Home » Hanafi Fiqh » Jamia Binoria » What is the Islamic stance on taking loans from the government?

What is the Islamic stance on taking loans from the government?

Answered as per Hanafi Fiqh by Jamia Binoria
Nowadays the government is giving loans on 5% markup rate. Is this permissible? Due to lock-down I have been laid off from my job, so can I take a loan and do business with it or build a house? Also, is prize bond Halal or not? Meaning, does it causes one to lose his Imam? Please reply as soon as possible and guide us.

الجواب حامدا و مصلیا

Even though the markup rate is only 5%, it is still not permissible to take this loan from the government and do business with it. The questioner should take a loan from any other person or institute in which there is no interest to start his business, and Insha Allah there will also be blessing in his business. As for the Prize Bond scheme, nothing is purchased or sold in it. In fact, the money given for this scheme is in reality a loan given to the government, and the profit received from it is interest.
How this scheme works is that the government doesn’t promise to give interest on the loan that was given by every bond holder, but rather, they announce to them that they will divide the prize amongst only them, and if the contrary occurs, then they can demand the government to do so, even by means of the court. It can also be understood from the brief explanation that prize bond is an amount given to the government as a loan but no time is stipulated for returning this loan. They can return it whenever they want.
Furthermore, it should also be understood that whatever is prize is achieved by bond holders is only achieved due to this loan, and is also stipulated by the bond holders. However, according to the light and teachings of Ahadith, anything stipulated for a loan is undoubtedly impermissible and it is deemed as interest, and taking it or making use of it is not permissible and Haram. One can only accept the exact amount he has given for the bond and nothing more. If someone has already received any amount as a prize from his bond, then he must apply for another bond equivalent to the prize he has received and get rid of it by any means (e.g. burning it or tearing it up etc.) so that the amount that has been received in interest as a prize will be returned to the government. This is because the ruling of this amount is that it should be returned to its original owner, and if it is difficult to return it to its original owner, then it should be given to one who is eligible for Zakat without the intention of the attaining rewards.
And Allah knows best.

This Q&A was indexed from the official english fatwa portal of Jamia Binoria. It is an Islamic educational institute in Karachi, Pakistan.

Read answers with similar topics: