Taking A Profit On Money Loaned

Question

I loaned money to someone . I drew up a contract stipulating how much he should pay .me back every month. We agreed on 12 months. At the end of contract period I made a profit of R30.000. Is the profit. correct? Is it permissible in Islam?

Answer

In terms of Shariah, any excess charged to the debtor over and above the principal amount in a loan transaction is tantamount to interest. The debtor is entitled to pay back only the capital amount. Hence the amount of R30 000 which you termed as profit is actually interest, which is a Haraam form of income and which would have to be returned and given back to the debtor. 

In terms of Shariah, loans are meant for cooperative and charitable purposes. A loan is thereby, not meant to serve as an instrument for commercial transactions or as a profit generating tool. Hence a person extending money to another as a loan must decide whether he wishes to help the opposite party or whether he wishes to earn a profit. If he wants to help the borrower he must rescind claims to any additional amount. His principal (loan) will be secured and guaranteed but no return over and above the principal amount is legitimate. 

Checked and Approved By:

Mufti Muhammed Saeed Motara Saheb D.B.

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