Turkey’s religious authority forced to clarify fatwa allowing interest-based loans for social housing

Turkey’s Directorate of Religious Affairs, the Diyanet, was recently forced to clarify its fatwa that said interest-based loans for government social housing is acceptable.

The fatwa released Dec 14 was met with many questions and criticisms on social and other media, forcing the religious authority to clarify its decision in a statement on Jan 15.

The Diyanet’s High Council of Religious Affairs clarified that interest is “strictly haram in Islam” but the fatwa was passed considering social housing built by housing authority TOKI for the benefit of lower-income earners who need to turn to lower-cost interest-based loans from government banks.

“Interest that is forbidden by Shariah occurs when one of the parties of an agreement stipulates a surplus that does not correspond to the financial contract and thus gains unjust capital,” wrote the High Council of Religious Affairs.

“However the government has no aim to profit from the loans, on the contrary in the matter of TOKI loans, the money is collected years after. Hence, in the case of the TOKI social housing project, the interest Islam fights against and forbids is beside the point,” it added.

The state institution went on to say that it is permissible to take and use the incentive loans given by the government to encourage investments, provide employment and spur development.

TOKI works in partnership with the Ministry of Treasury and Finance and the Ministry of Environment and Urbanisation to develop mass affordable housing for lower-income earners for which government banks usually offer state-sanctioned loans with lower or no interest. These types of loans are also usually offered to SMEs or farmers. 

TOKI’s loans come from state-owned banks that provide them with fixed payments for social housing.

Participation banks, as Islamic banks are called in Turkey, also provide financing for social housing. However, they may not provide terms that are as favourable for lower-income earners as those offered by interest-based government loans.

“People prefer these (interest-based) loans from government banks because in Turkey participation banks prefer giving short-term consumer loans because it's easy to manage,” Omer Lutfu Caglayan, Senior Financial Analyst Manager at Kuveyt Turk Participation Bank told Salaam Gateway.

“So, usually, the payback rates of long-term credits like housing credits which extend to 20 years are higher [for participation banks],” he added. 

CRITICS

Critics of the fatwa say the Diyanet appears to serve as a political body allowing specific loans for the country’s economic development and transgressing Islamic law against interest.

Others say the status of government banks such as Ziraat or Halkbank makes the situation an exception as interest is frozen and payments are fixed.

“Even though the Diyanet made a statement about loans, the issue here is actually nominal riba, not sharing in the money or collecting capital out of money,” Dr. M. Salih Kumas, Islamic economy professor at the theology department of public university Uludag, told Salaam Gateway.

“The denotation of the system is wrong, when we look at the execution, we see it’s actually helping people to become homeowners by instalments. Adjudication in Shariah is on the basis of actuality of the financial transaction and thus in my opinion, the decree of the High Council of Religious Affairs is lawful.”

(Reporting by Merve Emine Serbetci; Editing by Emmy Abdul Alim emmy.abdulalim@salaamgateway.com)

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