Laws of Trade
(1) What is the Islamic ruling on taking a valuable item as collateral for a loan?
Question:
What do the honourable scholars say regarding a situation where a woman, when asked for a loan, takes a valuable item such as gold from the borrower as collateral, and only then gives the loan? She neither charges an extra amount nor uses the pledged item for herself. Kindly clarify whether taking such an item as security when giving a loan is permissible in Shariah.
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer:
The creditor taking a property of the debtor as security for a loan is termed “Rahn” (pledge/security) in Islamic jurisprudence. The permissibility of rahn is established in the Quran and Hadith. Moreover, both parties benefit from this arrangement: the creditor is assured of receiving repayment, and the borrower can obtain the desired loan with ease. Hence, in the described situation, taking possession of a valuable item as security when granting a loan is permissible in Islamic law.
However, it must be clearly understood that deriving any conditional benefit from the pledged item constitutes usury and must be strictly avoided.
The practice of pledging one’s belongings in exchange for a loan is proven from the noble Quran and sacred Hadith. Allah Almighty states:
وَ اِنْ كُنْتُمْ عَلٰى سَفَرٍ وَّ لَمْ تَجِدُوْا كَاتِبًا فَرِهٰنٌ مَّقْبُوْضَةٌؕ-
And if you are travelling and do not find a scribe, deposit an item in the possession of the creditor.[1]
Under this verse, Mufti Sayyid Muḥammad NaꜤīm al-Dīn al-Murādābādī رَحْمَةُ الـلّٰـهِ عَـلَيْه writes:
Meaning: give an item into the control of the lender as collateral. Ruling: It is recommended. Rahn in a state of travel is proven from this verse, and in a non-travel situation it is established through Hadith. The holy Prophet صَلَّى الـلّٰـهُ عَلَيْهِ وَاٰلِهٖ وَسَلَّم pledged his blessed armour to a Jew in Madina in exchange for twenty ṣāꜤ of barley. Ruling: From this verse, the permissibility of rahn and the requirement of taking possession are proven.[2]
Taking conditional benefit from a pledged item is usury. The Imam of Ahl al-Sunnah, Imam Aḥmad Razā Khān رَحْمَةُ الـلّٰـهِ عَـلَيْه states:
Any stipulated benefit in rahn is undoubtedly impermissible and absolute usury. In fact, in these lands, even benefiting from the pledged property unconditionally is, according to societal norms, considered a form of stipulated benefit—thus it is usury.[3]
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَرَسُوْلُهٗ اَعْلَمُ صلَّى اللهُ عَلَيْهِ وَاٰلِهٖ وَسَلَّم
(2) Zakat is not due on an item that is held as collateral
Question:
What do the honourable scholars say regarding this matter: A woman owned a gold jewellery set, which she pledged to someone in order to take a loan when a need arose. The loan has not yet been repaid. Is zakat due on this jewellery?
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer:
In the given situation, as long as the jewellery remains pledged (rahn), zakat is not obligatory upon it.
It is mentioned in Fatāwā Riḍawiyyah:
In the second case (when the pledgor has pledged the jewellery as security), the jewellery remains her property, but zakat will not be obligatory upon it for as long as it remains in the possession of the pledgee.[4]
It is stated in Bahār-e-SharīꜤat:
Zakat is not due on a pledged item; neither upon the pledgee nor upon the pledgor. The pledgee is not its owner, and the pledgor’s ownership is incomplete since it is not in his possession. Even after the pledge is redeemed, zakat for the previous years will not become due.[5]
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَرَسُوْلُهٗ اَعْلَمُ صلَّى اللهُ عَلَيْهِ وَاٰلِهٖ وَسَلَّم
(3) What is the ruling on accepting 100 rupees for an item priced at 99 rupees?
Question:
What do the honourable scholars say regarding this issue: many items are priced
at 99, 999, or similar figures. The customer often pays 100 instead of 99, or
1000 instead of 999. Should the extra amount be returned, or is it permissible
to round it up and keep the full amount?
اَلْجَوَابُ بِعَوْنِ الْمَلِکِ الْوَھَّابِ اَللّٰھُمَّ ھِدَایَۃَ الْحَقِّ وَالصَّوَابِ
Answer:
Generally, prices such as 99 are used to prevent the customer’s mind from
moving to the next higher figure by reducing the amount by one or a small sum. For
example, if an item is marked at 999, the customer will think it is less than a
1000. This is a common marketing practice, and there is no harm in adopting it.
However, the seller must ensure that he keeps change available. Since he has declared the price as 99 or 999, upon completion of the sale, the seller is only entitled to take the price he stated. If the customer pays more than the given price, the additional amount will only be lawful for the seller if the buyer agrees to give it.
If the customer is unwilling to give extra or requests the return of the additional amount, then deducting anything above the agreed price without their approval is impermissible. In such a case, the seller must return the excess amount.
The erudite Hanafi jurist, Mufti Amjad ꜤAlī al-AꜤẓamī رَحْمَةُ الـلّٰـهِ عَـلَيْه states:
If one pays the seller more than the stipulated price, it is not permissible for the seller to take the excess amount unless the buyer says, “This extra amount is lawful for you,” or “I have made you its owner.”[6]
وَاللہُ اَعْلَمُ عَزَّوَجَلَّ وَرَسُوْلُهٗ اَعْلَمُ صلَّى اللهُ عَلَيْهِ وَاٰلِهٖ وَسَلَّم
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