Question: Kindly let me know whether interest received on National Savings Certificates are considered as RIBA or not, and which Islamic Banks are recommended. Also please let me know if the income from Islamic Banks is halal.
National Savings Certificates (NSC), Treasury Bonds, and any other means of investment which guarantee a certain amount of profit are forbidden (haraam). Here is its reason:
God has made trading lawful and forbidden transactions which include interest (al-Baqarah 2:275).
Trading requires that both profit and loss are probable in a business. This is the same with ‘mudarabah’ (capital-labor partnership). When you buy NSC, a loss is not probable.
National Savings Certificates and Treasury Bonds are debentures with interest. The income earned from them is riba (interest).
If Finance Institutions do not give loans but earn via trading, the income earned from them would be halal. If they choose the way of making money from loans, then would they have no difference from conventional banks.