Rules regarding Debt or Loan
To give loan is among the things which are Mustahab, on which great emphasis has been laid in the Holy Qur'an and in the Traditions (Ahadith). The Holy Prophet has been reported to have said that whoever gives loan to his Muslim brother, his wealth flourishes, and the angels invoke Divine mercy for him, and if he is lenient with his debtor, he will pass over the Bridge (Sirat) swiftly. And if a Muslim denies his brethren-in-faith a loan, Paradise becomes forbidden (Haraam) for him.
2281. It is not necessary to recite a specific formula in the matter of debt. If a person gives something to another person with the intention of loaning, and the other takes it with the intention of borrowing, that conduct will be in order. However, its quantity should be specified.
2282. If there had been no fixed time for the repayment of the debt, whenever a debtor pays his debt, the creditor should accept it. But if the time for repayment had been fixed, as per precautionary measures, creditor should accept the repayment.
2283. If a period is fixed for the repayment of debt in the formal contract of debt by the debtor, as per obligatory precaution, the creditor cannot claim repayment of the debt before the expiry of that period. But if no such period was fixed, the creditor can demand the repayment of his debt at any time.
2284. When the creditor demands his debt, and the debtor is in a position to pay it, he should pay it immediately, and if he delays its payment, he commits a sin.
2285. If the debtor does not possess anything other than the house he occupies, the household effects, and other things of essential needs, without which he would be facing hardship, the creditor cannot claim the repayment from him. He should wait till the debtor is in a position to repay the debt.
2286. If a person is indebted and he is unable to repay his debt, if he can work, it is obligatory upon him to do so in order to pay off the debt.
2287. If a person has no access to his creditor, and does not hope to find him, then by the permission of the Mujtahid, he should pay the amount he owes to poor on behalf of the creditor. And if his creditor is not a Sayyid, as per obligatory precaution, he should not give the sum he owes to a poor who is a Sayyid.
2288. If the estate of a dead person does not exceed the obligatory expenses of his Kafan, burial and the payment of his debt, his estate should be utilized for these purposes and his heir will not inherit anything.
2289. If a person takes a quantity of gold and silver or currency as a loan, and then its price falls, it will be sufficient if he gives the same quantity which he had taken. And if its price rises, he must give the same quantity which he had taken. However, in either case, there is no objection if the debtor and the creditor mutually agree to some other arrangement.
2290. If the property taken on loan has not perished, and its owner demands it, as per recommended precaution, the debtor should return him the same property.
2291. If a person who advances a loan, makes a condition that he will take back more than what he gives, for example, he gives 3 kilos of wheat and stipulates that he will take back 3 1/2 kilos of wheat, or gives ten eggs and says that he will take back eleven eggs, it will be usury and therefore Haraam.
Rather, if he stipulates that the debtor should, apart from the repayment, do some work for him, or repay the loan along with a quantity of another commodity (for example, if he lays down the condition that the debtor will return one Dollar owed along with a match box) it will be usury and Haraam.
Also, if he stipulates that the debtor will return the thing loaned to him in a particular shape, e.g. if he gives him a quantity of gold, and imposes the condition that he will take it back as golden ornaments, that too, is usury and Haraam. However, if no condition is made by the creditor, and the debtor himself decides to repay something more than what he borrowed, there is no harm in it. In fact, it is Mustahab to do so.
2292. To pay interest is Haraam, the same way as charging interest. Therefore, the ownership of a loan and right of disposal over it of a person who took a loan against interest, is questionable.
However, if the creditor knows that the transaction of debt is void and he will not become the owner of the interest, allows the debtor that he can exercise his discretion over the money loaned to him, provided that he do not agree with the transaction, in
such case it is permissible for the debtor to exercise his discretion over the money loaned to him without any objection.
2293. If a person takes interest bearing loan in the shape of wheat or any other similar thing and does farming with it, as per precaution, he should negotiate the outcome of this farming with the creditor; but if as per the second case of the previous ruling, the creditor is in agreement with the debtor’s right of discretion over it, but the agreement should not be based on the interest bearing transaction, because in this case, the debtor will become the owner of the outcome.
2294. If a person purchases a dress, and then pays the owner of the dress with the money he loaned against interest, or with lawful money mixed with interest money, there will be no harm in wearing that dress and offering prayers with it. But if he says to the seller: "I am purchasing this dress with this sort of money", it will be Haraam to wear that dress, and if he knows that wearing that dress is Haraam, prayers offered with that dress will be void.
2295. If a person gives a sum of money to a merchant, so that he may get from him something less in another city, there is no harm in it. It is called Sarf – I – Barat.
2296. If a person gives some money to another person with the condition that after a few days, he will take a larger amount from him in another city, for example, he gives $990 to him, and stipulates that after ten days he will take $1000 from him in another city, the transaction is usury and is Haraam.
However, if the person who is taking more amount gives some commodity against the excess amount or performs some task, there is no harm in this arrangement.
2297. If a person has a promissory note or draft against a loan he gave to a debtor, it is permissible for him to sell it at a lower price than the amount due to him before the due date.