On Loaning

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Issues of Trade and Finance

The word Qardh in Arabic literally means “cutting off”. When the moneylender lends to someone, he actually cuts off some of his money and gives it to the borrower. In Islamic law, Qardh means to give money to someone that may benefit from it and pay back the same.

Qardh is a form of kindness. The Prophet, sallallaahu alayhe wasallam, called it maneehah (i.e., a present or an act of kindness) because the borrower benefits from it and then returns it to the lender.

Iqraadh (to give a qardh) is Mustahabb (commendable) and there is a great reward for doing so. The Prophet, sallallaahu alayhe wasallam, said “Any Muslim who lends to another Muslim twice, will be rewarded for one of these two loans as charity.” (ibn Majah)

It was said, “Qardh is better than charity, for no one asks for a debt except one in need.” The Prophet, sallallaahu alayhe wasallam, said, “He who removes from a Muslim one of his difficulties from this world, Allah will remove one of his difficulties on the Day of Resurrection.” (Muslim) Therefore qardh is a good deed and a relief from a difficulty for a Muslim and the fulfillment of his need. Asking for qardh is not something makrooh (reprehensible) for the Prophet himself asked for a loan.

In order for the qardh to be valid, the money should be lawful to lend. It is not permissible, for example, for the guardian of an orphan to lend from the orphan’s monies. Another condition for the validity of the qardh is the knowledge of the amount and type of money given in the loan so that it can be returned to the lender. The borrower is indebted and liable for the loan and must return it to the lender once the former is capable of doing so, without delay.

The lender is prohibited from requesting an increase in the qardh from the borrower. There is an ijmaa’a amongst the scholars that states, “if the lender places a condition for an increase, and the borrower accepts, then this is riba.” What banks participate in today in their lending practices with interest is plain riba, whether it is termed personal loans or business loans.

It is not permissible for the lender, bank, individual or company to receive a conditional increase on the loan under any name. If this increase is called profit, interest, “a gift”, lodging within a house, transportation in a car, etc., this does not make it permissible because this increase, gift or benefit was conditional at the time of the loan. The Prophet, sallallaahu alayhe wasallam, said, “Any loan that leads to a benefit is riba.” The Prophet also said, “If you tend someone a qardh and he gives you a gift or lets you ride on his mount, do not accept the gift or ride on the mount unless this was usually done together before the qardh.” (Ibn Majah)

There are many other ahadeeth that hold the same meaning. So it is not permissible for the lender to take a gift or derive any other benefits from the borrower if this is done because of the qardh. It is not permissible because the Prophet prohibited this and because the qardh is a contract of kindness towards the one in need, as well as being an act of worship. If the lender places the condition of an increase and intends to have it or looks forward to receiving it, then the qardh defeats the purpose and is no longer an act of worship derived to get closer to Allah. The qardh is a means to relieve the borrower and fulfill his needs, whereas here the lender expects a profit from the borrower. In this case the loan is not considered a qardh.

Muslims must be careful about this matter and be sincere in their intentions when they lend monies or perform any other righteous deeds. The purpose of qardh is not material growth but spiritual growth. It is the closeness to Allah through fulfilling the want of those in need and in returning the capital sum. If this is the intention in lending a qardh, then Allah will send down blessings and pure growth in the monies. It should be known that the increase that is prohibited to be taken is the conditional increase. This is similar to stating, ‘I will lend you such and such with the condition that you return the money to me with such and such increase, or let me use your house or store, etc. or give me such and such gift.’ Even if there is no said conditions, but the lender intends to ask for an increase or looks forward to it, then this increase is prohibited.

However, if the borrower desires to give an increase on his own without any conditions or desires from the lender, then there is no harm in taking that increase because that is considered a good manner in repayment. The prophet(Sallallaahu Alayhi Wasallam) took as a loan a young camel and then made the repayment with a better one. He said, ‘The best among you is he who is the best in making payment.’ (Bukhari) This is a noble moral that is praised by Islam and is not considered a loan that leads to benefit, because it was not a condition established by the lender, it was merely a gift from the debtor.

If the borrower would do something that is beneficial towards the lender but this is similar to what he may have done before taking the loan and it was not done because of the loan, then there is no harm in accepting such favour. The borrower must be concerned with paying back the debt to the lender whenever he can without procrastination or delay. Allah said, ‘Is there any reward for good other than good.’ (55:60)

Some people are careless about the rights of others in general, and about debts in particular. Such is considered a nasty quality that has made many people refrain from giving loans and assisting the needy. This in turn forces the needy to go to banks and indulge in what Allah has prohibited. The needy cannot find anyone to provide them with a good loan and the lender cannot find someone who pay him on good terms. As a result, the good amongst people has been lost.

Al-Jumuah vol.10 issue 11