Is it permissible to lend and borrow money?
Central to the wisdom of Islam is that Allah first and foremost cares for the welfare of man. He strives to ameliorate the hardships that man may encounter in life. For this, Allah grants men His Laws and Decrees. Compliance with them allows man to live a less troubled life and to earn God’s grace at the Day of Judgement. Allah has commanded Muslims to help each other. If you see a man in need, ease his suffering by providing him with a share of your own wealth, and on the Day of Judgement God will provide for you a share of His wealth too.
However, it is not always that men can afford to part for good with the money they give to their neighbours and grant the assistance freely as a gift. With this in Mind, Allah has allowed to lend money on credit. This is a virtuous deed in the eyes of the Lord and is fervently encouraged by Him.” Who is it that would loan Allah a goodly loan so He may multiply it for him many times over? And it is Allah who withholds and grants abundance, and to Him you will be returned.” (2:245) This is Allah saying to us that a loan to our neighbour is like a loan to Himself.
“A Muslim is the brother of a fellow-Muslim. He should neither commit oppression upon him nor ruin him, and he who meets the need of a brother, Allah would meet big needs, and he who relieved a Muslim from hardship Allah would relieve him from the hardships to which he would be put on the Day of Resurrection, and he who did not expose the follies of a Muslim Allah would conceal his follies on the Day of Resurrection.” (Sahih Muslim, 2580)
Giving a loan is the giver’s free will, however there are times when the provision of a loan becomes and obligation rather than a gesture of good will. This may be so when it becomes a matter of life and death for the borrower and apart from you there is no one he can count on. Yet at other times the lending of funds may be prohibited when you know for sure that these funds shall be used for evil ends. For lending and borrowing are but tools for Allah to teach people to be supportive of each other, to lead a virtuous life in which there is room for love, kindness, mercy and compliance with the laws and decrees of Allah. Therefore the easing of hardship manifested in the lending of funds must not contradict these main objectives of Allah but rather must be conducive to them.
If you want to be virtuous and just for Allah, do not make your borrower’s life hard. “Once a man died and was asked, ‘What did you use to say or do in your life time?’ He replied, ‘I was a businessman and used to give time to the rich to repay his debt and used to deduct part of the debt of the poor.’ So he was forgiven his sins.” (Sahih al-Bukhari, 2391)
The strictest prohibition is that of riba, usury. It is not allowed to claim interest on a debt. Interest is income gained without labour which is thus abhorrent to Allah.
Borrowing is also allowed by Allah because it, too, may ease the borrows plight. One must, however, observe the rules, namely, it is not allowed to borrow without the intention to return, it is not allowed to borrow money for pleasures which are not a matter of dire need, it is not allowed to cheat your lender (e.g. to believe that you are wealthier than you really are). And of course, debt repayment may not be taken lightly. This is how the Hadith narrator of old at-Tabarani related the words of the Prophet: ‘On Judgement Day Allah asked the man who failed to pay his debt: ‘Do you think that We will not claim such-and-such person’s right from you?’ His good deeds will then be taken from him and added to the good deeds of the creditor and the evil deeds of the creditor will be taken and added to the evil deeds of the debtor.’