time application fee. This fee is based upon the amount of the loan that you are requesting. Aside from this 1-time initial fee, there are no other regular monthly fees or interest charges for the duration of the loan.

Banks are for profit. Credit Unions usually are not.

 

[jamilet]

@goldengal Thanks for further explanation to help me better understand on credit unions. Now here are my confusions.

1) any fees based upon loan amount itself is “profit”, juts wrapped in a a name of “application fee”. Question is where does the credit union’s profit (application fee) go. Does it go to investors, or does it go for entirely credit union’s expense management?

2) If it is the latter, why would one put their savings in a CU? Indeed, without any expected profit (could be loss too if borrower fails to payback) with inflation the money invested would only go downhill in purchasing power over years.

3) How a CU functions when one fails to payback their loan timely? I assume no additional charge is added.

4) Have you any knowledge about the rate CU charges for their “application fee”, say for a loan amount of $100K for 10 years?

 

[goldengal]

@jamilet Well I’m sure that sort of thing is explained in their website.

• Nonprofits in the US must not keep a profit it’s supposed to be reinvested in to the organization . The investors are only the account holders.
• This would be an issue in any interest free system
• Late fees are required by law here to be agreed upon at the contract start. So if there are any you’d be told in clear English. Generally if there are no late fees a contact is in violation is the payer is late and the total is expected immediately (the whole loan is called) and if not paid legal redress. This is also my understanding of proper handling under most reads of the Rona rules. It is equally a sin for the payer for being late. https://islamqa.info/amp/en/answers/5428
• I don’t quite know, I’m betting more detail is on their site.

 

[jamilet]

@goldengal Appreciate the reference. While I like MFCU’s goal, I don’t see how could they attract wealthy to put good chunk of their net worth with 0% return on investment.

A more pragmatic financial approach should be adherent to Islamic banking, where bank would a partner with business or activities, and can make profits or loss. Ameen Housing based in San Francisco Bay Area for example offers estimated 4% return on investment in form of rent-to-own housing support. That return at least balance inflation.

To the contrary, MFCU is basically suggests to put only small chunk of one’s net worth for 0% return, which with inflation means losing 3%+ each year.

Put other way, $100K put in MFCU would turn to be ~$74K in 10 years with 3% inflation.

 

[goldengal]

@jamilet Most interest rates, arent as high as inflation to begin with, to in many case youd still loose value... just not so much.

You may also find that secular law makes certain types of religious financing illegal for one reason or another. Unfortunately my knowledge ends here. Good luck!

 

[annache]

@goldengal Credit unions still charge interest comparable to banks. They are member owned, but of course you have only a tiny share of ownership. There is nothing wrong with banks making a profit - why is this an Islamic issue? There were no banks at the time of the prophet. I would not want to put money in an unprofitable bank, they might lose it.

 

[goldengal]

@annache Here in the states and much of the west these institutions are insured by the government. Here your first 250k$ are guaranteed if the bank (via FDIC) and credit union (via NCUA) if it fails. This is paid for by a combination of taxes (across the board. On companies and people) and fees put on the bank.

 

[annache]

@goldengal Yes there is similar deposit insurance in my country too. So there is a moral hazard issue - banks can make risky possibly high profit loans with insured deposits. Islamic finance's answer to this problem is risk sharing. But you cant do that with banks who are also the payment transactions mechanism, which has to be highly secure. So regulators have put together a cumbersome asset risk weighting process (BIS Basel guidelines) to determine and regulate bank capital. It doesnt always work as we have seen.

If Islamic finance has anything else to contribute to the discussion I have not seen it.

 

[princesst1]

@phoenixaug4

moroccan banks call themselves islamic but they all have interest.

Do they really or perhaps you do not understand finance. A fee for a service and renting money (riba) are not the same thing.

Moreover 20k is a lot of money. For some this more than a year's salary.

why do you need 20k?

 

[simplymeandhe]

@princesst1 Lip service of the same thing. In islamic finance, they give you some 2 or 3 months limit, or else they will put "extra charges," and those charges are not written as interest, so it would pass Islamically. While those fees are in line and even more expensive than the normal interest, so they benefit from you and rip you off just like riba banks.

If Islam is all about syntax and calling stuff names then you missed Islam all together lol.

 

[princesst1]

@simplymeandhe

Lip service of the same thing.

No it's not. Riba is not defined by price but concept. "money" has no value in itself and can be created out of nothing thus it's illogical to rent it (riba).

Paying a fee for service (access to funds) is not riba. You are not renting an item that has no value in itself you are paying for access.

they give you some 2 or 3 months limit, or else they will put "extra charges,"

And? Where in Shari'ah is charging late fees haram? How are charging late fees and setting a time limit for repayment against the any of maqasid of shari'ah?

If Islam is all about syntax and calling stuff names then you missed Islam all together lol.

Traditional banks demand a service fee (loan origination fees, etc) then charge a fee for renting their money (interest). The price of the fee has no determination as to whether or not it meets the shari' definition of riba or not. Again riba is NOT defined by price but concept.

Your confusion lies you do nor understand how and why "money" was created nor why shari'ah defines "money" a vehicle for exchange not an exchange of value.

In the western world most people think money has value in itself and trading it for goods and services is an exchange of value. It's not within Shari'ah.

 

[simplymeandhe]

@princesst1 You keep saying my understanding is wrong, yet you are unaware of acknowledging that I judge things differently, and you claimed a couple of weird stuff here.

1) Money has no value in itself, which is a concept that came after Islam by a couple of thousand years. Basically, money had no value in itself starting from 1971. Money in the Islamic era was gold, and gold had intrinsic value. The reason why riba was deemed haram is because it's either absuing the borrower in need or keeping the rich richer and the poor poorer by systemic design. It's in fact that when money printing takes place, institutes like Al Azhar are starting to go easy on riba because the current FIAT currencies we have are not the Islamic form of currency

2) Islamic banks are literally charging the same interest compounds using other names, and they keep those expenses as profits for other borrowers of the bank which essentially will still keep the rich richer and the poor poorer. Let's take mortgage as an example..

In Egypt, an Islamic bank will first claim it owns the house, then it sells it to you with a higher price which will be the house price + equivalent interest value the average of any other riba based bank + extra money because Islamic banks are rare. And then sells it to you over some extended period. If you fail to deliver the money, your house ownership will be reverted back to the bank.

A riba based bank in Egypt will lend you the money and charge you interest, then if you fail to deliver your end of the deal, your house will be confiscated, and ownership reverted to the bank.

A Muslim will pay more in case of Islamic banking. However, the same end results exist. So riba banks increased their rates due to the increase in Islamic fees, and it's now a suffocating cycle for Muslims here.

Now we have 3 different train of thoughts about this:

1) Riba is about the concept, not the price the Islamic bank didn't lend you money directly in the contract they bought and sold the house.

2) It's the same thing because the end adverse effect of rich getting richer poor getting poorer effect is at play with even extra steps, because the bank lenders in the islamic banks are actually getting more from that excess money than the normal interest rate. The maqsid (intent) of the Islamic bank and the money borrowers are not the house itself. The borrower went to the bank initially to just get the money, so it's all word play and lip service.

3) Riba, in its current form due to FIAT currency and artificial inflation, is no more prohibited (See dar el ifta of el azhar)

I personally see the 2nd opinion is the more valid because it doesn't matter what contract word salad it is. You still keep the Western capitalistic trickle-down concepts intact and make sure your rich get richer anyway. However, if it's halal to exploit muslims for extra price, I am the first to invest in the islamic finance systems, give me that halal muslim money lol