Sunday, December 2, 2012

LOAN AND ITS IMPLICATIONS



Assalam oalaikum,

Generally speaking, a loan refers to giving money, property or goods to another party in exchange for repayment in the future of the loan amount besides the interest or other monetary charges. In simpler words, it means lending money on interest.
Lending money with interest has been condemned by Islam, Christianity, Judaism as well as Buddhism. However, attempts to justify interest on loans were made in the works that promoted capitalism. For example, in his book, Wealth of Nations, the Scottish economist, Adam Smith has tried to justify interest in economic terms. According to him the interest is the compensation which is paid by the borrower to the lender for the profit earned by him with the borrowed amount. He means to say that the lender also has a share in the profit which the borrower earns, so charging interest in justified. However, he has missed out an important point in his statement. Realistically speaking a borrower may or may not earn profit. Even in case he faces a loss he is expected to pay interest to the lender, which is unkind.
Gradually, the practice of giving loans on interest became rampant, along with all its flaws and inequitable element.
The frequent suicides by Indian farmers who are unable to pay back loans due to high rates of interest is a glaring example of the atrociousness of this entire concept from the moral and humanitarian point of view. The prevalent way of lending money is strictly against the tenets of Islam because Islam propagates brotherhood and charity as opposed to taking interest from someone who is needy.


Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

QURANIC VERSES REGARDING LOAN


Assalam oalaikum,

For a true follower of Islam the Holy Quran and ahadith are the primary source of guidance. The Shariah, which is the religious law of Islam, is based on the Holy Quran and ahadith.
Therefore, in order to clearly understand the concept of loan in Islam we will have to first see what the Quran and ahadith say in this context:

O you who believe, fear Allah and give up what remains (due to you) of interest, if you should be believers. (TMQ-2:278)
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. (TMQ-2:279)
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 of you only knew. (TMQ-2:280)
Zakah expenditures are only for the poor and for the needy and for those employed to collect (zakah) and for bringing hearts together (or Islam) and for freeing of captives (or salves) and for those in debt and for the cause of Allah and for the (stranded) traveler- an obligation (imposed) by Allah. And Allah is Knowing and Wise. (TMQ-9:60)
..after any legacy he may have bequeathed, or debt (hath been paid) (TMQ-4:11)

The Holy Quran has condemned interest/usury in the strictest possible way. In my next post, I shall discuss about the points that can be deduced from the above mentioned Quranic verses.

Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

INTERPRETATION OF THE QURANIC VERSES REGARDING LOAN


Assalam oalaikum,
The longest verse of the Quran, i.e. 2:282, which is known as Ayat-al-Mudayana, also speaks about the principles of loans. There is no mention of riba/interest in the entire verse as riba is strictly prohibited in Islam.
‘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 know scribe refuse to write it as Allah has taught him. Sp let him write and let the one who has obligation dictate. And let him fear Allah, his Lord, and let him leave nothing out of it. But if the one who has the obligation is of limited understanding or weak or unable to dictate him self, then let his guardian dictate in justice. And bring to witness two witnesses from amongst your men. And if there are not two men (available) then one man and two women from those whom you accept as witnesses- so that if one of the women errs, the other one 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 as immediate transaction which you conduct amongst yourself. For (then) there is no blame on you if you do not write it. And take witnesses when you conclude a contract. Let no scribe be harmed or witness. For if you do so indeed it is grave disobedience in you. And fear Allah and Allah teaches you. And Allah knows everything.

During the Jahilliyah period, if a person was unable to repay a loan, the lender would keep on increasing the rate of interest. Due to this cruel practice the original amount of the loan would increase to such an extent where its repayment would be next to impossible for the borrower. However, Islam has put an end to this inhuman custom. Allah (swt) has decreed in the Quran that if the borrower is bankrupt, insolvent and poor, then the question of charging interest from him does not arise. In fact, the lender should postpone the payment of debt till a time when the borrower can easily pay back the loan. By this ruling, the Quran advises the lender to treat the borrower in a lenient and gentle way. The lender can also forgive the loan altogether. This would be an act of charity on the part of the lender for which Allah (swt) will reward him greatly.
When we compare these two different ideologies we find that the practices during the period of Jahilliya were based on callousness, selfishness and cruelty whereas the Islamic practice is based on compassion, co-operation, brotherhood and mutual support. The loans of the capitalist societies are quite similar to loans during the period of Jahilliya.
Islam has encouraged benevolent lending instead of lending with a profit motive. According to Ibn Qudama, giving loans is encouraged in Islam because by lending a person is akin to providing relief, fulfilling the needs and offering help and support to his Muslim brother.


Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

THE AHADITH ABOUT LOAN


Assalam oalaikum,

Like the verses from the Quran, which I have discussed in my previous posts, the ahadith also throw sufficient light on the concept of loan in Islam. Here I shall mention some of them:
Narrated Anas (ra) that the Prophet (saw) said, ‘On the night when I was taken up to Heaven, I saw this written on the gates of Heaven, ‘Charity is (multiplied) ten times and a loan is (multiplied) eighteen times’. I asked Jibril, that why is a loan better than charity. He answered, ‘Because a beggar may ask even when he has wealth and a borrower may not ask for a loan except out of need’. (Reported by Ibn Majah (ibid)
Hazrat Anas (ra) reported that the Prophet (saw) said, ‘If someone of you gives a loan and the borrower sends presents to him or gives him a ride on his beast, do not accept it unless it was prevalent between them earlier’. (Ibn Majah)
Abu Hurairah narrated that Allah’s Apostle said, ‘The soul of the believer keeps hanging with his debt till it is paid’. (Ahmad, Tirmizi, Ibn Majah)
Abdullah-bin-Amr reported that the Apostle of Allah said, ‘Every sin of a martyr shall be forgiven, except debt.’ (Muslim)
Abul- Yasar reported that he heard the Apostle of Allah say that, ‘Whoever gives respite to a debtor or offers him remission, Allah will grant him a shade. (Muslim)
Imran-b-Hussain reported that the Messenger of Allah said, ‘Whoever has his dues from a man and gives him time for payment, Allah will grant him reward of charity everyday. (Ahmad)
Abdullah bin Hanjalah reported that the Messenger of Allah said, ‘A Dirham of usury that a man consumes with knowledge is greater then thirty six fornications’. (Ahmad)
Abu Musa reported that Messenger of Allah said, ‘Verily the greatest sin with which a man will meet Allah after the great sins prohibited by Him is his debt outstanding at death but leaving nothing for its payment. (Abu Dawood)
Abu Huraira reported that Messenger of Allah said, ‘Whoever takes loan with the intention of paying it back, Allah gives him means to pay it back and whoever takes loan with the intention of destroying it Allah will destroy him on its account (Bukhari)

These ahadith unambiguously highlight the Islamic principles about loans, which every Muslim ought to follow.

Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

THE ISLAMIC WAY OF DEALING WITH A RICH DEFAULTER

Assalam oalaikum,


In many cases we find that though the debtor may have the means of paying back a loan but he deliberately delays the payment or tries to avoid it.
The following ahadith serve the purpose of guiding such people:

Sayyiduna Abu Hurairah (ra) narrates the Prophet Mohammad (saw) said, ’Delay in payment on the part of a rich man is oppression/injustice’. (Sahih-al-Bukhari, # 2400)
Imam–al-Bukhari (ra) narrates that it is mentioned that Prophet Mohammad (saw) said, ‘Any delay in the payment on the part of a person who has the means opens the way for his punishment and disrepute’. (Sahih-al-Bukhari-# 5/78).
Abdullah-bin-Amr reported that the Apostle of Allah said, ‘Every sin of a martyr shall be forgiven, except debt.’ (Muslim)
Abu Hurairah narrated that Allah’s Apostle said, ‘The soul of the believer keeps hanging with his debt till it is paid’. (Ahmad, Tirmizi, Ibn Majah)

So we find that a person who affords to pay back his loan but abstains from doing so is liable to punishment and disrepute. However, his punishment depends of a court ruling and it does not imply being physically abused by the lender. The second penalty for such a rich defaulter is of disrepute. Definitely, the lender has the right to speak to such a rich defaulter is a harsh way. Besides this, the defaulter is also likely to face ignominy in the society due to his misdeed.
In the light of many ahadith, the Islamic scholars have permitted the creditor to confiscate the items of the loan defaulter and give them back when he returns the principal amount. The creditor is also permitted to sell an item and recover his loan amount from it. The above mentioned fatwas can be found in Imdad-al-fatwa, 3/446, Fatwa Mahumudiyya, 12/282 and Ahsan-al-fatwa, 7/174
However, the two points which should be kept in one’s mind while trying to retrieve one’s loan from a rich defaulter is that:
One should not transgress the Shariah injunctions
On should not break the law of the land also by doing unlawful things such as breaking into the house of the defaulter and confiscating his items or by physically assaulting him.


Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

GUIDELINES ON ISLAMIC LOANS


Assalam oalaikum,

In this post I shall discuss about the general guidelines on loans (based on the Shariah injunctions) which should be followed by every practicing Muslim to appease Allah (swt):

Prior to the distribution of the property of the deceased amongst his legal heirs, his unpaid loans have to be cleared.
 A loan should be taken with a niyaah of returning it. There is a hadith regarding this. Prophet Mohammad (saw) said ‘Whoever takes a loan without an intention of returning it, is a thief’. (Ibn Majah)
A person who is unable to repay a loan is entitled to get zakat for clearing his debt. Verse 9:60 of the Holy Quran states that the debtors are eligible for receiving zakat.
 Verse 2:282 of the Holy Quran deals with the topic of loans at length. Since oral agreements regarding to loans can lead to disputes, Quran has made it obligatory on the debtor as well as the creditor to have the contract written in the presence of two witnesses. The conditions of the loans should also be settled by both the parties. The debtor should dictate the conditions to a scribe. In case the debtor is a minor or is insane then his guardian should dictate it. If the loan is given during a journey and a scribe is not available, the borrower should part with some of his property to the lender as a pledge. The scribe and the two witnesses are expected to be fair in writing the contract and in giving witness. On the other hand the borrower and the lender are expected not to harm them in any way. Islam greatly emphasizes on writing down the loan agreement.
After going through the principles of loan in Islam we find that Islam has dealt with this issue in a way that entails justice, mercy, brotherhood, equality.

Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

ISLAMIC WAY OF DEALING WITH A POOR DEFAULTER


Assalam oalaikum,

As far as dealing with a poor defaulter is concerned Islam does not encourage in burdening him with interest on the loan amount or in oppressing him in any other way. On the contrary, the Holy Quran encourages the creditor to postpone the date of payment till a time when the debtor is in a position to pay back the loan. If the debtor’s financial condition shows no sign of improvement then the creditor is expected to be benevolent enough to forgive the loan as an act of charity. Here are a few ahadith which prove that though forgiving a loan may seem to be a foolish mistake to some but in reality, it is a noble deed by which one can earn Allah (swt)’s goodwill.

*Sayyiduna Abu Huraira (ra) narrated that Prophet Mohamamd (saw) said: “Whosoever gives respite to a borrower who is in difficulty or forgives him altogether, Allah most high will give him refuge under the shadow of His Throne on the day when there will be no other shadow”. (Sunan Tirmidhi # 1306)

*Sayyiduna Abdullah Ibn Umar (ra) narrates that Prophet Mohammad (saw) said: “Whoever desires to be saved by Allah from the torments of the Day of Resurrection should give respite to the bankrupt (borrower) or forgive (his debt). (Sahih Muslim # 1563)

* Sayyiduna Abdullah Ibn Umar (ra) narrates that Prophet Mohammad (saw) said: “Whosoever wishes that his prayers be answered and his misfortunes be lifted, he should give respite to an insolvent debtor. (Musnad of Imam Ahmad, # 4735)

Islam also allows the lender to demand money from a bankrupt defaulter if he wishes to do so. The lender can keep an eye on the debtor and can keep asking for the loan amount persistently. However, if the lender gives respite to the debtor or if he forgives the loan then he would be showing high moral principles which deserve great rewards from Allah (swt) in this life and in the one hereafter.

After analyzing the above mentioned ahadith we can conclude that it depends on the lender whether he wishes to earn Allah (swt)’s goodwill by showing mercy towards the poor, bankrupt debtor or not.

Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

WHY DOES ISLAM PROHIBIT RIBA ON LOANS


Assalam oalaikum,

Islam prohibits a lot of customs and practices for some very solid reasons and riba is one of them. In fact, riba is said to be one of the practices which have been prohibited by the Holy Quran in the strictest way.

According to Islam, riba is an unearned or effortless profit. Islam had put an end to this unjust practice which was prevalent in the period of Jahilliyah. Christianity and Judaism are also averse to this practice. Besides these monotheistic religions the Greek philosophers such as Pluto and Aristotle also spoke against interest. Their doctrine was that a piece of money could not create another and they loathed interest as being an unjust practice.

Gradually, the modern economists started presenting arguments to justify the concept of interest by showing that Bible’s condemnation of interest is not applicable to a modern economy.
There is not a single theory of interest amongst the economists which can explain convincingly the origin and cause of the practice of interest.

The reputed Western economist Roy Harrod had stated in his popular book ‘Towards a Dynamics Economics’ that the capitalism can be saved from doom only by abolition of interest. According to him an interest-free society would be an absolutely new type of society.
If we delve deeper into the topic of riba, we find that riba can adversely affect the society in 3 ways: financial, moral and social.
In my next posts, I shall discuss about the social, the economic and the moral evil of riba.

Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

ECONOMIC EVILS OF RIBA


Assalam oalaikum,

Reported Hazrat Abu Hurairah (ra) that the Messenger of Allah (saw) said, ‘On the night I was taken to the heavens I came across some people. Their stomachs were like houses wherein there were serpents which could be seen from the front of the stomach. I asked Gabriel, ‘Who are these people’? He replied, ‘These are the people who devoured usury’. (Amed Ibn Majah)

The Quranic verses and the ahadith have strongly condemned riba because of the evil role it plays in the socio-economic life, besides bringing about moral decadence in the society.
Here is how riba creates a chaotic situation in an economy:
The earning of effortless profit by the people is a form of economic exploitation.
People lose the motivation to work hard because of riba. Earning money through riba can make a person disinterested in business, agriculture, construction etc which hampers the progress of the society, by and large.
Interest rates can decrease investments because interest is also believed to be a cost of production. Therefore, the prices of the goods need to be adjusted according to it. This affects the consumers because of the higher prices of commodities.
Interest rates can trigger unemployment and inflation because when the rate of interest is high the cost of production increases as well. This leads to a decline in investment, shutting down of manufacturing units and retrenchment of employees to reduce costs. On the other hand, low costs of interest induce capital intensive techniques of manufacturing which leads to technical unemployment because the machinery replaces labor.
Interest has a tendency to de-stabilize an economy because of its unpredictable fluctuations. The high degree of interest rate fluctuations can alter the investment decisions of the businessmen.
The eminent economist Martin Weitzman has suggested that the best policy of dealing with inflation and unemployment is profit sharing and not interest. Islam encourages Muslims to share profit and risk money in trade instead of becoming creditor.

There is a misconception that the profit-sharing system will not turn out to be as lucrative for the financers as the conventional interest based system. However, the profit and loss sharing system definitely has an edge over the interest- based system in the following ways:
In profit-sharing based system the trouble of risks on the capitalists has been reduced considerably which induces them to undertake high risk projects that are linked to high profitability.
Profit-sharing system stimulates a sense of responsibility which leads to efficient use if resources and high profits.

The riba/interest-based system also leads to concentration of wealth in the hands of some industrialists who take loans from the banks and earn massive profits. They pay only a small portion to the depositors via the banking system.
Therefore, though the capitalist economies may try hard to institutionalize interest, but the truth remains that this system is full of flaws and short-comings as compared to the riba-free economy propagated by Islam.


Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com

SOCIAL AND MORAL EVILS OF RIBA


Assalam oalaikum,

Islam has directly or indirectly forbidden all the practices that entail riba/ususry, uncertainty or gambling because such practices lead to hordes of evil in the society.
I have discussed about the economic evils of riba in my previous post. In this post I shall discuss about its social and moral evils.

The concentration of wealth in the capitalist interest-based economies is in the hands of a few industrialists who can borrow huge amounts from the banks and then make exorbitant profits. This transfers the wealth of the depositors, many of who are underprivileged, to the well- established industrialists. The consequent inequality of income leads to social inequalities such as lack of opportunities to the underprivileged.

In the interest-based system, similar interest rates are charged from the people belonging to different socio-economic strata, which is quite indiscriminate and socially unjust. For instance, a needy person, who may require a loan for the treatment of his family member or education of his children, may also have to pay as much interest as would an industrialist who may be stinking rich.

The unjust system of interest erodes the moral fabric of a society. The high ideals of mutual co-operation, brotherhood, unity, philanthropy and compassion get replaced by cut-throat business strategies, unfair competition, conflicts and greed.
 
So we find from the above discussion that the concept of riba is evil because it is based on greed and exploitation instead of humanity and morality. Even from the practical viewpoint it has been found that the riba-free Islamic society, based on profit-loss sharing, can be more innovative, financially stabilizing, ethical and just.


Keep Me In Your Prayers.
Amel Soname
Amel_soname@yahoo.com