Q. I have some questions that require your clarification. Firstly, regarding loans as outlined in the scenario below:
Sa’ad wants to borrow $10,000. So he approaches Khalid, who agrees to give him the amount on loan. However, the transaction was agreed like this: Sa’ad will pay back Khalid $12,000 in the course of three years. The questions are as follows:
1) Is such a transaction valid in Shariah?
2) The extra $2000 which was or will be received in three years, is this riba?
3) If this transaction was done already and it is not valid, how can it be rectified now?
A. The transaction between Sa’ad and Khaalid is faasid. The excess of $2 000 is plain riba of the worst category. They should agree to discard the excess and settle for the repayment of only the amount given on loan, i.e. $10 000.
Q. Sulaimaan wants to purchase something, for example a house. He does not have the said amount of $12,000. He approaches Zaid for a loan. Zaid is a typical person who does not want to give a loan without some form of profit. He agrees on the premise that this will be like an investment in business for him where he can get back extra after the agreed period. They agree on the amount of $13,000 which will be paid back by Sulaimaan within a period of three years.
1) Is this correct? Zaid thinks that the extra $1000 he is getting back is his investment?
2) Instead of the above agreement can Zaid who is loaning the amount, be somehow a partner in this purchase where he will be able to get a profit and this becomes his investment?
Bottom line, Mufti saheb, is that people want to purchase a home but they want to avoid banks by approaching individuals. At the same time, those who want to loan want some profit back. How do they go about doing halaal transactions?
A. In taking a loan only the loan amount has to be returned. Any excess constitutes riba. An alternative is for Zaid, for example, who wishes to buy a home, to tell Amr, who has the funds, to purchase the home and resell the home to him (Zaid) at a price inclusive of whatever profit Amr wishes to take. In this case fixed monthly instalments will be paid by Zaid to Amr.
The excess of $1 000 Zaid wishes to levy on Sulaimaan for the loan is riba. It is haraam. Zaid should purchase the house, add his profit and sell it to Sulaimaan. It is as simple as this. He just has to buy the house, not give a loan. After purchasing the house, he should sell it at a profit.