Mansoor Danish – MoneyMatters – All About Riba QA 7

			Salam aleikum wa rahmatullah. There's a question about the 401 k pension plans. Are they permissible
or not? Look, there are two kinds of pension plans. The first is one which is forced upon you by
your employer, you're working in a halaal company, the employer compulsorily deducts a portion of
your salary and adds on to it on their own certain contribution. It's also called provident fund in
India, that's also a kind of long term pension plans, which are there, and
		

			you keep
		

			paying a certain percentage, as long as you're working. And when you retire, you get your money in
your hand. Now, that money could be invested into fixed interest bearing securities, it could be
invested in haram companies, you have no control over it. This is something which is forced upon
you, you're working in a halaal company, but the law of the land instructs these companies to
withdraw a certain percentage and keep it in certain pension scheme. Social Security means in
situations like these, whatever money you get back, all that money is permissible for you, because
this is not something which you were voluntarily choosing, it was forced upon you, they didn't ask
		

			you your permission, they didn't ask you for your approval, if you had a choice, you should have
said No, they didn't give you a choice. The second kind of pension funds are the ones where you
voluntarily choose a certain scheme. Now, here, again, we need to look at it from two aspects. Some
of the pension schemes are those where you keep investing as long as you're working. Or if you don't
die in the middle of your work life. If you die in the middle of your work life, then your
dependents for a certain period will keep getting the pension money. Alright.
		

			If you retire, then as long as you live, you keep getting the pension money
		

			is disallowed.
		

			According to the more
		

			informed opinion, this seems akin to get gambling. And I'll tell you why.
		

			I could just live for five years, and I could just pay for five years.
		

			And after five years, my family may get the benefit for 30 years, I may have just invested for five
years. And effectively my family will end up making a fortune over the next 30 years. Another
situation is where I may have started working at the age of 20. And I worked till 6040 years, I kept
paying towards a pension scheme.
		

			And
		

			something happens to me as soon as I retire maybe within the next five years of my retirement I die
and the pension stops coming. I may lose out my money.
		

			I mean, there are different kinds of schemes which are there. All right, coming to the 401 K plan
specifically, under the 401 K plan. There is a plan where
		

			you have an individual retirement accounts, IRAs. These are generally interest bearing instruments,
you put your money into the 401 k pension plan, your money is directed to the individual retirement
accounts. This is clearly a robot, they are giving you a fixed interest, your capital is secured.
The second is a mutual fund you have an option to select a mutual fund. Once again, you need to be
very certain that the stocks are the companies where they are investing a lot. And in mutual fund,
you have no control over it. There is the fund manager he decides he won't listen to what AbdulQadir
has to say over notar has to say, he'll go with whatever the philosophy of the fund is.
		

			Then there are money market funds, these are also interest bearing instruments. So if a 401 K is
invested into money market instruments, it's haraam. Then there are bonds again harar because these
are fixed yielding instruments, then there are Certificate of deposits also called CDs. If a 401 k
pension plans invest into CDs, again, these are impermissible because the gains are earned from
interest. And then there are stocks shares here. If you have an option
		

			to select Sharia compliant stocks for your pension schemes,
		

			then it's okay. However, if again, it's the pension scheme which decides which shares to buy. This
again becomes impermissible because they will not be checking with you What is Sharia compliant and
what isn't.
		

			So, my personal suggestion is whenever you have to invest in a 401 K or any pension schemes
voluntarily, please check what are the underlying instruments where they are investing point number
one point
		

			Number two, what are they paying back policy? If it is a policy where I pay for 40 years, money
keeps growing, when I retire, whatever money has accumulated and paid that off entirely with the
returns, which are Sharia compliant, I have no problem. But if it is a system where we pay for 10
years or 15 years, and then I retire, and for the next 40 years till I live, let's suppose I live to
100, I keep taking money from there, this looks like a gambling. So you have to see what kind of a
pension plan it is, if it is a lump sum pension plan where you keep paying, and then you take your
lump sum back when you retire. And the underlying instruments are Sharia compliant? No problem.
		

			Okay. So again, you will have to come up to me and share the plan details. And I'll be in a better
position to answer your
		

			question regarding the price bonds.
		

			In a lottery people, once they give the money, they can't claim it back. So when the ballot is
drawn, either they win, they lose, this is gambling. But in the case of a prize bond, the person
always has an option to withdraw the money before the ballot, once it goes in for the ballot, and
the winner is announced, then they can't withdraw the money. So does that make price one
permissible? The answer is no. It doesn't make it permissible. So if you have an option to withdraw
the money, and this is where the second question, the other question, which is being asked is what
to do? What do we do if we've already bought the price bonds? Since the other questioner says that
		

			you have an option of withdrawing it, please go ahead and withdraw your money. Don't let it be with
the price bonds. These price bonds are clear case of rubber. According to my understanding, the
rather it's not a case of rubber? Well, it's a case of gambling, it's completely myself, you're
putting in money. If you don't withdraw by a certain date of time, and it moves into the ballot
stage where the announcements will be made. You lose your money, or you may win but Well, everyone
won't win, some will win, some will lose. This is the case of gambling. Even if they give you an
option of withdrawing it before, let's say we go into the ballot, no, it doesn't make it
		

			permissible. The prize bond in and of itself appears like a case of gambling, it's not allowed to
invest in them. So if you have an option to withdraw, please go ahead and withdraw whatever money
you have invested with them. Finish it off, don't deal with them any further.
		

			Okay, there's another question which comes on cellular companies offering an advanced loan. So, if
you recharge with 100 rupees, and you finish your balance, they give you an extra facility of 25
rupees, but they charge you 28 rupees for it. So, they give you facility worth 25 rupees, but they
charge you 28 rupees for this is this robot or not? This is a very interesting question, please
understand this very clearly.
		

			This, to my understanding does not fall under Riba and I'll explain this to you why. First and
foremost, the mobile company is not giving you a monetary credit. The mobile company sells you a
product what is the product that the mobile company sells you it sells you are three different
categories of product. The first category is called top time whereby you're able to make calls. The
second category of product that they sell is SMS, you make send SMS is up to them. The third
category of product that they sell you is your internet service. These are broadly three categories
of services or products which are sold by mobile companies. Now what the mobile company does is,
		

			when you take let's say, a prepaid account, where you pay 100 rupees to them, in the beginning of
the month, they credit against you services worth 100 rupees
		

			comprising talk time, SMS using of internet services, okay. These are services which they're
offering to you within 100 rupees, and for each of these services, they have a rate. So if you start
using them,
		

			as in when you exhaust your 100 rupees, your credit your services will stop. In order to continue
with the service, you will need to recharge your account. Once again.
		

			What the mobile company does then is if you finished your credit, or you finished your month, and
you have not recharged for the following month, they may give you an additional three days of grace.
In these three days of grace, they tell you that we are offering you services worth 25 rupees, but
we will charge you 28 for it.
		

			So basically, they're giving you on Credit Services worth 25 rupees on cash basis. Remember if you
would have painted on cash
		

			would have charged you 25. What the thing is, you're not being as cash now fine, we'll give you
services, what 25. But for you, we charged 28 rupees.
		

			Is this allowed? This is allowed. There's nothing wrong in this.
		

			I explained it to you Why?
		

			cash and credit, I've explained to you the difference.
		

			I've also told you that this is not money being exchanged for money. They're selling you a service,
and they have a separate pricing
		

			for cash purchase or prepaid. And that which is being paid, let's say three days from now. So they
tell you in advance, we will charge you 28 rupees for services, what 25 rupees? Can you please
clarify that the banks are actually investing our money and giving us a profit from their own? Or
how can we be certain that the bank has actually invested into Sharia compliant companies and etc,
and so on and so forth. That's why it's very important to know who the Sharia scholars are, who are
approving of the bank's operation? And are they the Sharia scholars? Are they qualified Sharia
scholars? Do they have good knowledge of the subject? are the ones who are reputed? In addition to
		

			this, can there be a way to reach out to them and identify from them to what is the fatwas and
opinions that they've given obtained the fatwas because sometimes what happens is, banks on the
website may mention the name of certain individual as one of the Sharia scholar, but he may have not
given a Sharia approval to the entire operation, he may have only given a Sharia approval to one
part of the operation. But the bank puts up on the website that he is one of our advisory, or one of
our scholar. So the moment you hear the name of chef fallen in chef Milan, you feel comfortable. But
chef Milan himself doesn't know that his name is probably being misused. So it's important that you
		

			satisfy it as well. All right, these elements of doubts etc, is something
		

			which can come, it's always good to get it verified as far as possible. And Allah knows best. A lot
of people have asked the question on time value of money, and what is the Islamic perspective on it?
Let's make this very clear. In the capitalist system, the way we see time value of money today in
the capitalist system is where money is being treated as a commodity. So because money is a
commodity, it has a price today, it will have a price tomorrow. And that's why the prices or the
unit value of money can keep changing every day. And this is because money is being treated as a
commodity. You can trade with money, you can buy money, you can give out money, you can sell money
		

			at a price, which is the interest. What is the Islamic view on this? This is haram. This is a clear
case of roba from an Islamic perspective, but does therefore Islam not recognize time value of
money? No, the answer is it does not outrightly say no to time value of money. So what we can
certainly say that from an Islamic perspective, it prohibits using money in exchange of debts or
monetary items, but rather, it allows time value of money when goods are being traded and money is
being paid against the goods being traded. In addition to this, we've mentioned that if you own a
good and if you wish to sell it at a higher price, then the you are allowed to have different price
		

			options for different types of sales. So if you have a Bey more agile or a deferred payment option
where somebody is going to pay you on a future date, and you want to ask him to pay you and pay you
a different price, so there's a different price for cash and there is a different price for credit
transaction. Islamic finance allows a seller to charge a price higher than what would have been the
sale if it was made in cash on the spot. This is allowed
		

			Okay, provided the goods are being traded, but the moment involves money and money being exchanged
like what you have in the loan system that runs in the capitalist system. This is not allowed. Now
there are scholarly debates amongst Islamic curious there is no consensus on this. There are
differences in opinion modern scholars like ibni rushed out of the view that
		

			this constitutes a recognition of time value of money etc. However, what we can say is
		

			the time value of money can clearly be seen from two perspectives the capitalist perspective where
money is being traded, this is haram. However, if goods are being traded and you have a different
set of price mechanism for cash sale and credit sale, and this seems permissible and Allah knows
best pension money being halaal or not, and what is the
		

			ruling on this because she she says there is a sister who survives
		

			on the pension money along with her daughter's, which her husband had earned. When he retired when
he retired, okay.
		

			He was paid by the Irish health service, and the husband was working with them for a period of time.
So after he left, they were paid some pension money and that pension money keeps coming to them
maybe monthly or whatever it is, it could be even lump sum. So what is the ruling on it? Well, I
		

			recall addressing a similar question a few sessions back, where I mentioned that if the pension or
the provident fund, or the retirement scheme, or whatever scheme, you call it, the 401 K or
anything, it may be called by any name, if you're working in a halaal company. And the company has a
policy where it compulsorily takes out a portion of your money from your salary, it does not give
you an option to decide. And that's what happens with most of these forced pension schemes in
European countries where they are legislated by the law of the land, that the money has to be taken
out from the salary and not given and set aside against your name in a pension account. And even the
		

			employer makes a contribution to it. Okay, and this money grows, and when you retire the paid the
money to you. If this was voluntary, then the ruling would have been different. But if this is
something which was forced upon the person, he is doing a halaal job, but the law of the land
requires that 90% of the salary be paid, and 10% of the salary be held back every month. And the
employer is also obligated to add that equivalent of 10% to the savings so that pension money grows,
what happens now, what happens to the entire money which I get when I retire with the profits? Or
the interest? Is it Hello? Yes, it is a lot. Because this is not something which you opted for. It
		

			was your money. They didn't ask you what to do with the money. They had this fixed policy. They just
took out the money from you because of the words because of the law of the land. And therefore, I
don't think that there is anything that should concern you, you can go ahead and use the money.
Okay.
		

			And of course, if it was something which your spouse had taken it up on a voluntary basis, then the
ruling would be different.