The Basics of Money in Islam
The Paying of Zakat and the Avoidance of Interest
Learn two basic canons of Muslim money. Zakat is a tax levied upon all earning and able Muslims whereas interest is an income element that Muslims must avoid.
When Prophet Muhammad (SAW) began relaying the messages of the Qur’an, a segment of society that benefitted immensely were the Muslim women. Islam allowed women to partake in the labour force; trade through their own skills and expertise; inherit money and property, and above all - they were given complete financial freedom from their male counterparts.
Today, many Muslim women earn and enjoy an income. Many own property and other forms of assets to their name. Women who do not work are provided for by their husbands.
However, with this right to financial freedom, comes responsibility. Through Allah’s wisdom, He advises women, as participating individuals of the economy, to comply with tenets regarding their money. Two canons that govern our money is the responsibility to pay zakat and the obligation to avoid riba (interest).
Have you paid zakat?
“The Believers must (eventually) win through, Those who humble themselves in their prayers; Who avoid vain talk; Who And who are payers of the poor-due.” (al-Mu’minun:1-4)
Paying zakat (Islamic tax) is one of the tenets of Islam and thus, obligatory to all Muslims (al-Baqarah: 277). There are several reasons for paying zakat.
Allah (SWT) provides for all of His followers regardless of their abilities and backgrounds. Many Muslims are less fortunate than others. Muslims who earn an income, need to remember that the ability to work comes from Allah (SWT). By paying zakat, Allah (SWT) provides for the less fortunate members of society.
Also, one of the seven categories of zakat recipients are reverts to Islam (at-Tawbah), sealing camaraderie between born Muslims and new brothers and sisters of the faith. This is similar to the bonds created between the Ansar and the Muhajireen during the emigration from Makkah to Madinah.
Money is also purified by the zakat deduction. Collectively, a community who diligently pays zakat works together to eradicate poverty in society. This emphasises the importance of having women contribute to an economy.
How much is zakat? According to prominent financial scholar, Monzer Kahf, 2.5% of a Muslim’s disposable income belongs to the zakat recipients. Besides income, zakat also applies to savings, property and gold.
The concept of riba
“O you, who believe, fear Allah and give up what remains due to you of interest if you are indeed believers.” (al-Baqarah: 278)
Riba is an element that contaminates your money. The Qur’an and numerous authentic Hadith remind that riba is strictly prohibited in Islam. Whether one is paying off interest, a recipient of interest on a savings account or facilitating the enactment of an interest-based contract, Muslims are liable to be frowned upon by Allah (SWT) (Bukhari).
Riba is defined as an increment in the repayment of a loan and a passive stream of income.
Car loans, housing loans, education loans, personal loans, and overdue credit card bills... all of these comprise interest. Preferably, Muslims should only engage in Islamic loans, those that are not riba-based. Where there is no choice, Muslims should look into repaying outstanding debt quickly. Funds or savings from investments such as unit trusts or other savings plans should be used to pay-off interest-ridden debt.
On the other hand, if savings accounts thrive on interest, Muslims are disallowed from keeping this money. “Do not earn from interest!” reminded Prophet Muhammad (SAW) in his final sermon.
Muslims are to save money in Islamic savings accounts (that pay dividend). Otherwise, interest income has to be disposed of to charitable causes in order to purify our money. This does not constitute zakat.
Make money more Islamic!
Islam has always advocated the rights of women – especially the exclusive right to income. However, it is inappropriate to abuse that right by ignoring Allah (SWT) commandments regarding money.
Paying zakat not only reminds Muslims of their ability to earn an income and curbs indulgences in aesthetics and material whims. By avoiding interest, Muslims avoid transacting with service providers that are fed by passive income.
