❀ Loan Repayment and the Shar‘i Solution to Currency Depreciation ❀
Source: Ahkam wa Masail, Issues of Buying & Selling, Vol. 1, p. 356
❖ Question:
With the continuous depreciation of currency, what is the Shar‘i ruling if a person takes a loan and repays the same amount later, but its real value has decreased?
For example, if today someone lends another person 5000 rupees, which equals the price of one tola of gold, and after 10 or 20 years the price of one tola of gold becomes 10000 rupees, then repaying only 5000 rupees would equal half a tola of gold in value.
Is it permissible for the lender to demand 10000 rupees (equivalent to one tola in present value) instead of 5000?
❖ Answer:
Alhamdulillah, was-salatu was-salamu ‘ala Rasulillah, amma ba‘d!
Shar‘i ruling:
◈ The lender is entitled to receive only the original amount loaned, no matter if the currency’s value increases or decreases.
◈ Taking more than the original amount falls under riba (interest), which is strictly prohibited.
◈ The lender may, if he wishes, forgive part of the loan, but he cannot demand more.
✦ Example with Gold:
- If a person loans one tola of gold, he must receive exactly one tola back.
- If he demands more than that, it becomes riba, which is haram.
- Only husn al-qada (voluntary extra repayment by the borrower, out of goodwill) is allowed, but it cannot be a condition.
✦ Clarification on Currency Depreciation:
- If someone keeps 100 currency notes at home for a year, and their value falls by 6%, he does not suddenly get 106 notes; he must accept the loss.
- Similarly, if one has 5000 rupees at home and after a year its purchasing power decreases, he cannot demand more from anyone.
- This same principle applies to loans.
It is not always depreciation; sometimes currency gains value too.
- If prices decrease (deflation), should the borrower repay less? Clearly not.
- Example: If one tola of gold is loaned when worth 5000 rupees, and later its price doubles to 10000 rupees, the borrower still owes the lender one tola, not half a tola.
✦ Permissible Way to Avoid Currency Depreciation:
If the lender wants protection from currency fluctuations, the Shar‘i solution is:
✔ Instead of lending currency, buy gold (or silver) with that money and give it as a loan.
✔ At repayment, take the same amount of gold (or silver), regardless of price changes.
➥ This way, the lender is protected from currency devaluation.
➥ However, he remains exposed to possible loss if the value of gold decreases.
Conclusion:
- A loan must always be repaid in the same measure as taken, not adjusted to inflation.
- The lawful method of protecting against depreciation is to loan assets like gold or silver, not fiat currency.
ھذا ما عندي، والله أعلم بالصواب
