What Should I Do with Interest Unintentionally Earned from an Investment?

Answered by Shaykh Muhammad Carr

Question

If someone unintentionally earns interest from an investment, can they donate it to charity, invest it, or use it to pay off debts? What is the difference between the profit rate and riba in Islamic banking?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. May Allah reward you for managing your finances following Islamic Law.

Giving and receiving interest is decisively impermissible in Islam. Allah says,

“O believers! Fear Allah, and give up outstanding interest if you are (true) believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm.” [Quran, 2:278-279]

Interest earned, whether intentionally or unintentionally, must either be returned to its rightful owner or donated to charity.

Profit is the return from a sale, whereas interest (riba) refers to a stipulated, guaranteed return on a loan [See: Bajuri, Hashiya]

“Allah has made trade lawful and usury unlawful” [Quran, 2:275]

In Islamic rulings, the permissibility of a transaction is determined primarily by the underlying contract. Although a profit rate may resemble a current interest rate, this resemblance is not the criterion for determining whether a product is permissible.

General Rule of Unlawful Funds

The general rule that applies to disposing of unlawful funds is as follows:

• Where the rightful owner is known, it must be returned to the rightful owner.
• Where the rightful owner is not known [or if they refuse], the funds must be disposed of in one of two ways: a) it must either be given towards a charitable cause that benefits the public at large, such as public hospitals, schools, or mosques; b) or it should be given in charity to a person who is entitled by his need to receive charity. [Nawawi, Majmu‘ Sharh al-Muhadhdhab; Karaan, Disposal of Riba (Fatwa issued by the MJC)]

Price Structures

As Islamic banks operate in an interest-based economy, they typically structure their profits in alignment with prevailing interest rates. Importantly, this contingency does not compromise the permissibility of the sale, nor does it equate to interest-based debt financing.

The price (thaman) is an essential element of a sales contract. It must be known, and the sale is deemed invalid if the price is unknown, as it introduces contractual risk (gharar).

The asking price is determined at the discretion of both the buyer and the seller, with no specified minimum or maximum. This price is influenced by demand and supply, the nature of the sale (cash or credit), inflation, and ultimately, the seller’s asking price and the buyer’s willingness to pay.

I pray this is of benefit and that Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.