Debt in Islam: How to Manage Loans

The importance of avoiding debt

In this materialistic world where the focus has become running after the whims and fulfilling whatsoever the heart desires, we tend to lose focus on our real goals and begin taking certain matters that are forbidden or discouraged in Islam, too lightly. The matter of taking loans and being in debt is definitely one of them.

Islam takes the matter of debt very seriously and warns against it and urges the Muslim to avoid it as much as possible. And yet, we don’t see it as such. ʿUmar ibn al-Khaṭṭāb [may Allāh be pleased with him] said: “Beware of debt, for it starts with worry and it ends with war”. [Al-Muwaṭṭaʾ - المُوَطّأ‎].

Interest-free Debt

Islam does not prohibit debt [if without interest]; Allāh ﷻ says in the holy Qurʾān: “O you who believe! When you contract a debt for a fixed period, write it down” يَا أَيُّهَا الَّذِينَ آمَنُوا إِذَا تَدَايَنتُم بِدَيْنٍ إِلَىٰ أَجَلٍ مُّسَمًّى فَاكْتُبُوهُ ۚ [Al-baqara: 282]. Islam recognizes the fact that people may face circumstances that necessitate borrowing. However, it emphasizes caution, responsibility, and most importantly, the intention and effort to repay the debt promptly. The Prophet ﷺ said: “The one who takes people's wealth intending to pay it back, Allāh will pay it back for him, and the one who takes it intending to destroy it, Allāh will destroy him”
: عن أبي هريرة رضي الله عنه: أن النبي ﷺ قال: مَن أخذ أموال الناس يريد أداءها أدَّى الله عنه، ومن أخذها يريد إتلافها أتلفه الله؛ رواه البخاري
[Ṣaḥīḥ al-Bukhārī]

Responsibility of clearing a Debt

Unnecessary loans-taking is a cause of punishment and the wrath of Allāh! Many people have a very casual approach to being in debt and to take out loans, not for some urgent need but, because they want temporary luxuries of this life. Take a loan only when absolutely necessary and if you are in a situation of debt right now, try your utmost best to pay off your debts as soon as possible. Strive hard to pay it off, put your trust in Allāh, and pray to Him to make it easy for you to pay off your debt. The prophet ﷺ used to seek protection from debt. There are a number of adʿiya (أدعية) in the Sunnah that the Prophet ﷺ used to make to stay away from and pay off debts.

It was narrated from ʿĀʾisha [may Allāh be pleased with her] that she said: Allāh's Messenger ﷺ used to invoke Allāh in the prayer saying, "O Allāh, I seek refuge with you from all sins, and from being in debt.".
Someone said: "O Allāh's Messenger! (I see you) very often you seek refuge with Allāh 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".
كَانَ رَسُولَ اللَّهِ ﷺ يَدْعُو فِي الصَّلاَةِ وَيَقُولُ ‏"‏ اللَّهُمَّ إِنِّي أَعُوذُ بِكَ مِنَ الْمَأْثَمِ وَالْمَغْرَمِ ‏"‏‏.‏ فَقَالَ لَهُ قَائِلٌ مَا أَكْثَرَ مَا تَسْتَعِيذُ يَا رَسُولَ اللَّهِ مِنَ الْمَغْرَمِ قَالَ ‏"‏ إِنَّ الرَّجُلَ إِذَا غَرِمَ حَدَّثَ فَكَذَبَ وَوَعَدَ فَأَخْلَفَ
[Ṣaḥīḥ al-Bukhārī]

Uncleared Debt (Before death)

If the person dies, how do we treat the individual’s debts? Will a person be punished if he died without paying off the debt? There is a group of believers on the day of judgement, they will be in custody. They are not allowed to move, they are the ones who have harmed other people, taken the rights of other people, or in debt. Allāh ﷻ will delay these people until the rights have been sorted out on the day of judgement. So, if you owe someone something, you’ve upset someone, you’ve hurt someone wrongfully, you’ve called someone something, you owe someone whatever, even a none Muslim, because Allāh says; “[وَلَا يَظْلِمُ رَبُّكَ أَحَدًا] – “And your Lord does injustice to no one”, you better resolve before death strikes.

The prophet ﷺ said: “The soul of the believer is suspended by his debt until it is paid” off”. [نفس المؤمن معلقة بدينه، حتى يقضى عنه] [Sunan at-Tirmidhī]. The soul of the believer is prevented from its noble position that was prepared for it or from entering Paradise among the righteous until the debt is fulfilled for him, even if [throughout his life] he fasted during the day and prayed at night.

Narated By Salama Ibn Al-Akwa: A dead person was brought to the Prophet ﷺ so that he might lead the funeral prayer for him. He asked, “Is he in debt?” When the people replied in the negative, he led the funeral prayer. Another dead person was brought and he asked, “Is he in debt?” They said, “Yes.” He (refused to lead the prayer and) said, “Lead the prayer of your friend.” Abū Qatāda said, “O Allāh’s Apostle! I undertake to pay his debt”. Allāh’s Apostle then led his funeral prayer.
[Ṣaḥīḥ al-Bukhārī]

Narated By Salama Ibn Al-Akwa: A dead person was brought to the Prophet ﷺ so that he might lead the funeral prayer for him. He asked, “Is he in debt?” When the people replied in the negative, he led the funeral prayer. Another dead person was brought and he asked, “Is he in debt?” They said: “Yes.” He (refused to lead the prayer and) said, “Lead the prayer of your friend.” Abū Qatāda said, “O Allāh’s Apostle!, I undertake to pay his debt.”. Allāh’s Apostle then led his funeral prayer.
[Ṣaḥīḥ al-Bukhārī]

However, if the person borrowed money with the intention to pay it off, but was unable to do so, and did not have means to do so, like he had no money or assets, we pray to Allāh that he may not be punished and Allāh will pay off his debt with His grace and mercy. The threat is for those who were capable of paying off and they don’t. Or those who intend not to pay off. They willingly take wealth and money, intending not to pay back, these are those who will be punished on the day of judgement.

Transfer of Debt to Assignee

Transferring of debt from the responsibility of its owner to the responsibility of the transferee [al-hawalah - الحِوَالة] is permissible. hawalah” means “change” or “transfer” and usually refers to the transfer of debt from original debtor to the legal personality. The conversion and transition of debt, in other words transferring the claim from the debtor to the obligor [نقل المطالبة من ذمة المدين إلى ذمة الملتزم], terminating the liability of the original debtor, to a third person, is permissible according to the Sunnah and consensus. After the conclusion of Hawalah /حوالۃ, the principal debtor is relieved from the liability.

The messenger of Allāh ﷺ said: “The desire of a rich person is unjust, and if one of you is followed by someone who is rich, let him be followed”. In another narration he said: “And whoever is referred to someone who is rich, let him be followed”.
قَالَ رَسُولُ اللهِ ﷺ :(مَطْلُ الغني ظلم، وإذا أُتبع أحدكم على مليء فليَتْبَع)،
وفي رواية: (ومَن أُحِيل على مليء فليَتْبَعْ)
[Ṣaḥīḥ Muslim]

Narrated by Abū Hurayra: A dead man in debt used to be brought to Allāh’s Apostle who would ask: “Has he left anything to repay his debts?” If he was informed that he had left something to cover his debts, the Prophet ﷺ would offer the funeral prayer for him; otherwise he would say to the Muslims present there; “Offer the funeral prayer for your friend”, but when Allāh helped the Prophet to gain victory (on his expeditions), he said: “I am closer to the Believers than themselves, so, if one of the Believers dies in debt, I will repay it, but if he leaves wealth, it will be for his heirs.”
[Ṣaḥīḥ al-Bukhārī]

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