Wednesday, February 27, 2008

Avoiding The Riba Trap


(image courtesy of http://www.infomerchant.net)

Media organizations such as CNN, NPR, and Fox have all recently covered the escalating problem of credit card debt in America. What has rekindled the interest in an old problem? In March of 2007, the reports and special features were prompted by a United States Senate hearing on the practices of the credit card industry, and separate warnings to the financial industry of possible legislation if reform does not occur.

Complaints about the industry include deceptive disclosure on credit card contracts that can result in high balances, and steep fees such as late fees, over-the-limit fees, and annual fees. Credit card companies can also change the terms and conditions of their contracts at any time. This includes their right to raise your interest rate if you pay late, even if it’s a late payment to another credit card company!

Advocates for consumers claim that the practices of credit card companies have resulted in alarming debt problems for the unsuspecting public. Many Americans, including Muslims, are experiencing difficulty paying their credit card bills. Advocates lay the blame for the problem squarely on the shoulders of the credit card industry, claiming that it takes advantage of people, and comparing the industry to loan sharks.

Here we are; it is nearly one year later and nothing has changed in the credit card industry. No reform or legislation has occurred. (Perhaps because our legislature is busy wasting time on the steroid scandals in professional sports?) To add to the problem, America is now buried in the sub-prime mortgage mess!

Credit cards can entice Muslims with their convenience and instant access, but they come with a potential risk. For example, factors such as health problems, job loss, divorce, and other unexpected expenses can all necessitate the need for money. New Muslims often come to Islam carrying large balances on interest-bearing credit cards and loans. Muslim children in America may tend to be just like their non-Muslim peers, constantly asking their parents to buy them things that other children have, or things that they see on the television. Some Muslim parents, who have difficulty saying “no” to their children, may overuse their credit cards in order to make their children happy. Other Muslims merely have a bad habit of overspending. All of these situations can result in what is known in Islam as riba.

A working definition of riba breaks it down into type types: (1) Riba Al-Fadl, which is the added charge to the money loaned because of delayed payment, which is definitely prohibited, and (2) Riba Al-Nasi’aa, which is a function of the term of financing (number of years to repay the loan). This form of Riba is used as a foundation for Murabaha contracts but with the provision that the added value after a certain number of years does not change if the person cannot pay back due to a legitimate excuse (LaRiba website). Some scholars claim that the whole business of signing contracts with interest clauses is prohibited due to the possibility that the Muslim may activate the interest clause if he finds himself in a position where he is unable to pay on time. While scholars may differ in their interpretations of riba, they all agree that paying interest is prohibited.

Allah Almighty has made clear His position on riba: “Those who eat Riba (usury) will not stand (on the Day of Resurrection) except like the standing of a person beaten by Shaitan (Satan) leading him to insanity. That is because they say: ‘Trading is only like Riba (usury),’ whereas Allah has permitted trading and forbidden Riba (usury). So whosoever receives an admonition from his Lord and stops eating Riba (usury) shall not be punished for the past; his case is for Allah (to judge); but whoever returns [to Riba (usury)], such are the dwellers of the Fire - they will abide therein.” (2:275)

Riba is a huge business in America. But, can Muslims really live without using credit cards? Can they use them responsibility and insulate themselves against the danger of riba? While the rest of the country is waiting for the credit card industry to reform itself, Muslims would benefit from finding solutions within an Islamic framework to resolve financial difficulties and maintain financial health.

- Be mindful of Allah Almighty’s exhortation to avoid riba.
- Be steadfast in your deen and make du’a for Allah to change your financial situation. Remember that what you want and what you need are two different things.
- If you are not currently overburdened with credit card debt, follow the practice of the Prophet, sallallahu alayhe wa sallam, and invoke Allah saving, “O Allah, I seek refuge with you from all sins, and from being in debt.” (Bukhari)
- Live within your means; remember that the wasting of money is prohibited in Islam.

Some advice for managing money and utilizing credit wisely includes:

- Budgeting. Make a budget, and stick to it as closely as possible.
- Use Layaway. Look for stores that offer layaway programs for your large items. Many businesses offer layaway at no extra charge. Some stores offer no-interest payment plans to qualified buyers.
- Family. Sometimes family can help with unexpected expenses.
- Pay in Full. If you do use a credit card, charge only what you can afford to pay for in full when the bill comes.
- Avoid Cash Advances. Do not use cash advance; riba accumulates on the advance from day one.
- Borrow From Yourself. Save an amount of money equivalent to a credit card limit. Spend from that fund, and then repay yourself!
- Teach Children Financial Responsibility. Help your kids to develop sound money management. Give them an allowance if possible. Assign them chores appropriate for their age group so that they can earn money to buy what they want. Encourage them to save. Buy them a little bank to keep on their dressers, or engage them in a fun project of making a little savings bank. (Don’t forget to teach your children about charity!)

If you are currently experiencing financial problems:

- Do Not Despair. Make a sincere intention to Allah (swt) to repay your credit card debt and ask Him for help. Narrated Abu Huraira, “The Prophet, sallallahu alayhe wa sallam, said, ‘Whoever takes the money of the people with the intention of repaying it, Allah will repay it on his behalf, and whoever takes it in order to spoil it, then Allah will spoil him.’” (Bukhari)
- Seek Credit Counseling. Do your research well in order to avoid hidden costs. Some of these companies have been known to get your interest rates eliminated.
- Refinance With Islamic Banks. Access to Islamic banks and financial service companies is growing in America. Talk to them about refinancing your current debt. New Muslims can also refinance riba-bearing mortgages with these institutions. It is incumbent upon Islamic banks and financial service companies to work with you within an Islamic framework should you experience legitimate difficulty repaying your loan.

Muslims can obtain financial health and avoid the potential traps that can result from irresponsible use of credit cards. Answers exist within an Islamic context to help guide the Muslim toward success.

12 comments:

Anonymous said...

Asalamu Walaikum,
I have been reading up on KIVA and though they don't charge interest, their field partners do (average 22%!) and they charge late fees (also not acceptable). I haven't read them all, so I am hoping to find one that doesn't charge interest-maybe in a "Muslim" field...inshallah. This seems like such an awesome program, I hate riba!!!
Love and Peace,
~Brooke

Anonymous said...

Sorry sis, I meant to add to your list...Buy used! Many Muslims have issues with buying used-why, I just can't wrap my head around. Though my family manages(barely, alhumdiallah) on a single income, I think many people think my husband must be rolling, because we sure do have everything we need-though not much more than that, alhumdiallah. I am a very thrifty mama and I count this as part of my duty to guarding my husband's wealth.
Great post-forget to say that too...durrrr.
Love and Peace,
~Brooke

أبو سنان said...

Good advice. We havent had credit cards for years and we certainly do NOT miss them!

thinkingitover said...

as salaam alaikum,
good post.

i too wonder how am I ever going to conduct a business without using riba... but hopefully I will avoid it as much as possible.

i was recently offer a credt card but i shut that down! i refuse to ever use a credit card or get into credit card debt.

I do use financing but I pay off my debts before riba hits my account! I am just happy that God has made it available for me to pay my debts before riba gets involved in the situation. I am not sure if this is bad or good becuase I am signign a contract that allows it after certain time, but I figure this is the only way I can get it and I know that I will be able to pay it off before the time occurs.

oh and what are sisterlocks? i really can't describe exactly how they look but they are very small locks, sectioned off in a certain way. just do an image search on them and you'll see.

salaam

Safiyyah said...

Salaams Sis Brooke: Oh, wow! Please keep me posted on what you find out. I will remove the Kiva widget if that is so.

theangrymuslimah said...

Salaam,

Good post.........I try to aviod the cards....but as of lately...I have started using one.....I only use this one and it will be my last as soon as I pay it off...ha ha ha

Meghan Rose said...

This is such an awesome post! Credit card debt is something I am struggling with at the moment, having accumulated quite a bit before learning about Islam. I have closed a few cards already and hopefully will have the rest closed within a year. It's so amazing how much my attitude towards "stuff" has changed since reverting, especially with things like clothing (since I began keeping hijab), etc.

darvish said...

I don't use credit cards. Pay cash or do without, as my father taught me.

Ya Haqq!

Amina said...

salaams,
thatw as good post...I don't use credit cards though...I believe in cash :p

if u like u can contact me under
cry4moons@hotmail.com

tc

Safiyyah said...

Salaams Sister Brooke:

It appears you are correct about KIVA and the interest. I removed it from my blog.

Thank you for telling me.

It appeared to be such a nice program :(

iMuslimah said...

Salaams,

Interesting post Safiyya! I too, accumuated some riba debt before learning about Islam. Im still paying it off alhamdulillah.

One nasty little trick I noticed on my statment few weeks ago......and I thank Allah i was smart enough to avoid it, many consumers are not aware of the motive.....

They dropped my minimum payment by $100........with an ecnlosed advertisement that this would HELP me. I wasnt born yesterday. they are just looking for ways to have you accumulate more interest. What they really do, it slap you with more interest charges as a result. Beware comsumers! beware of this nasty trend! dont fall prey to it!

Safiyyah said...

Another trick they do - on your statement where it says "amount due by such-and-such date" they put 0. If you're a "good" customer they do this. Another trick by them to collect more riba.

They also do skip a payment, but one doesn't skip the riba for that month.

They have a bag of tricks.