Chapter One
Loans
1118. There are several conditions for the validity of a loan:
1- Both contracting parties must be qualified – Islamic legal age (bolūgh), sanity, intention, free will, reasonable conduct and the lender must not be under indictment for bankruptcy.
2- The asset must be a specific external asset, or an unspecific item of a specified type of asset, such as lending this pound, or one pound from these two pounds or these several pounds.
3- The asset must be specified, so it is not valid to lend something that is not clear, such as ‘a thing’ or the like.
4- The asset must be Islamically suitable for ownership, so it is not valid to lend something for which the Shari’ah has prohibited ownership, such as alcoholic drinks or pork.
5- The borrower must receive the asset, so if the contract is established and the borrower does not receive it, he is not regarded as owning the asset, so any appreciation in its value belongs to the lender, as does responsibility for damage.
1119. If the contract was established with its conditions and the handing over took place, the consequence of it is binding to both parties, so if the lender requests the return of the asset, the borrower does not have to accept it; also the lender is not obliged to accept if the borrower wishes to invalidate the loan. That said, the borrower can end the transactions by hastening to pay the debt back using the same borrowed asset – later we shall explain the ruling of hastening to pay back the loan when the contract is not specific (in this regard).
1120. It is allowed in loans for one or both parties to insert any reasonable conditions except whatever would attract a financial benefit for the lender himself or for individuals or organisations which the lender wants to see benefit, such as the lender making it conditional on the borrower to pay money or assets or to carry out some work for him, a third party, the mosque or others – this is not allowed, because it is a forbidden ribā that is called ‘ribā of dayn or qard’ which is ‘interest’. An example of such a thing is if he lends the borrower ten pounds on the condition that he repays him twelve pounds, or that he makes a piece of clothing for him on top of the value of the loan, or that he lives in his house or disposes of a mortgaged asset that is at the disposal of the lender, and so on. But if the excess is not financial, nor a question of payment with an asset, nor attracting any materialistic benefit for the lender or others, but is a hereafter-type benefit that does not cost the borrower effort or assets, such as to pray for the lender or for whomsoever he wants, or a condition that relates to the nature of the transaction, such as asking for a mortgage (for a thing to keep with the lender) or a guarantor, all this is not a forbidden interest.
1121. All that is not allowed for the lender to set as conditions because it is a forbidden interest is allowed for the borrower to set as a condition on the lender.
1122. It is regarded as forbidden excess if the lender imposes a condition to sell the borrower or rent to him something at less than its value, or to buy from the lender or rent from him something at more than its value, such as saying: ‘I lend you one hundred pounds on the condition that you buy these goods – which are sold in the market for ten pounds – from me for twenty pounds’ or the like.
1123. It is allowed to borrow with an excess in a way opposite to what we mentioned in the previous entry, which is when the contract to buy at a price greater than the price of similar items on the condition that the lender lends him the money, so he says to him: ‘I shall sell you this book for twenty pounds and I shall lend you one hundred pounds’, but the buying according to this transaction must be serious and stemming from the desire in it and need for it, otherwise if the intention is to borrow at interest, this way will not work to avoid ribā as an obligatory precaution.
1124. Just as it is forbidden to make interest conditional on the part of the lender, it is forbidden to accept such a condition and to pay it on the part of the borrower, unless his intention within himself is serious that he is not going to pay it unless forced to do so, especially if he is going to be harmed or to fall into intense difficulty by not borrowing.
1125. A loan transaction does not become invalidated as a result of including an interest condition or other forbidden conditions; only the condition is regarded as void and cancelled, so the borrower still owns the asset or money which he takes as a loan with all the consequences of ownership, while the lender does not own the excess that he made conditional unless the borrower accepts him taking it and disposing of it even though he was compelled to pay it or forced to do so; this applies in the case where he comes to know that the lender has no right to that excess, then if he is happy to give the excess, it becomes allowed for the lender despite the fact that his request for it and making it a condition is forbidden in principle.
1126. Despite that, dealing with the modern interest-system banks is an area for common test (mahal ibtilā’) for a lot of people, who are forced to deal with them sometimes; this does not allow depositing money with them with the intention of lending at interest, whether this (bank) is private or state-owned. However, if a person does not intend to take the interest when depositing his money with such banks, but rather his intention is to protect his money, in this case depositing the money with them is allowed despite his knowledge that the bank will give him interest; it is also allowed to take it as long as the provider of the interest is satisfied with him taking it, meaning that the bank management gives interest to the person depositing money with them, even with the knowledge that it is not due to him in the Shari’ah, and this is to encourage people to deposit (with them).
1127. The borrower – at the time of borrowing – must be firm in his intention to abide by the loan agreement, which is based on observing the rights of the lender and the commitment to pay his money back to him so that taking it is allowed; this is because if the lender knew that he intended not to pay it back, he would not have lent it to him.
1128. What the borrower borrows comes under two categories:
1- A similar thing: in this case the borrower must pay back the loan with an item similar in type and description which its value differing according to their agreement; so if he borrows one GB pound or Thai rice, he must pay this back with something similar to what he borrowed, unless the lender has made paying back with a different type of thing conditional, or if the lender accepts another type, regardless of whether its value has risen or fallen during the period.
2- A value: in this case he must pay back with whatever has a value equal to its value when it was handed over to him by the lender, not its value when paying back. In addition, the value is to be paid using the common currency in the lending country, unless they set another condition or mutually agree on something else.
1129. The exception in paying back with something of similar type is if the borrowing involved some common banknotes which were then cancelled and replaced by others; in this case paying back using the cancelled banknotes will not relieve the borrower of his obligation, but he must pay the loan back with a sum that equals the loan using the accepted currency in the transaction county at the time of paying back. It is obligatory also to consider the original value of the currency if its value has fallen considerably; this applies to all cases of debts which have to be paid back in that currency, so its value before it fell is considered and the amount that should be paid is to be calculated on this basis.