Ruling on Charging Extra Amount on Loan to be Given to Charity

Answered according to Shafi'i Fiqh by Darul Iftaa Jordan
A certain organization works on developing villages and small enterprises through giving small loans to villagers. A borrower is given (2500 JDs) to be paid back over a certain period, but he/she must pay (75 JDs) as loan fees, which will be spent on village affairs. What is the ruling of Sharia on this?

Praise be to Allah the Lord of the Worlds.

From the perspective of Islamic Sharia, a loan isn`t a commutative contract. Rather, it is a means of facilitation for the borrower. Therefore, it is religiously unlawful to charge an extra amount on a loan because that is Riba (Usury/interest). Ibn Qhodamah (May Allah have mercy on him) said, "According to scholarly consensus, every loan in which an extra amount is stipulated is forbidden." Ibn Al-Monther said, "Scholars are agreed that if the lender stipulated an extra amount or a gift against the loan then that is Riba."{Al-Moghni, 4/240}. However, if that extra amount was charged against the actual expenses and fees of the loan itself then that is permissible; provided that it is real and equal to the actual cost.

However, scholar are of the view that giving the loan fees to charity doesn`t justify charging them in the first place. Al-Hattab, a Maliki scholar, stated, "The loan which yields a benefit to other than the borrower is forbidden, whether it yields benefit to the lender or someone else."{Mawahib Al-Jaleel, 4/546}.

In conclusion, if the loan fees charged by the above organization are equal to their actual cost, then that is permissible and the lender has the right to spend them as he/she sees fit, but other than that is forbidden. And Allah the almighty knows best.

This answer was collected from the official government Iftaa Department of Jordan.

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