Rules regarding debt or loan
To give loan to Momineen, particularly the needy ones, is Mustahab, on which great stress 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.
2282. Whenever a debtor pays his debt, the creditor should accept it. But if the time for repayment had been fixed at the request of the creditor, or by mutual understanding, then in this case, the creditor can refuse to accept the repayment before the termination of time.
2283. If a period is fixed for the repayment of debt in the formal contract of debt by the debtor, or by mutual agreement, the creditor cannot claim repayment of the debt before the expiry of that period. But if it was stipulated by the creditor, or 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, he should take up a suitable employment if he can, and pay off his debt. This is an obligatory precaution. Especially, if employment for him is easy, or if it has been his vocation, 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 or his heirs, he should pay the amount he owes to poor on behalf of
the creditor. And as a precaution, he should obtain permission for it from the
Mujtahid. And if his creditor is not a Sayyid, the recommended precaution is
that he should not give the sum he owes to a poor who is a Sayyid.
But if he hopes to find his creditor or the heirs, he should wait and search for him. And if he does not succeed, he should make a Will stating that if he died, and if the creditor or the heirs appear, they should be paid from his estate.
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 utilised for these purposes and his heir will not inherit anything.
2289. If a person takes a quantity of gold and silver 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, the recommended precaution is that 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 rupee 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.
However, if a person takes a loan against interest, he becomes its owner, although
it is better that he should not exercise his right of disposal over it.
And if it is known that the creditor would have allowed him the use of money loaned, even if they would not have agreed on interest, then the debtor can exercise his would have allowed him the use of money loaned, even if they would not have agreed on interest, then the debtor can 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, he becomes the owner of the harvest, but it is better that he should not exercise his right of disposal over harvest so acquired.
2294. If a person purchases a dress, and then pays the owner of the dress with the money earned from 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. But offering prayers with that dress has been adequately explained in the rules for the clothes worn by one who wishes to pray.
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,
or town, (for example, he gives $990 to him, and stipulates that after ten days
he will take $1000 from him in another city) and if that currency is of gold
or silver, the transaction is usury which 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.
As for the usual bank notes, which is classified as things to be counted, there is no harm if something more is taken in exchange, except when it is in the form of a debt and a condition for excess is laid, in which case, it will be interest and haraam. Or, if a person sells bank notes on credit basis, for more in return, and if they belong to the same classification of commodity, it is not a permissible transaction.
2297. If a person is owed by someone, and the thing owed is not in the
category of gold, silver or anything measured or weighed, he can sell it to
the debtor or anybody else for a lesser amount and realise the sum in cash.
On this basis, in the present times, a creditor can sell the bills of exchange or the promissory notes received from the debtor, to the bank, or any other person, at a price lower than the amount due to him (which is called 'discounting' in common parlance) and can take the outstanding balance in cash, because dealings with regard to common bank notes is not by weight or measure.