How Does Inflation Affect Loan Arrangement?

14 September, 2018

Q As-salamu `alaykum. I took a loan from a person and at the time of paying it back, we found out that the loan currency has dropped and, therefore, the debtor will incur a loss. Should I pay back the original amount or should I add the inflation rate too?

Answer

Prof. Dr. Monzer Kahf

14 September, 2018

Wa `alaykum as-Salamu wa Rahmatullahi wa Barakatuh.

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:

Though a loan should be paid back at the same currency and quantity, you can pay your debtor some more money to compensate for the loss he incurred due to inflation.

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

The principle is: a loan is paid back in the same currency and quantity it was given. Without being a condition in the contract (even verbal contract) it is good to give more at time of repayment. This is a kind of beautiful repayment.

If the deterioration of the value of the loan currency is big, an amicable reconciliation between the parties is recommended. If they do not reach it amicably, an agreed Arbitrator or Court of law may impose a fair reconciliation after studying all circumstances of the two parties and their economic environment.

Allah Almighty knows best.

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