I was curious about how different religions viewed or interpreted debt so I embarked on a mission of finding religious leaders from different faiths and asking them to share with us their point of view so we could learn more.
Life does not exist in a vacuum, especially a religious vacuum. And if there are major religious differences what does each religion teach its followers.
In my first installment I had the pleasure of sitting down with Imam Asal from a local mosque and talk about the Islamic view of debt.
You’ll find the video below.
The Muslim view of debt appears to provide followers with some specific guidance when it comes to financial obligations. Here are some key points from my interview.
- Loans and borrowing money is permitted under Islam.
- Prophet Muhammad himself borrowed money from others.
- Followers should avoid interest and should follow sharia religious laws when it comes to banking. It is taught that when followers don’t follow the teachings of Islam then trouble may result.
- God will help followers to pay back obligations.
- Borrowing money for extravagance is not permitted. “Those that are extravagant are the brothers of devils.”
- Debtors that try to repay their debt but can’t at all may have their debt forgiven.
- Zakat is a muslim charitable fund that followers may ask for help from in order to repay problem debt. Zakat is a obligatory charity for Muslim followers. You should think of it a bit like tithing but the amount given is much less. The calculation is based on 2.5% of total net worth that is available at the end of one lunar year. If you are doing well early in the year and run into a problem which swallows your surplus then you may not have to pay any zakat at the end of the year.
“A complete year in the Islamic calendar should pass, starting from the very day of the nisab’s possession, without any decrease to zero during the year, even if it goes below the nisab. In case of its decrease to zero, the yearly cycle (hawl) starts from the day the nisab becomes complete again. Zakat should be given as soon as possible after it becomes due. – Source”
For more information on zakat you can visit the Hidaya Foundation.
- Creditors that follow sharia law must give borrowers extra time to pay without penalty if the borrower is experiencing a hardship.
- Borrowers, even those that borrowed with interest, are obligated to repay their entire debt and if they don’t they will prohibited from entering paradise when they die.
- If you inherit money the family is required the debts of the person that passes.
- Bankruptcy does not exist under Islam and the borrower is obligated to repay their debt no matter how long it takes.
- “Whoever takes the money of the people intending to destroy it, God will destroy him.” Meaning, he could be destroyed physically or making him to not enjoy this money in this life.
- The basic needs of family come first and then the paying of the debt. If you had to declare bankruptcy in order to take care of your family, you can, but you must still pay the debt back according to the agreement with the creditor. Muslims must respect their agreements with others, no matter what. But remember, loans with interest and fees are to be avoided under Islamic banking laws.
- We discuss the fact that in Dubai and the UAE, even though they are Muslim areas, creditors still throw people into jail for missing payments or not paying their debts.
- Imam Asal talked about Assembly of Muslim Jurists of America where people can go for specific Islamic advice on money troubles.
As an example, here is one of the statements of Amjaonline:
Q: Does the need to repay a loan by borrowing money with interest assume the status of an exigent need since I am unable to pay back the loan on time?
A: In the Name of Allah, the Beneficent, the Merciful,
All praise is due to Allah, and may peace and blessing be upon the Messenger of Allah, upon his household, his companions and those who have followed him. To proceed:
Riba (usury/interest) is a heinous crime, and it has been absolutely prohibited in all divinely-revealed laws. Never has it been permitted in any of the divine legislation revealed to any of the prophets! Lending money with interest can never be mandated by necessity because such a situation is inconceivable [to be financially solvent and in dire need at the same time is an oxymoron]. The sin for borrowing money with interest, on the other hand, may be lifted by exigent need, and every Muslim is responsible before Allah for judging the extent of his need. In your situation in particular, you must do everything you can to repay your debt, to get the lender to wait, to find someone to pay it off for you as a “qard hasan,” or benevolent loan [without interest or profit], or to sell something you could do without in order to repay the debt. If you are incapable of doing all of that, you are being threatened with imprisonment by the lender and you find no other way to get around that other than to borrow money at interest, then perhaps this would be a case of exigent need which I hope would be included under the Pardon of Allah (Mighty & Majestic). Fervently beg Allah for forgiveness and supplicate Him in the last third of the night, for that is the path out of distress and the way to ask for mercy.
We ask Allah to suffice you with that which is permissible of that which is prohibited, with obedience to Him of disobedience and sin, and by His Bounty of anyone beside Him.
And Allah Almighty is the Most High, and He knows best.
Q: I can’t pay off my creditors what I owe them because the interest is too high, so is it halal to declare bankruptcy or settlement?
A: In your case, declaring bankruptcy is allowed.
Once it has been declared, you would not have to pay your debt off in the future, even if you become able to, either legally or Islamically.
Q: Is filing bankrupcy halal or haraam if one is unable to repay debts to credit card companies? I used credit cards only under dire needs because I know interest is haraam. I am now rebulding financially alhamdullah, but I do not have money to pay the credit card companies, especially which the more than 1,500 dollars of interest that is now added to them.
A: Filing bankruptcy is allowed if the person- truly- could not pay off the loan, and he could not even arrange for an installment (or monthly payment) with the lender. In such a case, the whole debt will be waived by law. Consequently, the borrower does not have to pay it off in the future, even if he can do so, legally and Islamically as well. Dr.Main Al-Qudah Islamic American University
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thanks a lot for this useful information
I am amazed with this article Steve! I don’t know how to thank you really … I can’t believe I didn’t see it and I visit your site several times a week since myself I have a debt in Dubai and now they are threatening to list my name in the Interpol!!! I wish I could find a solution for all this.
I wish there were easy good answers for debt in Dubai, they’re aren’t. But the good news is over the past couple of years there are been some positive movement by the government. The bad news is it is targeted towards citizens and not ex-pats.
This was fascinating. Do you have similar articles based on other religions?
Not yet.
What is the Islamic position on a debt that has been sold on. I had borrowed money from a credit card company, A who i was unable to pay. After sometime i received a letter from company B stating that they had bought my debt and that i now owed them for the outstanding balance. The amount owed had almost doubled due to interest accrued by Company A selling the debt to Company B. Company B wants the full outstanding amount even though they paid only 7% – 10% of the debt to acquire it. Where do i stand in this …. how can i negotiate with Company B with whom i never had any dealings
If Company B bought the debt, you owe Company B. However the issue is if Company B has enough information on the debt to collect. See https://getoutofdebt.org/43151/debt-validation-finally-defined-what-you-should-ask-a-collector-or-creditor-for-to-validate-a-debt and https://getoutofdebt.org/category/debt-articles/debt-validation
That is an excellent question. You should discuss that with your Imam.
This is great! Thank you for covering debt from the Muslim perspective. I’m a CPA but I have always been interested in ways to help others get out of debt because I believe it is evil! it really can ruin your life- it can make it hard to eat, sleep, or enjoy anything in life. Alhamdulilah (Thanks to God) I am not in debt and I happily live within my means. But I know way too many that made a temporary mistake and got caught up with a lifestyle they couldn’t really afford. They thought they could because of the convenience of credit cards, but eventually they figured out that they are now trapped. Anyways, I really am enjoying your blog and the help you provide to people so that they can enjoy little things in life. I usually like to tell people to live as frugally as possible (and I mean frugally) for a while and pay off as much as they can each month or in 3 month chunks (if they seem to get nervous about letting liquid cash go). Do you think this is good advice? I think its a small price to pay so that you can breathe easy, but it seems like people can be extremely hesitant in doing that. They come up with excuses like “oh, but I have to eat out. I work all day and thats the only luxury I give myself” or “I never buy anything extra, just the clothes I really need”. or even, “I don’t have time to plan meals in advance. it’s not worth the $200 a month it’ll save me”. Anyways, so do you think that living frugally temporarily and paying as much off as you can in a short period of time is good advice? I will definitely guide them to your site from now on, though.
Thank you for the kind words.
There are two ways to deal with the debt, either using math or reality.
It is darn near impossible for people to fundamentally change so pragmatically it is far more likely they will succeed if they develop a plan that allows them to reduce debt but still have some fun.
Barren budgets will work for a month or two but will fall apart. A negotiated approach of moving a bit more money from fun to repayment generally is the more practical thing to do.
thank you Steve, i really enjoyed this interview
thank you Steve, i really enjoyed this interview