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Difference between devaluation and depreciation

Answered according to Hanafi Fiqh by Askimam.org

Assalam-u-Alaikum Wa Rehmatullahi Wa Barakatuhu,

The world we live in has brought in some interesting ideas. Devaluation of currency is one such. In practice, £100 lent today won’t have buying power of £100 a year from now. In principle, how is this devaluation different from depreciation of something (e.g. house) on rent? It seems unjust on lender’s part.

Wassalam

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We do not understand your analogy of the devaluation of £100 loan on the depreciation of a house on rent.

In any case, a loan is different from a hired item.

In the case of a loan, the lender is offering his assistance and in the case of renting, the lessor conducts a contract in exchange of the usufruct of the house.

A house can be leased but money cannot be leased.

Furthermore, a lender does not have to suffer the devaluation of his money.

He can choose not to lend his money or seek repayment before devaluation of the money.

If he fears the creditors will not pay timeously, and that will lead to the devaluation of his money, he can choose not to lend his money or put a sound and timeous repayment mechanism in place.

Alternatively, he may enter into a Shariah compliant partnership such as Mudharabah or Musharakah to earn profit on his money to overcome the devaluation of his money.[1]

The lender has many ways to overcome the devaluation of his money.[2]

And Allah Ta’āla Knows Best

Saad Haque

Student Darul Iftaa
New Jersey, USA 

Checked and Approved by,
Mufti Ebrahim Desai.

____


[1] An Introduction to Islamic Finance by Mufti Taqi Usmani P. 19

[2] اسلام اور جديد معيشت وتجارت ص١٣٤-١٣٩

This answer was collected from Askimam.org, which is operated under the supervision of Mufti Ebrahim Desai from South Africa.

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