Paying off Debt in Different Currency: Allowed?
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Paying off Debt in Different Currency: Allowed?

Questioner

Soad

Reply Date

Apr 20, 2018

Question

As-salamu `alaykum. I am a South African who used to study in the United States. When I was studying, I borrowed $6000 USD from another South African. We are both back in South Africa now, and it is more convenient for both of us if I pay him back in South African rands. Is this allowed?

Mufti

Answer


Paying off Debt in Different Currency

Wa `alaykum as-Salamu wa Rahmatullahi waBarakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.


In this fatwa:

It is allowed to pay off a debt in a different currency on the condition that the exchange value is based on the day that the debt is paid off, not the day that the debt was incurred.


Responding to your question, Dr. `Abdul-Hakim Balmahdi, Professor at Imam Muhammad bin Su`ud Islamic University, Riyadh, states:

This question was raised at the time of the Prophet (peace and blessings be upon him) and his Companions since they had two currency standards at the time: the gold dinar and the silver dirham.

Prices could be quoted or set in either currency. For instance, the price of something could be a quarter dinar, a tenth dirham, fifty dirhams, 100 dinars, etc.

Ibn `Umar (may Allah be pleased with him) relates that he approached the Prophet (peace and blessings be upon him) and said, “I sell camels in the Baqi` district; sometimes I sell them for a price fixed in gold dinars but receive their price in silver dirhams, and at times I sell them for silver dirhams but receive their price in gold dinars.” In a different narration, it was narrated that Ibn `Umar said, “I sell for gold dinars but receive the price in silver, and I sell for silver but receive the price in gold dinars.”

The Prophet (peace and blessings be upon him) replied, “There is no problem, as long as when you take the price, it is according to that day’s prevailing market value and no account remains outstanding.” (At-Tirmidhi, Abu Dawud, An-Nasa’i and Ibn Majah)

This hadith indicates the permissibility of paying off a debt in other than the currency in which it was originally borrowed. The condition for doing so is that the determination of the exchange value is based on the day that the debt is paid, not the day that the debt was incurred.

For example, if someone borrows 1000 dollars and pays the debt off a year later in South African rand, they have to consider the exchange rate on the day the debt is paid off.

If the exchange rate on that day is seven rand to the dollar, the debtor must pay the lender 7000 rand. It does not matter what the exchange rate was when the debt was incurred. If the exchange rate was ten rand to the dollar back then or five rand to the dollar, it makes no difference. All that matters is the exchange rate at the time that the debt is paid.

Bakr ibn `Abd Allah al-Muzani and Masruq told Ibn `Umar that they borrowed gold dinars from someone but now that they have to pay it, they only have silver dirhams with them. Ibn `Umar said, “Pay him in dirhams according to the market exchange rate.”

Therefore, it is permissible for you to pay the debt in South African rand instead of dollars as long as you pay what you owe according to the current rand/dollar exchange rate.

This ruling is in accordance with the majority of legal scholars throughout history and accords with the definitive rulings of the Hanafi, Maliki, Shafi`i and Hanbali schools of legal thought. Most contemporary Muslim jurists concur with this ruling.

Allah Almighty knows best.

Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.

Source: Excerpted, with slight editorial modification, from, en.islamtoday.net




About Dr. `Abdul-Hakim Balmahdi

Professor at Imam Muhammad bin Su`ud Islamic University

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