Date : 14-12-2023

Question :

We are a charitable organization that was requested by one of the Islamic institutions to offer zero-interest loans. Based on this, we receive a sum of money with the condition that it is provided as revolving zero-interest loans to the beneficiaries and trainees from the organization. A 2% deduction is made from the borrowing beneficiary for the lending organization, and the beneficiary receives the amount with a 2% deduction (as a service fee for the lending organization). The beneficiary is required to repay the full amount along with the 2% discount. Is it permissible to compel the borrower to pay the amount along with the total loan value, unrecoverable to the lending organization, in lieu of services, considering that the 2% will be allocated to the organization`s general expenses: employee salaries, water, electricity, internet? What is the ruling of Sharia on this?

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.

It is permissible to charge the borrower the costs of the loan related to administrative matters, salaries of employees assigned to monitor loan repayment, and similar expenses, provided that the amount paid is equal to the actual direct cost of loan services and without any added profit. This is in accordance with the opinion of the Hanafi jurists who stipulated charging the borrower a fee for the documentation of the debt. However, this is subject to the following conditions:

1-The fees should be purely administrative, without any added profit benefiting the administration or institution.

2-They must be calculated precisely, not estimated.

3-The fees should cover the expenses of employees and staff involved in the affairs of these loans only. If an employee is assigned multiple tasks, including handling these loans, their salary should not be included in the administrative fees.

4-The fees should not include the costs of the facility and furniture used by the institution for its other transactions in addition to loan transactions.

5-The process of calculating administrative costs should be clearly defined under the supervision of the Sharia committee.

In conclusion, if the lending institution or supervising authority adheres to these conditions, there is no objection to it; otherwise, it would be considered impermissible usury. For further details, refer to fatwa number (3073). And Allah the Almighty knows best.