Questionable loan
Fatwa No: 83608

Question

My brother wants to buy some road construction machinery. He does not have all the required money. So the company selling the machinery has him pay certain sum and the balance will be a loan at 5% interest per annum to be repaid over a five year period. The company claims that this interest is how they want to state their profit. Is this interest or profit and is it Haram? Is there any other arrangement that I can enter with this company so that this business transaction can be without any doubt Halal?

Answer

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

 

What your brother did is pure Riba so he should repent from it and ask Allah to forgive him. He should also pay back this loan without interest if the company accepts that, otherwise he should pay it back with its interests and never do any more similar transactions.

Please read Fatwa: 81378 and 82049.

 Your brother can also buy this machinery through Muraabahah (the company buys this machinery from its seller then sells it to this man by installments adding some profit to the price according to the period the installments will take). But the amount they add to the price of the commodity should be fixed and not a percentage related to possible delays in payment.

Allah knows best.

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