Subject : Stipulating a Benefit in Loan Contract Renders it Usurious

Fatwa Number : 2835

Date : 30-07-2013

Classified : Usury (interest) &Loans

Fatwa Type : Search Fatawaa

Question :

A financial institution has offered to grant a loan to a factory against using the machines or the expansion of the latter as collateral. By virtue of this agreement, the institution becomes a partner entitled to 25% of the profits. In case no profits were made or loss took place, the institution recovers the original amount of the loan. What is the ruling of Sharia on this contract?

The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

The form of the above transaction is similar to usurious loans and calling it "Partnership" doesn`t make it otherwise since stipulating a benefit in a loan contract makes it a contract of usury.

 Al-Imam Al-Ramli (May Allah have mercy on him) stated: " {Among the types of usury} is loan usury where a benefit is stipulated in favor of the lender." {Nehayat Al-Mohtaaj, V.3:P.424}.

In conclusion, it isn`t permissible to stipulate receiving a percentage of the profits in a loan to avoid usury.

It is recommended to change the form of the above loan contract into a partnership whereby each party becomes entitled to profits and endures loss according to its share in the capital. And Allah the Almighty knows best. 

 

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