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The value of the currency has changed, how can the loan be repaid?

 

Praise
be to Allah

What is required
of one who takes a loan from another person in a particular currency is to
return it in the same currency, and not pay its value in another currency at
the time of taking the loan. In fact, it is not permissible to mention in
the contract that repayment will be in a different currency from that in
which the loan was taken. So it is not permissible – for example – for one
man to take a loan from another in Saudi riyals, and work out its value at
the time of taking the loan, then repay it in Egyptian pounds. But it is
permissible to pay the difference between the two currencies if the borrower
agrees to that, without obliging him to do that. This is stated in the
fatwas of fiqh councils and as been stated by many well-versed scholars.

(a)

In statement no.
42 (4/5) regarding changes in the value of currency, the session of the
Islamic Fiqh Council that was held during its fifth conference in Kuwait,
1-6 Jumaada al-Oola 1409 AH/10-15 December 1988 CE, said:

After studying
the papers submitted by members and experts on the topic of changes in the
value of currency, and listening to the discussion that took place on this
topic, and after studying the Council’s statement no. 21 (9/3) from its
third session, noting that paper currency is fiat money [currency without
intrinsic value that has been established as money] in terms of which things
may be valued, and that it comes under the same rulings as gold and silver
with regard to riba, zakaah, salam transactions (where payment is made in
advance) and so on, the Council has determined the following:

What matters
when paying off loans that were given in a particular currency is paying
back in the currency and paying the same amount, and not paying its value
(in a different currency) because loans are to be repaid in the same form as
they were given, so it is not permissible to connect debts that one has to
pay, no matter what form they took, to the value of whatever was borrowed.


Majallat
al-Majma‘

(issue no. 5, volume 3, p. 1609).

Shaykh ‘Abd
al-‘Azeez ibn Baaz (may Allah have mercy on him) was asked:

A brother in
faith gave me a “goodly loan” (i.e., an interest-free loan) of two thousand
Tunisian dinars, and we wrote a contract to that effect in which we stated
the value of that sum in German currency. After the loan period – which was
one year – ended, the price of the German currency rose, so if I pay him
what we mentioned in the contract, I would have to give him three hundred
more Tunisian dinars than I borrowed. Is it permissible for my lender to
take this extra amount, or is it regarded as riba? Especially since he wants
me to pay in German currency so that he can buy a car from Germany.

He replied:

The lender of a
“goodly loan” is not entitled to anything except the amount he loaned to
you, which was two thousand Tunisian dinars, unless you are happy to give
him more, and that is fine, because the Prophet (blessings and peace of
Allah be upon him) said: “ The best of people are those who are best in
paying off debts.” Narrated by Muslim in his Saheeh; it was narrated
by al-Bukhaari as follows: “Among the best of people are those who are best
in paying off debts.”

With regard to
the contract mentioned, it is invalid and not binding, because it is not in
accordance with Islamic teachings. The Islamic texts indicate that it is not
permissible to sell a loan at the time of paying off the debt except for the
same amount as was borrowed, unless the borrower agrees to give something
extra by way of kindness and reward to the lender, because of the saheeh
hadith mentioned above. End quote.


Fataawa
Islamiyyah

(2/414).

Shaykh Ibn
‘Uthaymeen (may Allah have mercy on him) said in response to a similar
question:

What he should
do is return to you what you loaned him in dollars, because this is the loan
that you gave him. However, if you both agreed that he would pay you in
Egyptian pounds, then there is nothing wrong with that. Ibn ‘Umar (may Allah
be pleased with him) said: We used to sell camels for dirhams and take
dinars instead, we would sell for dinars and take dirhams instead. The
Prophet (blessings and peace of Allah be upon him) said: “There is nothing
wrong with you taking one instead of the other, provided that it is based on
that day’s exchange rate, and you do not part with anything outstanding
between you.” This is like selling one currency for a different currency,
and it is very similar to selling gold for silver. So if you and he agreed
that he will give you Egyptian pounds instead of dollars, provided that you
do not take more Egyptian pounds than whatever was the value at the time of
payment when you decided to change the currency, then there is nothing wrong
with that. For example, if 2000 dollars is now equal to 2800 pounds, it is
not permissible for you to take 3000 pounds, but it is permissible for you
to take 2800 pounds, and it is permissible for you to take two thousand
dollars from him and no more. In other words, you can take according to the
day’s price or less, but not more. But if you take less, then this means
that you have taken some of your due and have let him off with regard to the
rest, and there is nothing wrong with that. End quote.


Fataawa
Islamiyyah

(2/414, 415)

If one of the
two parties does not adhere to this ruling, then he will be taking the
difference between the two currencies unlawfully, and this is one of the
things that are prohibited according to the verse in which Allah, may He be
exalted, says (interpretation of the meaning):


“O
you who have believed, do not consume one another’s wealth unjustly but only
[in lawful] business by mutual consent. And do not kill yourselves [or one
another]. Indeed, Allah is to you ever Merciful”


[an-Nisaa’ 4:29]
.

And Allah knows
best.