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:
In the case when public and private companies, deemed sources of income for their owners and employees, have accumulated debts and are incapable of making repayments in due time and most likely this would lead them to serious financial complications, bankruptcy, being unable to pay staff their wages despite adopting a wise spending strategy, or being unable to manage and keep the companies despite limiting their expenses, the companies are facing necessity that justifies availing of conventional loans.
In responding to this question, the European Council for Fatwa and Research (ECFR), states:
First: There is no doubt that interest is forbidden, a devastating sin that incurs economic harm. That is why in the time of economic crisis or recession, most countries reduce their interest rate and sometimes they give zero interest loans. There are so many Islamic evidences in this regard.
Second: The answer to the above-raised question is divided into the following:
The first case
Muslim businessmen cooperate with one another by giving each other interest free loans or avail of Islamic finance that generates limited profits.
We are appealing to Muslim businesspersons to support and cooperate with one another. Allah says: “Help you one another in righteousness and piety, but help ye not one another in sin and rancor.” (Al-Maidah 5:2)
The Prophet Muhammad (peace be upon him) says: “When the Ash’ariyun run short of food in the Jihad or when they are at home in Al-Madinah, they collect all the provisions they have in a sheet and then divide it equally among themselves. They are of me and I am of them.” (Agreed upon)
This is the first need in light of the worldwide difficult circumstances.
The second case
If the states give interest free loans, then it is good and Muslim companies should avail of them. The same case applies if the states give interest free wages and salaries.
The third case
In the case when the states or the banks give interest free loans for the first year, but levy interest in the second year and a higher rate of interest in the third year, there is no harm in taking loans for one year, while being determined to repay them before interest is charged. This is permissible since interest is not stipulated for the first year.
However, due to such urgent circumstances, if interest or a fine for delay is stipulated and the debtors fulfil their commitments in a way that does not involve extra payment, there is not harming in taking the loans.
The fourth case
In the case when the central bank instructs banks to give institutions and companies interest free loans in order to reinforce economy, minimize unemployment and protect companies against bankruptcy, but the states charge 0.25% for guaranteeing and management, it is permissible to take these loans since this interest is not charged for the loan and is not between the debtor and the creditor.
This small percentage is a charge for management and the warrantee letters. The rate of 0.25% and up to .080% is seen as equivalent to management fees by the scholars who permit this level of interest.
In this case, there are three parties, namely the creditor i.e. the banks, the debtor and there is no interest between them, and the third party is the guarantor i.e. the state that collects a small percentage as a charge and a reflection of seriousness. In this case, the loans are permissible.
The fifth case
Due to the general pandemic COVID-19, is it permissible to take conventional loans that incur interest?
Usury is forbidden in all cases except in the time of necessities recognized by Islam. This refers to individuals in their personal capacity as well as their spiritual capacity. When companies big, medium and small, where employees and laborers work, reach a position where most likely they will suffer bankruptcy as stated by experts or reflected by the market, bankruptcy in this case refers to the death of the individuals in their spiritual capacity.
Confirmed fear for people’s full and partial destruction and the full or partial destruction of their honor is considered one of the necessities that justify prohibitions. The same rule applies to people in their spiritual capacities recognized by the state, laws and Fiqh academies.
Based on the above-mentioned argument, in the case when public and private companies, deemed sources of income for their owners and employees, have accumulated debts and are incapable of making repayments in due time and most likely this would lead them to serious financial complications, bankruptcy, being unable to pay staff their wages despite adopting a wise spending strategy, or being unable to manage and keep the companies despite limiting their expenses, the companies are facing necessity that justifies availing of conventional loans in the following conditions:
1- The companies should have no cash or any other means such as selling some assets e.g. shares, bonds, debentures (even if prohibited), etc. If it is a private company, then also the owners should not have enough cash or any other permissible means to fund the company e.g. increasing the capital.
2- The unavailability of Islamic financial institutions or others that provide Islamic permissible funds with suitable profits.
3- That the bankruptcy has repercussions on the owners of the company and its staff whether it is a public or a private company. If it is a small company the bankruptcy of which has no repercussion, it is not permissible to take conventional loans.
4- Since this permissibility is given due to the necessity, it is worth mentioning that necessity justifies prohibitions within its limits. Allah says: “But if one is forced by necessity, without willful disobedience, nor transgressing due limits,- then is he guiltless.” (Al-Baqarah 2:173)
“Nor transgressing due limits” means not exceeding the limits required for life. Hence, the companies can take loans within the limits of their needs only.
? Read Also: Securing Sources of Credit Without Interest: Possible?
The ECFR urges Muslims to be dutiful to Allah, cooperate with one another and shun the prohibited actions and particularly usury the condemnation of which Allah stresses. Allah says: “Those who devour usury will not stand except as stand one whom the Evil one by his touch Hath driven to madness. That is because they say: “Trade is like usury,” but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (The offence) are companions of the Fire: They will abide therein (forever). Allah will deprive usury of all blessing, but will give increase for deeds of charity: For He loveth not creatures ungrateful and wicked.” (Al-Baqarah 2:275-276)
Almighty Allah knows best.
Source: https://www.e-cfr.org/