Interest-Based Loans to Start a Business

Answered according to Hanafi Fiqh by Daruliftaa.com

I know someone who is actually well off in terms of financial situation; he is an accountant and has his own business, Accounting Service Company. He has his own house (although bought both properties from loan) but presently he is fine. However, still taking UK interest based loans for more and more properties and other businesses such as Caring homes or rented properties. I have confronted with him arguing that it is impermissible, which he also admits. Nevertheless, he is the viewpoint that all businesses are based on loans initially before they progress. He also says, he earns the money by hard working, which he indeed does. Otherwise, he is well respected and is a Haji.

Could you please inform me your viewpoint regarding his situation? Also, what you think what one should do in such a situation? I know that interest in not permissible at all but I would like to know your views regarding this specific situation where one is taking interest for more and more businesses and has nearly half a million or more Pounds of loan to pay off. Please also quote hadith or references of scholars regarding this.

ANSWER

In the name of Allah, Most Compassionate, Most Merciful,

As is common knowledge, interest-based transactions and the taking or giving of loans on interest is completely, decisively and categorically forbidden (haram) in Islam, hence there can be no justification for it. The evidences for its prohibition and sternness are clear and well-known in the Qur’an and Sunnah. To reject the prohibition of Riba is considered disbelief (kufr) and to be involved in it a major sin.

Explain to your friend that taking of loans on interest is a major sin, regardless of whether the loan is to start a business or otherwise. He must look for permitted alternatives in order to initiate his business, for which he may refer to some Islamic banks or financial institutions.

It should be remembered here, however, that if one initiated a business by taking interest-based loans, and gained profit on lawful (halal) business, the profit earned would be Halal, although the act of taking interest-based loans was unlawful.

Your friend says that he earns the money by working hard, hence if his business is lawful, the money and income gained will be lawful (halal) even if the business was initiated with an interest based loan. However, he must repent to Allah Most High and abstain at once from taking further loans on interest. May Allah guide us all, Ameen.

And Allah knows best

[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK

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