Q: What should a charity do with interest (riba), and income generated from interest, that it receives?
Our charity receives Haram Interest from individuals & business. Whilst that is sitting in the charity’s Islamic bank accounts what is the status of the (halal) return generated? Does it have the same restrictions as the Interest capital? Or does its status change, since the Interest is now not in the hands of an individual but a separate legal charitable entity, such that you can use it for any charitable purpose? (e.g. general costs of the charity, mosque projects, etc.) Furthermore once it is received in the hands of the eventual beneficiary (e.g. a destitute person, social infrastructure projects etc.) what would be the status of the Interest capital and any (halal) return generated in their hands?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: Banking interest falls under the ruling of lost property as it cannot be returned to its original owners or to their heirs. Thus, it must either be given to the destitute or to public welfare projects and utilised in a manner that benefits the general public.
See Categories of Unlawful Wealth and the Correct Disposal of Unlawful Income for more details.
When interest monies are received by a charity that satisfies the above they are received not as interest but in the capacity of being a rightful avenue for lost property. If such monies are deposited in an Islamic bank account that provides a lawful return the principal and the increment are both lawful for the eventual recipient (destitute, public welfare project, etc).
ففىالعشرينمنبيوعالهندية: وإنماطابللمساكينعلىقياساللقَطة. (كتابالبيوع ،البابالعشرونفىالبياعاتالمكروهةوالأرباحالفاسدة ، (12:3)