Taking a Loan for Investment: Permissible?
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Taking a Loan for Investment: Permissible?

Questioner

Shuruz

Reply Date

Jul 08, 2018

Question

As-salamu `alaykum. Sheik, I am writing from Sri Lanka. We have a land in a village area. Still there is no proper road to that land. We want to sell some of the portion of our land. We can increase the value of the land by constructing a road to it; it’s costly because our land situated on a hill. My question is: can we borrow money to construct the road as investment; hence we can share the profit of selling the land? If it’s OK, then from which amount we have to share the profit? Will it be from the increased value of land after constructing the road? Looking forward to hearing your answer. Jazaka Allah khyran.

Mufti

Answer


Taking a Loan for Investment

Wa `alaykum as-Salamu wa rahmatullahi wa barakatuh.

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:

There is no investment on the basis of a loan. Rather, there should be a partnership or any other lawful (halal) means of Islamic investment.


In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

The word ‘borrowing’ is never used in Islamic finance. Nobody will give you a loan without getting return and any return on a loan is prohibited because this is exactly what riba is.

You seem to be hinting to getting finance on sharing basis; in this case what I suggest is the following:

Create a partnership between the land owner and the funds provider. The principal of the land owner is the fairly evaluated price of the land as it is now while funds for construction of the road are known; you assign a part of the profit for the management of the project, say 20% and divide the rest in proportion to principal contribution.

The net profit is the difference between total principal of the two partners and the price of selling the land then.

Allah Almighty knows best.

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




About Prof. Dr. Monzer Kahf

Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies

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