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The value of the currency has changed, how can the loan be repaid?
Question
I gave a friend of mine a “goodly loan” (i.e., interest-free). I gave him the loan in Saudi riyals, and now when the time has come to pay back the loan, the Egyptian pound has fallen against the Saudi riyal. This friend of mine wants to repay the loan in Egyptian pounds, on the basis of the exchange rate of the pound against the riyal at the time when he took the loan, which means that the money I get back will be less than what he received. I rejected that and said to him: “You received the money in Saudi riyals; pay the loan back to me in Saudi riyals, as you received it, for loans should be repaid in the same form as they were given. It is sufficient that I deprived myself of any opportunity to invest my money, which would have brought me returns, i.e., from halaal business activities. I gave you a ‘goodly loan’ for the sake of Allah, may He be exalted, and I helped you with your business, and you did business and made a profit, may Allah bless you.” But he refused to do that. What is the ruling according to Islam? Is he obliged to return my loan in Saudi riyals or not? If the answer is that he must return the loan in Saudi riyals, and he refuses to accept the ruling, what is his standing before Allah? Is the shortfall in my money something that he continues to owe me, that I will be able to demand from him before Allah on the Day of Resurrection, or not? Please advise us about that, may Allah reward you, as repayment of the loan is dependent upon your ruling. May Allah reward you with good.
Answer
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:
The value of the currency has changed, how can the loan be repaid?
Question
I gave a friend of mine a “goodly loan” (i.e., interest-free). I gave him the loan in Saudi riyals, and now when the time has come to pay back the loan, the Egyptian pound has fallen against the Saudi riyal. This friend of mine wants to repay the loan in Egyptian pounds, on the basis of the exchange rate of the pound against the riyal at the time when he took the loan, which means that the money I get back will be less than what he received. I rejected that and said to him: “You received the money in Saudi riyals; pay the loan back to me in Saudi riyals, as you received it, for loans should be repaid in the same form as they were given. It is sufficient that I deprived myself of any opportunity to invest my money, which would have brought me returns, i.e., from halaal business activities. I gave you a ‘goodly loan’ for the sake of Allah, may He be exalted, and I helped you with your business, and you did business and made a profit, may Allah bless you.” But he refused to do that. What is the ruling according to Islam? Is he obliged to return my loan in Saudi riyals or not? If the answer is that he must return the loan in Saudi riyals, and he refuses to accept the ruling, what is his standing before Allah? Is the shortfall in my money something that he continues to owe me, that I will be able to demand from him before Allah on the Day of Resurrection, or not? Please advise us about that, may Allah reward you, as repayment of the loan is dependent upon your ruling. May Allah reward you with good.
Answer
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: