Resolution No.(196)(5/2014) by the Board of Iftaa`, Research and Islamic Studies:
"The Permissibility of Levying Administrative Fees for the Loans Taken from the Governorates Development Fund"
Date: 17/Rabee` Al-Awal/1435 AH, corresponding to 17/2/2014.
All perfect praise is due to Allah, The Lord of The Worlds; and may His peace and blessings be upon our Prophet Mohammad and upon all his family and companions:
On the above date, the Board reviewed the letter of the Jordan Enterprise Development Corporation, which reads as follows:
The Governorates Development Fund offers financing through an interest-free loan (Hassan), up to (70%) from the overall cost of the enterprise. The loanee is required to repay in installments over a period of eight years, including a two-year grace period. This is in order to re-use that same amount for financing new enterprises to benefit as many individuals as possible. Moreover, up to (10%) of the enterprise`s profit is deducted in case a profit was produced so as to protect the capital of the Fund to guarantee its continuity, because it is usually used for re-loaning, and no profits are redistributed, or given back to the government. In case of loss, the installments of the interest-free loan are to be repaid, without adding any interest, or profit, and it is possible to delay repayment if the loanee is in a hard up and after examining the reasons for his loss. Based on the afore-said, what is the ruling of Sharia as regards this financing mechanism adopted by the Jordan Enterprise Development Corporation?
After researching and deliberating, the Board decided what follows:
Offering loans to owners of small businesses is an accepted act of charity. It achieves comprehensive development, uproots poverty, increases individual productivity, and helps develop the areas where these enterprises are established.
Therefore, the financing mechanism adopted in the above question is an instance of clear Riba (usury) which has been prohibited by Allah, The Almighty, and His Messenger. It is impermissible for the above Fund to receive a percentage from the profits of the enterprises it finances. However, it is permissible to calculate the actual costs of offering these loans and collecting them, such as salaries of employees, paperwork, rent.. etc. but without the smallest addition, and this could be achieved through imposing a fixed amount of administrative fees. These shouldn`t be tied with the loan`s repayment period, or the enterprise`s profit; rather, they should be tied with the costs necessary for securing the continuity of the Fund, without making any profit by the loaning party. In fact, the Jordan Iftaa` Department, the accredited Fiqh assemblies, and the religious institutions have issued many Facosststwas that permit charging the loanee for the administrative fees of the loan since we believe that it is the most suitable solution from the perspective of Islamic Sharia. We pray that Allah, The Exalted, Favors us and the Fund`s administrative board with success in serving the community and that their business remains within the boundaries of what is lawful. And Allah Knows Best.
Chairman of the Iftaa` Board, The Mufti General of the Hashemite Kingdom of Jordan, His Grace Sheikh Abdulkareem Al-Khasawneh.
Prof. Hayel Abdulhafeez/ Member
Dr. Yahia Al-Botoosh/ Member
His Eminence, Sheikh Sa`ied Hijjawi/ Member
Prof. Mohammad Al-Qudat/ Member
Prof. Abduln`nassir Abu Al Bass`al/ Member
Dr. Mohammad Al-Khalayleh/ Member
Dr. Mohammad Al-Zou`bi/ Member
Dr.Wasif Al-Bak`kri/ Member
Dr. Mohammad Khair Al-Esa