Rules on lending and borrowing in Islam

( What does the Quran say about loans? / How do loans work in Islam? / Are loans halal in Islam? )

O you who have believed, when you contract (i.e. when you have or contract a debt) a debt one upon another for a stated term, then write it down. And let a writer write it down between you with justice, and let not any writer refuse to write it down, as Allah has taught him. So let him write and let the one upon whom is the truthful duty of payment (i.e. the debtor) dictate, and let him be pious to Allah his Lord and not depreciate anything therein……(Surah Al Baqarah, Verse 282)

Monetary transactions which take place on personal bases lack the required security needed around such dealings. There are ample examples of people who lend money to family members, friends, acquaintances, colleagues without any signed document to support the transaction. Consequently, most of such dealings end up with the lender in loss and might put a long term resentment among both parties.

A friend of mine once narrated how a family member lent USD 20,000 to a person related to them. The borrower never paid back the amount and the family had no means to recover from such a huge loss. It wasn’t just a loss of money but the relation got strained for ever. This is how a simple dealing can cost a lifetime of relationship if not tackled the way it should be – with transparency and with a legal backup.

Hence the simple solution of scribing down the financial transaction is advised by Allah (swt).

So, in case the one upon whom is the truthful duty is foolish, or weak, or unable to dictate himself, then let his patron dictate with justice. And call in to witness two witnesses of your men; yet, in case the two are not two men, then one man and two women from among the witnesses you are satisfied with…….and let the witnesses not refuse whenever they are called (upon). (Surah Al Baqarah, Verse 282)

It is the order of the Holy Qur’an, when the matters of borrowing money arise, whether it be for small or large amounts, it should be written down in a contract. It might seem a little extreme to involve witnesses in matters which are personal. But if that is the way to secure wealth and kinship, then it shouldn’t be compromised. Also, if possible this transaction should take place in front of two witnesses, so that there is no dispute at a later stage. Some scholars state it is preferable and some state it compulsory to write down a loan transaction. If for any reason, in the future there is a dispute, this written document can be produced as proof. 

The importance of writing an agreement is that the transaction will be done in accordance with justice and stability. Witnesses will always be present to back it up and it is the best way to eliminate any doubt.

And be not too loath to write it down, (whether) it is small or great, with its term. That is more equitable in the Providence of Allah, and more upright for testimony, and likelier that you will not be suspicious. (Surah Al Baqarah, Verse 282)

The virtue of giving a loan is for those who are truly needy. The taking of a loan is not something that a respectable individual would do without necessity, to create a burden upon themselves. Hence, such an individual will never have a problem if he / she is asked to make a written document of the amount being given to them. If an individual seeks a loan for wasteful spending and utilising it in sinful acts, then a loan should not be given to them. Those who take a loan with a bad intention, Allah will cause him humiliation in this world and the hereafter.

….and let not either writer or witness be harmed, and in case you perform (that), then that is evident immorality in you. And be pious to Allah, and Allah teaches you; and Allah is Ever-Knowing of everything. (Surah Al Baqarah, Verse 282)

Since the concept of interest is forbidden in Islam, many opt for personal loan. This is generally from someone a person knows or is related to. The lender might also think that it is his / her responsibility to support their brethren in need which is a very good though. However, being good doesn’t mean one acts foolishly. One needs to be a helping slave of Allah(swt) as well as use the intelligence He has provided to safeguard their property and belongings.

At the time of taking a loan, the borrower should be truly concerned to repay the loan within the stipulated contracted time. If the borrower cannot repay the loan in a lump sum, he should make it clear beforehand, how he wishes to repay the loan. In this way there will be no difficulty placed upon the lender. The individual who takes his loan with these points in mind, his loan will be repaid within the stipulated time.

This method is advised to those who might be in dire need of monetary help. However, one must always aim to fulfil their needs and wants in the ‘rizq’ that Allah (swt) has ordained for them. This eliminates the need to borrow to a very large extent. One should also supplicate to Allah (swt) to provide ‘barakah’ in the ‘rizq’ that He has provided to them.   

O Allah ! save us from Haram and make what is Halal sufficient for us and through your Mercy and Blessings do not make us needy of others.