Firstly let’s get a basic understanding of what Interest is from an Islamic perspective.

What constitutes Riba?

Simply, riba is interest. "Any amount, big or small, over the principal, in a contract of loan or debt is "riba" prohibited by the Quran, regardless of whether the loan is taken for the purpose of consumption or for some production activity."

Riba has been classified into Riba al-Nasee´ah and Riba al-Fadl.

The type of riba associated with interest is Riba al-Nasee´ah, also known as Riba al-Quran or Riba al-Jahiliyyah. It is collected in compensation for deferring a due debt to a new term of deferment. This definition applies regardless of the source of the due debt: whether it resulted from a loan, or a deferred price in a sale . The prohibition of this form of riba is primarily based on the following verse of the Quran:

"You who believe, heed Allah and write off anything that remains outstanding from lending at interest if you are [true] believers. If you do not do so, then be prepared to face war declared by Allah and His messenger! If you repent, you may retain your principal. Do not wrong [others] and you will not be wronged. (Al-Quran 2:278-279)"

For those who are interested, there is also another type of riba called Riba al-Fadl, or Riba al-Buyu´. It pertains to six goods (gold, silver, wheat, barley, salt, and dates). This was forbidden to prevent potential circumvention of riba al-nasee’ah, which can be effected by selling gold with a deferred price, which the debtor later pays with increase containing riba disguised through a payment in silver . The Shariah scholars are unanimous over the prohibition of this type of riba and its characterization, based on the Hadith narrated by Al-Bukhari and Muslim on the authority of Abu Said Al-Khudri:

"Do not trade gold for gold except in equal amounts, with no increase of one over the other; and do not trade silver for silver except in equal amount, with no increase of one over the others."

Why has Riba been prohibited by Islam?

"And if you repent (from charging interest) then you are entitled to your principal. Neither wrong nor be wronged." (Al-Quran - 2:279)

As is evident from the verse quoted above, the rationale behind the prohibition of interest in Islam suggests an economic system where all forms of exploitation ("neither wrong or be wronged") are eliminated. In particular, Islam wishes to establish justice between the financier and the entrepreneur: the financier should not be assured of a positive return without doing any work or sharing in the risk, while the entrepreneur, in spite of his management and hard work, is not assured of such a positive return.

While Islamic socioeconomic goals are beyond the mandate of HSBC Amanah or the HSBC Amanah Supervisory Committee, they provide the context within which the Islamic prohibition of riba is properly understood.

Source from: HSBC Amanah

Personal note: Therefore my past year practices since I had my own savings account is to donate the interest earn with niat to any charitable organization. Since the interest earn is usually quite low, I usually donate a little more than what I get, and when donating do remember to niat that you’re donating your interest as a gift.

Alternatively with the increase interest in Islamic Banking, you might want to switch your savings account to OCBC Al-Wadiah or Maybank Islamic Banking Services available in Singapore.

Q2. What is the difference between the conventional deposit accounts and Al-Wadi’ah accounts?

A2. The differences are as follows:

1. The conventional depository accounts promise a fixed rate of returns (interest)to depositors.Interest is not permissible in Islam. Al-Wadi’ah accounts do not promise a fixed rate of returns to customers. Instead, returns are based on the bank’s profits and at the sole discretion of the bank. Profits are permissible in Islam.

2. Deposits of conventional accounts are not utilized in accordance with the guidelines approved by the Shari’ah Advisory Council. The conventional deposits are utilized in the forms of conventional loans which charge interest. Deposits of Al-Wadi’ah accounts are utilized in accordance with the guidelines approved by the Shari’ah Advisory Council.

Source from:OCBC FAQ

Ala kulli hal, may this information help to increase our knowledge and understanding of the Deen. If you do have an opportunity to ask an Ustaz or someone who is an expert in the field of Islamic Finance please do so. I only pull-in sources from different website, therefore for a better explanation, consult the expert.

Yang baik itu datang dari Allah, dan yang kurang itu datang dari kelemahan diri saya sendiri.


  1. thanks for e explanation

  2. Good Entry. But it leaves one question. Do alot of muslims in singapore know abt it in ur opinion? i doubt so.


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