Dealing With Debt: An Islamic Approach
‘If The Debtor Is In Difficulty, Grant Him Time Till It Is Easy For Him To Repay. But If Ye Remit It By Way Of Charity, That Is Best For You If Ye Only Knew’ (Qur’an 2:280) Debt Is An Obligation Owed By One Party (Debtor) To Another (Creditor) And Is Usually Created When A Creditor Lends Money To A Debtor.
The Islamic view is that the creditor and debtor can lend or borrow but must do so ethically and fairly. This means the creditor is not obliged to lend to the debtor but does so at his own free will. If the debtor is struggling or unable to repay then the creditor must be willing to allow more time or in the worst case write off the debt; this is the risk he takes. Of course the debtor must make every effort to repay the debt as no doubt he would be accountable in this life or the next.
Unfortunately these values have been forgotten and instead replaced with the notion that the creditor must benefit from this transaction and secure his risk and profit before lending. Should the debtor default or refuse to pay, the creditor would have a right of recovery and be able to charge for late payment. This practice is what we call usury or riba and is strictly prohibited in Islam for reasons which we will discuss further below.
If we consider some of the most leading and developed nations in todays world; UK, USA, Japan, China, Russia,
France and Germany, we will find that all these countries, regardless of their economic standing, are heavily indebted and all because of riba.
They have borrowed huge loans from the banking system with extortionate repayment terms and high interest charges which they cannot possibly repay.
As a result they have defaulted and been forced to take out further loans from the banks. Inevitably this has led to a nation in debt and enslavement for the masses. This is why today the US dollar has collapsed and the pound has lost its strength whereas the price of oil and gold has sky rocketed.
By accepting such unreasonable loans, every government has made its people pay by way of increased taxes, bills and living costs. While most economists would argue that only the principal portion of the debt should be repaid and not the interest portion, which should be written off, the banks insist on full repayment and have taken measures to safeguard their returns.
So while the bankers take home huge bonuses for a job well done, elderly people are having to choose between a good meal or keeping warm in the winter, families are having to work extra hard in order to meet their living costs and young people are having to graduate with huge debts. The end result is an increase in petty crime and unemployment. All this because of interest based lending or riba.
The Holy Quran prohibits riba in the following verse: ‘O ye who believe! Fear Allah, and give up what remains of your demand for interest, if you are indeed believers. If you do not, take notice of war from Allah and his Messenger, But if ye turn back, ye shall have your capital sums; deal not unjustly and ye shall not be dealt with unjustly’ (Qur’an 2:2278-279).
So severe is the warning not to deal in riba that Allah and His Messenger (pbuh) have declared war on us and now we know why. Aisha (RA) narrated that Allah’s Apostle (pbuh) used to invoke Allah in the prayer saying, ‘O Allah, I seek refuge with you from all sins, and from being in debt.’ Someone said, O Allah’s Apostle! (I see you) very often you seek refuge with Allah from being in debt. He replied, ‘if a person is in debt, he tells lies when he speaks, and breaks his promises when he promises.’ (Sahih Bukhari Volume 3, Book 41, Number 582).Debt has destroyed many lives, forced some to steal while others have had to sell their body to make ends meet, it has caused undue financial hardship and breakdown in marriages, it has led to stress, anxiety, misery, lies, deceit, high crime, unemployment the list is endless.
The banking system has led the way on riba based lending and made ‘halal’ what Allah and His Messenger (pbuh) declared haram. Today almost every loan is encumbered with interest and extortionate repayment terms and penalty fees making it difficult for us to tell the difference between riba and trade as if we are looking at a black ant on a black stone on a black night. It is high time we wake up and stamped out riba.
We should therefore take all immediate steps to get out of riba and debt and there are many ways in which we can do this. To begin with, we can choose to review our existing loans and really ask whether we need them. For example, if we have a mortgage we can ask for the terms to be changed from interest payments only to capital and repayment which is the principal debt.
We could also consider whether having additional homes on buy to let mortgages is a necessity, after all we are all accountable for how we earn our living. Do we really need a high end luxury vehicle which requires more maintenance and high insurance or can we do with a cheaper alternative.
Where we cannot make changes to our existing loans or way of life, then perhaps we can look to consolidate all debts and freeze the interest so that we are only paying the actual debt as opposed to the compounded interest portion.
If the situation is rather grave then perhaps we may want to consider bankruptcy rather than suffering in silence.
By Naheem Razwan