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Loan in Islam

The term loan means to extent money to other. This money is giving to the other party when asked to fulfill some urgent need. Loan describes the lending party i.e. the one who gives. Islam has never restricted people to extent financial help to others in form of charity or loans.


But surely there are some important aspects covered in shairah to ensure the lending party the safety of its investment. Otherwise in case of default, lending parties mostly suffer great financial loss and in the pre Islamic era, people used to turn away from their words at the time of the payment of the loans. Thus ALLAH swt set a rule for them and for all of us in case of lending and borrowing money.

Al-Quran 2:282
“Oh you who believe! When you contract a debt for a fixed term, reduce it to writing. Let a scribe record the terms in a fair manner. The scribe whom Allah has taught to write should not refuse to write. He should record (the transaction). The one who incurs the debt should spell out the terms. He should fear Allah and not omit anything. If the borrower lacks understanding, or is feeble (minded), or is otherwise unable to dictate, then his guardian should dictate (the conditions of the loan) in a fair manner. Call upon two of your men to act as witnesses (to the contract). Should two men not be available (to act as witnesses), then take one man and two women _ if one of them errs, the other would remind her _ that are acceptable to you as witnesses. The witnesses should not refuse if called upon to testify. Do not neglect to write down (all) the (specific) terms (and provisions) of the contract, be they small or big. That, according to Allah is a more reliable evidence, and more likely to dispel doubts (and suspicions). You bear no sin if you fail to record the on-the-spot exchange of goods for cash, that goes on between you (all the time). But, take witnesses when you enter into a commercial contract. Do not harass or harm the scribe or the witnesses. It would be wicked and immoral for you to do so. Fear Allah! (Of course) Allah teaches you (righteousness). Allah has full knowledge of every single thing!”

Both parties have to sign a legal contract with conditions so that at the time of repayment of loan, no excuses can be made and no other claim can be made by any party. ALLAH swt has set a clear cut rule for the lender and the borrower. In this way nobody can claim anything extra for himself.

Those who are witness will have the copy of the contract and the both parties too will have the copy. In this way even if satan struck the mind of one or two, not everyone will be effected by satan. The signing of loan means that everybody should understand that the prime witness is ALLAH over their deal and that they should not try to transgress.

When we give others anything in charity or anything in loan but being fearful of Him, we should know that ALLAH does not forget the pious and good people. He will multiply everything that we do in good intentions.

ALLAH swt says in Quran 2:245
“Who is he that will loan to God a beautiful loan, which God will double unto his credit and multiply many times? It is God that giveth (you) Want or plenty, and to Him shall be your return.”

We should fear ALLAH we should be fair in dealing in every matter because above all, the one who witnesses everything is ALLAH swt and HIS judgment and His decisions are never wrong.
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