By Ijaz Chaudry

How much interest rate is allowed in Islam?

2          275 Those who charge usury are in the same position as those controlled by the devil's influence. This is because they claim that usury is the same as commerce. However GOD permits commerce and prohibits usury. Thus whoever heeds this commandment from his Lord and refrains from usury he may keep his past earnings and his judgment rests with GOD. As for those who persist in usury they incur Hell wherein they abide forever.         

Indeed Islam forbids usury but accepts commerce. Usury is an act of loaning money for a high interest.

So if we are not allowed high interest, what amount of interest in modern terms are we allowed; since Quran is fully detailed we should look at the Quran to search for the answer. In older times the term Interest was not included in the language vocabulary. So it is not just matter of searching for ‘Interest rate’ in the Quran translation, because it is not there!

However, God with His immense wisdom has given an example where ‘interest’ has been implied in a social scenario, please read the following verses from the Quran in order to understand how this social scenario represent ‘Interest’ as in financial sense;

28          24   He watered for them then turned to the shade saying "My Lord whatever provision you send to me I am in dire need for it."                                                                                                 

28          25   Soon one of the two women approached him shyly and said "My father invites you to pay you for watering for us." When he met him and told him his story he said "Have no fear. You have been saved from the oppressive people."                                                                                                     

28          26   One of the two women said "O my father, hire him. He is the best one to hire for he is strong and honest."      

28          27   He said "I wish to offer one of my two daughters for you to marry in return for working for me for eight pilgrimages; if you make them ten it will be voluntary on your part. I do not wish to make this matter too difficult for you. You will find me GOD willing, good."   

28         28 He said "It is an agreement between me and you. Whichever period I fulfil you will not be averse to either one. GOD is the guarantor of what we said."

The verses mentioned above (28:24-28) describes a scenario where Moses is fleeing from Pharaoh in his earlier days, after killing one of the Egyptian (Pharaoh’s man) whilst helping an Hebrew one of his man. God’s help came in the shape of Joshua and his family.

Indeed these verses, above also describes a scenario where ‘interest’ is implied and Moses gets an extra reward of marrying one of Joshua’s daughters…

So there are so to speak two mile stones on the go in (28:27), one ‘eight’ as in working for Joshua for eight pilgrimages and the other ‘ten’ as in working for Joshua for ten pilgrimages. If Moses works for eight pilgrimages then he is working on Joshua’s terms and the interest will be high which will be 8/8 = 1%, however, if Moses worked for ten pilgrimages then it will be in proportion to eight pilgrimages 8/10 = 0.8 %, because this time around Moses is getting extra benefit of choosing the lady he wants to marry.

Thus in Islam we are only allowed up to 1% interest, without any added benefits or up to 0.8% if there are added benefits. It is simple maths of proportions used here, which matches the context of the verse (28:27)! Remember this is only applicable on loans. However, in the situation where commerce is involved different criteria is, applied. This issue is further clarified later. But for now, let us remove all doubts regarding Islamic limit on interest based on loans;

In order to remove all doubts regarding this concept, we have miracle 19 proof. The sentence “one or point eight present interest allowed in Islam” when translated into Arabic sounds like this ‘wahid 'aw nuqtat thmanyt fayidat haliat almasmuh biha fi al'islam’ the geometric values of each word in this sentence is calculated below, further the chapter 28 and verses 24 to 28 are added to the total of all the geometric values of these Arabic words we get a number completely divisible of 19, confirming the fact that indeed Islam allows interest rate of 1% when applied to a transaction where no other benefit is involved or interest rate of 0.8% is applied to a transaction where other benefits are also involved.

(28:24-28);

6+1+8+4=19 – wahid

1+6=7 - 'aw

50+100+9+405=564 – nuqtat

500+40+1+50+10+405=1006 – thmanyt

80+1+10+4+405=500 – fayidat

8+1+30+10+405=454 – haliat

30+1 – al

40+60+40+6+8=154 – masmuh

2+5+1=8 - biha

80+10=90 - fi

30+1 – al

1+60+30+1+40=132 - islam

19+7+564+1006+500+454+31+154+8+90+31+132=2996;

2996+28+24+25+26+27+28=3154 = 166 x 19;

When you divide 3154 by 190 you get 16.6 and the decimal value constitutes ‘Position’ and position 6 describes “Caution”, indeed this code suggests that caution is involved in understanding the two interest rates. Each interest rate can only be applied to specific a circumstance as described earlier.

Quran is fully detailed, so which path did Moses took:

Indeed Moses would have taken 0.8% route, with additional benefits, which may have included food, accommodation, travel and the lady he prefers. With 1% interest with only 0.2% increment, it would have been difficult for Moses to maintain himself. So in simple terms Joshua, would have received net profit of the business while Moses would have been given 0.8% of the gross profit plus the fringe benefits.

Commerce:

As confirmed in (2:275), usury is prohibited but commerce is permitted by God. The commerce is an investment where the investment pays dividends. For example one could purchase ‘buy to rent’ property and put it on rent where a typical yield could be 8%. This is totally acceptable, this is not interest, but a dividend from the service one is providing. As long as the yield is not extortionist amount it is acceptable.

Mortgages;

(2:275) it is quite clear from this verse that those who take usury are in the wrong and are punishable, but not the ones who are made to pay usury.

Therefore, paying high interest rates to the banks for mortgages is okay, because you are not responsible for the banks. Banks themselves are responsible for what they do, and let God be the judge of that!!!