Is the Islamic rulings about the profit taken by the Islamic Banking System, if we take loan to buy something, the same as the interest taken by other banks? As per the Islamic Banking System, it is said that they are buying something and selling it to the person taking the loan with a specific profit. Please explain. May Allah Almighty reward you for this great effort providing answers and other Islamic teachings through the web.

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.

The benefits of Islamic banks do not result from unlawful loans. They stem from direct investment of their customers in buying, selling, speculating…, etc.

The profits of the non-Islamic banks are from interest-based loans only, as the rules regulating these banks forbid investment directly except in loans that are paid back with interest and this is pure Riba (interest and/or usury).

So, the profits of Islamic banks that deal according to the Sharee’ah rulings are lawful. However, the benefits of other banks are unlawful, being pure Riba.

As for the second part of your question, please refer to Fatwa 81662 for more details about this subject.

This kind of transaction is called a Muraabahah sale and it has to go through three steps before it is considered lawful in the Sharee’ah.

First, the person asks a bank or another person or any financial institution to buy a given commodity for him and he (the borrower) agrees to pay that institution the price of the commodity in installments with some known benefits. This is only a promise from the one who wants to buy the commodity but it is not a binding contract.

Second, the one who was ordered to buy the commodity buys it and it becomes his own property.

Third, the customer (the one who is asking for the loan) buys the commodity from its new owner in cash or through installments on its initial price or with some benefit depending on the contract between the two parties.

By way of explanation, in the situation where the customer is bound by contract to purchase the commodity from the second party before he (second party) actually possesses it, then this contract is invalid and this agreement is null and void because they concluded a contract on something that does not yet belong to the seller among them.

But if the contract is concluded after the commodity has become a property of the seller, then this contract is permissible, Allah willing.

We would like to draw your attention to the fact that the fulfillment of promises is required in the Sharee’ah, particularly if not fulfilling it could result in losses for either of the parties.

Allah knows best.