Islamic Loans

WHAT YOU NEED TO KNOW

 

The Lender is entitled to receive back only the amount given on loan, but nothing extra over it. Any extra payment comes under usury and is prohibited in Islam.

 

[References: Quran 2-275, Hadith from Ubayy ibn Ka’b, Ibn ‘Abbaas and Ibn Mas’ood (may Allah have mercy on them all)]

 

Ibn al-Mundhir said: They are unanimously agreed that if the lender stipulates that the borrower should give something extra or give him a gift, and he gives the loan on that basis, then taking the extra amount is riba. It was narrated from Ubayy ibn Ka’b, Ibn ‘Abbaas and Ibn Mas’ood that they forbade loans that bring benefits.

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WHAT YOU NEED TO DO

Write a contract of the loan

Make a contract and specify the loan amount and the period of the loan, i.e., the length of time after which the loan must be paid back.      

The loan should be witnessed, and the witnesses should be two men, or one man and two women. [Reference Quran 2-282]

Take a Pledge (optional)

The lender has the right to ask the borrower to guarantee the loan with a pledge which the lender will keep. [Reference- Qur’an 2- 283]

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Pledge and Surety are different things

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Pledge involves tangible assets provided by the borrower as collateral, giving the lender a form of security interest in those assets.

Surety involves a third party (a person) who agrees to fulfill the borrower’s obligation if they default, providing a personal guarantee rather than physical collateral.

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