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:

Assalam walekum burhan bhai ..i have taken a 25 lac rupees from finnacial organaisation .on contract basis and i will have to return the amt montly 23000/- rupees for fifteen years .total amt goes to rupees 4140000/- {fortyone lac forty thaosand}.pls adivice weather the extra amt will be calculated as a intrest or profit... 

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Answer:

Amount profit or riba interest

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.

Beloved brother, to determine whether the above transaction is interest-based or profit-based depends entirely on the contract made for the transaction.

If one has taken the loan (say 25 lacs) from an interest-based financial institution on the condition that one would pay back the loan in 15 years in installments (Rs. 23,000); then indeed the extra amount above the principal will be deemed manifest ‘riba’ or interest.

But if one has taken the loan (say 25 lacs) from an interest-free Shariah compliant financial institution to buy or purchase a particular object (house, factory, property, etc.); the Shariah compliant financial institution would buy the object itself and resell it to the person for a profit (say 25 lacs + 16.4 lacs = 41.4 lacs), which the person has to repay in monthly installments of Rs. 23,000 for 15 years. The extra amount in this trade or transaction will be deemed profit.

Thus brother, although both the transactions might look similar, the one based on interest will be unlawful in the Sight of Allah, while the one based on profit will be absolutely lawful.

Allah says in the Holy Quran Chapter 2 Surah Baqarah verse 274-276:

But those who devour ‘riba’ become like the one whom Shaytaan has bewitched and maddened by his touch. They have been condemned to this condition because they say, “Trade is just like ‘riba”, whereas Allah has made trade halaal and ‘riba’ haraam.

Thus to determine whether the extra amount in the transaction is interest or profit, one would have to determine the contract upon which the transaction was based.

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

Your brother and well wisher in Islam,

Burhan