Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh.  (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

Asalam-u-alakum,
I understand that interest is forbidden because it exposes one party to risk whereas the other party i.e. the lender is garanteed a profit. Therefore, we can lend money only on a non interest or profit and loss sharing basis. My question is whether the following type of agreement is permitted:

The loan is made in dollars (or some other currency) but its value in terms of gold or some other comodity is determined on the basis of the market rate of gold at the time of the loan. Then at the time of repayment, the borrower pays the market value of the same amount of gold on the repayment date to the borrower. In this way, the borrower will borrow and return the same amount in gold value but the amount may be different in terms of dollars. In this way, the lender gets back the origional amount with no loss or gain in purchasing power but at the same time there is no interest because the amount loaned and returned is the same in terms of gold.  Is this kind of arrangement permissible? I will really apreciate your guidance in this matter. Allah Hafiz

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Answer:

Can one give loan in dollars based on the current value of gold?

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is no one (no idol, no person, no grave, no prophet, no imam, no dai, nobody!) worthy of worship but Allah Alone, and we bear witness that Muhammad(saws) is His slave-servant and the seal of His Messengers.

There is no harm if one gives a loan in dollars based on the current value of gold or any other commodity, and makes an agreement with the borrower that he will return the amount based on the then market value of the gold or the commodity. There is no harm in such a transaction, provided the borrower agrees to it; and the intention of the lender is just to get his principal amount back in value and not try to make a profit from this transaction.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me. Allah Alone Knows Best and He is the Only Source of Strength.

Your Brother in Islam,

Burhan