Staff Loans: Permissible?

06 May, 2018

Q I am living in Sri Lanka which is a non-Muslim country where Muslims make up almost 8% of the total population of 22.3 million. In Sri Lanka, almost all the financial institutions are interest-based. As a Muslim minority, to accomplish our necessities sometimes we have to depend on these institutions. In my case, I am working for a government organization as an analyst programmer. My salary is not even enough for the family’s monthly expenses. But for other necessities such as to buy a house or vehicle, I need to sought the help of these banks. Moreover I don’t have enough money to invest in some halal investment that could bring some extra income for me. In our organization, we have many loan facilities which are purely for employees benefits. But these staff loan facilities are also interest-based. But these loan facilities are more convenient for us and our loan amount is directly deducted from our monthly salaries with a very low interest rate for the staff benefit. My question is whether it is lawful for me to use these staff loan facilities for our necessities.

Answer

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

In this fatwa:

1- It is clear that riba (usury) is strictly impermissible (haram) in the Islamic Shari`ah. Therefore, a good Muslim is highly recommended to avoid it with all means even though he is to bear hardships in his financial affairs.

2- There are cases of necessities where a person, for satisfying a basic need, may have to resort to interest-based borrowing. This may apply to housing in societies/communities where Islamic finance is not available or does not cover the whole market.

In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

To the best of my knowledge, there is an Islamic bank in Sri Lanka where finance for vehicles and houses is made available in Shari`ah compliance ways.

In this case, it is really difficult to claim that there is a need to resort to conventional banking.

I, therefore, understand this question as a matter of using the facility of internal loan at a lower rate and more convenient than the finance of the Islamic bank of Sri Lanka.

Accordingly, any amount of interest, small or big and at a low or high rate, is haram in the Islamic Shari`ah. The prohibition of interest in Islam is based on its being unjust not on the amount of riba or its rate.

Interest is unjust because it is not generated by the asset of the creditor which is the debt. Debts do not generate any increment and therefore any increment imposed in a debt contract is oppressive and unjustified.

Of course, I recognize that there are cases of necessities where a person, for satisfying a basic need, may have to resort to interest-based borrowing. This may apply to housing in societies/communities where Islamic finance is not available or does not cover the whole market.

Almighty Allah knows best.

Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.