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Borrowing and lending are two practices that have lived with man from time immemorial. The reason for their existence in human's society is not farfetched, since man is a social being and cannot live in isolation, in addition to his inevitable interdependence upon one another. It is said that as the humans fingers are unequal so also is man in his society. There is this innate and the human perpetrated inequalities in the society that led to the emergence of the practices of lending and borrowing.

 

 

 

Since lending and borrowing have become a sine qua non and a norm in every human setting, Islam made provisions for it; its procedures and processes to ensure smooth a transaction that upholds fairness and justice, and prevents bitterness between the two parties. In the earlier stage it used to be a matter of individual borrowing of simple household materials, or little money to meet some urgent and pressing needs, or some appliances for hunting or farming. But, this process gradually developed from borrowing to meet basic necessity on the individual level to borrowing and lending to meet great and ostentatious goals in terms of huge loans and credit facilities between individuals, groups, states and even countries!

 

 

 

Loans in Islam can be divided into two; the goodly loan (free or interest-free loan), and the interest based loan. The former is that in which the lender gives out a loan, either in cash or kind to the borrower out of pity for his condition to be repaid at a later date but without any conditions of paying more than the amount borrowed. This has a divine undertone in which the lender expects reward from Allah! While the later is out rightly prohibited in Islam by the texts of the Qur'an and traditions of the holy Prophet Muhammad, peace be upon him.

 

1. Al-Qardu al-Hassan (the free loan):

 

From the Islamic point of view, the interest free loan or Qardun Hassan  can further be divided into two; loaning between one and his Lord Allah, and loaning between men themselves.

 

A. The loaning between one and his Lord:

 

Allah says, "Who is it that would loan Allah a goodly loan so He will multiply it for him and he will have a noble reward?" (Q 57:11).

 

 

 

This type of loaning has to do with one giving out in charity to the poor, orphans, widows and other needy people in the society. He expects no material returns; neither in cash or kind from these people, rather he envisages his Lords reward here in the world and the hereafter. But why call it loan? A very big question any inquisitive heart will ask. The simple answer is that Allah referred to such as loans lent to Him and which He the Almighty in His grace will definitely pay back to the lenders.

 

"Who is it that would loan Allah a goodly loan so He may multiply it for him many times over? And it is Allah who withholds and grants abundance, and to Him you will be returned." (Q 2:245).

 

In the same vein, the Almighty Allah says:

 

"The example of those who spend their wealth in the way of Allah is like a seed [of grain] which grows seven spikes; in each spike is a hundred grains. And Allah multiplies [His reward] for whom He wills. And Allah is all-Encompassing and Knowing." (Q 2:261).

 

"Those who spend their wealth [in Allah 's way] by night and by day, secretly and publicly - they will have their reward with their Lord. And no fear will there be concerning them, nor will they grieve." (Q2:274). 

 

 

 

B. Loaning among men themselves:

 

This is a case why by one gives out a loan to another fellow to be paid back at a fixed and agreed upon time, without interests. A Muslim is expected to give out loan when he is capable without any interests accruing to such loans. This is simply because it is a religious obligation ordained by Allah the Almighty. He Allah the Almighty has prohibited interest or usury in whatever kind, form or name it may be in His Majestic wisdom for very obvious economic reasons which one can deduce from the activities of modern day banks and capitalists. Allah says:

 

Scholars have placed the following conditions in making a loan qradan hasssanan (the free loan or goodly loan):

 

i. The loan must be from halal (legitimate) wealth.

 

ii. It must not be followed or accompanied with injury or reminders. Allah says:

 

"Those who spend their wealth in the way of Allah and then do not follow up what they have spent with reminders [of it] or [other] injury will have their reward with their Lord, and there will be no fear concerning them, nor will they grieve. Kind speech and forgiveness are better than charity followed by injury. And Allah is Free of need and Forbearing. O you who have believed, do not invalidate your charities with reminders or injury as does one who spends his wealth [only] to be seen by the people and does not believe in Allah and the Last Day. His example is like that of a [large] smooth stone upon which is dust and is hit by a downpour that leaves it bare. They are unable [to keep] anything of what they have earned. And Allah does not guide the disbelieving people." (Q 2:262-264).

 

iii. It should solely be for the sake of Allah, not to please any personality or for show off. The above aforementioned verses and:

 

"And the example of those who spend their wealth seeking means to the approval of Allah and assuring [reward for] themselves is like a garden on high ground which is hit by a downpour - so it yields its fruits in double. And [even] if it is not hit by a downpour, then a drizzle [is sufficient]. And Allah, of what you do, is Seeing." (Q2:265).

 

iv. It should not be meant to attract some sort of reciprocal benefit to the lender.

 

 

 

2. The Interest-based loan:

 

This is categorically prohibited in Islam. In the Qur'an, Allah says:

 

"Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein. Allah destroys interest and gives increase for charities. And Allah does not like every sinning disbeliever. (Q2: 275-276 ).

 

 

 

In the tradition of the Prophet, he was narrated to have said that the lender and the borrower in an interest-based loan, the scribe and witnesses are all in hellfire! A punishment from Allah for disobeying His command as spelt out in the above verses.

 

 

 

While in the process of prohibiting usury Allah addressing those who had accepted Islam were still having interest money owed to them from loans they had given out:

 

"O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged. And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew.  (Q2: 278-280). 

 

As for the process of coming into a loan contract, the goodly loan that is permissible by Islam, Islam has laid down basic principles and procedures to be followed, Allah says:

 

"O you who have believed, when you contract a debt for a specified term, write it down. And let a scribe write [it] between you in justice. Let no scribe refuse to write as Allah has taught him. So let him write and let the one who has the obligation dictate. And let him fear Allah, his Lord, and not leave anything out of it. But if the one who has the obligation is of limited understanding or weak or unable to dictate himself, then let his guardian dictate in justice. And bring to witness two witnesses from among your men. And if there are not two men [available], then a man and two women from those whom you accept as witnesses - so that if one of the women errs, then the other can remind her. And let not the witnesses refuse when they are called upon. And do not be [too] weary to write it, whether it is small or large, for its [specified] term. That is more just in the sight of Allah and stronger as evidence and more likely to prevent doubt between you, except when it is an immediate transaction which you conduct among yourselves. For [then] there is no blame upon you if you do not write it. And take witnesses when you conclude a contract. Let no scribe be harmed or any witness. For if you do so, indeed, it is [grave] disobedience in you. And fear Allah. And Allah teaches you. And Allah is Knowing of all things. And if you are on a journey and cannot find a scribe, then a security deposit [should be] taken. And if one of you entrusts another, then let him who is entrusted discharge his trust [faithfully] and let him fear Allah, his Lord. And do not conceal testimony, for whoever conceals it - his heart is indeed sinful, and Allah is Knowing of what you do." (Q2;282-283).

 

 

 

The conditions and directives contained in the two verses above must be met in carrying out a loaning process between two individuals or bodies or otherwise in the Islamic point of view to avoid or forestall any envisaged discord, anarchy, injury or disagreement over the loan.

 

 

 

 

Sources:

Qur'an

The theory of loaning in Islamic law by Sheikh Muhammad Hassan Ya'qub

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