Q) My father died and I have become responsible for my siblings. We were renting a house but the owner decided to throw them out on the street because he wanted his house. I decided to buy a house for them by instalments from a bank that is not Islamic, as we do not have any Islamic banks in our country. Is this haraam or considered to be riba?
A) Praise be to Allaah.
Buying an item via the bank may be done in two ways:
The bank merely finances it and lends the customer the price of the item or pays it on his behalf, in return for getting back the money and something extra, such as if the price of the item is one thousand, and it takes back one thousand and two hundred in instalments. This way is haraam, because in fact it is a loan with interest, so it is riba.
The bank buys the item in a real sense, then sells it to the customer for a higher price to be paid later. There is nothing wrong with this, and it is what is called a muraabahah transaction. It is not permissible for the bank to sign a contract of sale with the customer until it has bought the item, because it is proven that it is forbidden to sell what one does not possess.
But (the bank) may take a promise from the customer to buy the item when it takes possession of it, but this promise is not binding.
Based on this, if the bank buys the house then sells it to you by instalments, there is nothing wrong with that, but if it does not buy it, rather it is giving you the money or paying it on your behalf, on the basis that it will get the money back and more, then this is riba, and the stern warning that is issued concerning riba is no secret.
What you have mentioned about your siblings needing a house is not regarded as a case of necessity which makes riba permissible, because it is possible to ward off that harm by renting.
And Allaah knows best.