The general definition of a permissible loan, according to Islamic Jurisprudence, is the voluntary act of compassion. This is by a (lender) lending a well-defined and legally owned amount of money to a person in dire need, for the receiver (borrower) to benefit from and fulfill his needs. The borrower is liable to return the exact amount. There should not be an iota of previously stipulated increase to the original amount. Nor should there be any increase by way of a favor or gift, etc., to the lender. Certainly, all such increases to the initial amount equate to ‘Riba,’ i.e., interest. Riba is among the most abominable sins in Islam.
This goodly loan, which is based on precepts of fraternity, promises rich rewards. The Prophet (PBUH) said that the one who alleviates a believer’s difficulty in this life will be relieved of the trials of the Hereafter by Allah. He further said that one who grants ease to a person indebted to him, who is struggling to pay off his debt, will be granted ease in the world and the Afterlife by Allah. Moreover, those who hide others’ shortcomings will have their faults concealed in this life and the next by Allah. Allah helps His servants, provided they aid their brothers.
Thus, the Islamic position on giving loans instills in lenders the will to provide leniency to needy receivers. Islam ensures that lenders harbor no hidden motives of desire for material gain, or exploitation. On the contrary, lenders should have pure intentions, based solely on their desire to please the Almighty.
Principles applied when dealing with permissible loans in Islam
Among the Islamic principles regarding loans is the condition that the lender can only lend what he owns. One may only lend what he legally owns, as he has no right over another’s wealth and property. The received should know the exact amount and quality of the loan. Accurate knowledge of the loan’s details is essential to enable a borrower to pay it back with precision. Islam endorses and appreciates such noble gestures, which serve to express gratitude to the lender. A hadith in Sahih Muslim praises those who are best in terms of repaying debts. The Prophet (PBUH) referred to such people as the best men.
The period for returning a loan can be specified. In this case, the receiver is not liable to pay it before its due date. However, if left open, the receiver can demand it at any given time. When the lender demands repayment, the borrower must oblige without any procrastination or delay. The place where the loan is repaid should be the same as where it was lent. However, if it’s agreed upon by mutual consent for the repayment to be elsewhere, repaying somewhere else is allowed.
Differences in the Islamic ruling on a permissible loan and Riba
Scholars unanimously agree that any increase to the loan stipulated by the lender is forbidden and tantamount to Riba. This ruling applies regardless of whether the lender is a bank or an individual. It is typically found that banks sneak in some percentage of interest under the pretext of service fees, etc.
It must be made abundantly clear that any form of interest on a loan is prohibited. Indeed, whenever a loan contains any profit, it is a kind of Riba. Any aspect of profit, gift, interest, or the lender benefiting from a utility, that is procured through precondition by a lender, is completely prohibited. Indeed, such preconditions defeat the very purpose of lending. The goal of lending is to give ease to the receiver, not to burden him further. It’s important to note that any increase granted to the lender without his stipulating and anticipating it is permissible.
The consequences of a goodly loan and Riba
The relationship betwixt Riba and a loan is merely in the basic concept of lending. Both forms of lending exist to fulfill a human need or needs. However, this relationship turns sour once the consequences of both are reflected upon. Allah blesses a goodly loan and nurtures feelings of empathy, generosity, unity, brotherhood, patience, and tolerance. Only a God-fearing and God-conscious person lends money for nothing, seeking naught but self-satisfaction in being charitable to fellow humans, and thereby gaining closeness to his Provider and Nourisher.
On the other hand, the many dire consequences of a Riba-based loan wreak havoc upon the receiver, especially if he fails to meet his deadline. The back-breaking interest rate shows no mercy to the receiver. Interest piles up until the debtor heavily burdens the borrower with it. Riba exploits, undermines, overburdens, and makes whoever it touches fall into despair. The lender who deals in Riba is hard-hearted, stingy, and literally thrives on the misery of his fellow humans.
Easy money gained through Riba discourages hard labor and professionalism. This inspired the likes of Shakespeare to depict Shylock as a heartless character and usurer, disliked by one and all. When someone lends a goodly loan, a multitude of God’s blessings follow it. Conversely, Allah deprives money obtained through Riba of every blessing and it incurs a divine curse. In a Hadith in Sunan An-Nasai, the Prophet (PBUH) cursed everyone involved in Riba dealings. Hence, the curse is for all those who take, pay, record, and witness Riba.
Is Riba permissible under any circumstances?
Under no circumstances whatsoever does Islam sanction taking a Riba based loan. On the contrary, if one is really hard up, Islam encourages us to supplicate to Allah. We can also seek sustenance through hard work and labor, or remain patient until the situation improves. Allah allows us to ask for a goodly loan, preferably as a last resort. A Riba-based loan is detrimental to the well-being of individuals and society as it exploits the needy during their time of grave need. Knowledge of the evil consequences of taking, giving, and mediating in any Riba dealings in both this life and the next ought to suffice as a deterrent.
All aspects of Riba conflict with the bonds of sympathy and fraternity that Islam encourages. In fact, Riba traumatizes, monopolizes, and often arouses suicidal instincts in its victims. It is a secure haven for the lender, but every bit a risk to the receiver, which leads to depression and despair. It is little wonder then that Islam, a religion that works for the greater good of mankind, is at war with those who indulge in Riba. Allah gives a stern warning in Surah Al-Baqarah, as we learn that Allah and His Messenger declare war on those who fail to abstain from Riba completely.
In the realm of finance, think of Riba, or interest, as that relentless force which, like a heavy chain, binds the vulnerable, drowning them in despair and uncertainty. It’s a stark contrast to the warm embrace of a goodly loan, a lifeline that embodies compassion, offering hope and unity within the bonds of humanity. Understanding these differences is not just about money; it’s about values that shape a just and compassionate world.