I work for an institution that gives loans to staff members. For example, a staff member is given 1000JDs and is required to repay that exact amount. However, before he is given that amount he pays 40JDs as service and fee allowance. What is the ruling of Sharia on this?
All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
It is permissible to charge loan service fees-paper work and salaries of employees following up repayment of loans-on the borrower provided that this amount is equal to the actual service fees of the loan, without the slightest increase. This is in compliance with the view of the Hanafi scholars who stated that the borrower covers the service fees of the loan. Moreover, Resolution No. 13(3/1) of the Islamic Fiqh Academy states: "First: It is permissible to charge loan service fees on the borrower provided that they are equal to the actual expenses. Second: Every addition to the actual cost of the loan`s service fees is usury."
In addition, this was also deemed permissible by Resolution No. (72) of the Jordan Board of Iftaa`. And Allah the Almighty knows best.