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:
1- Islam calls for investing money by all lawful means and condemns storing wealth not spending it in people’s benefits.
2- However, a Muslims is not allowed to borrow and invest money that he is quite sure that is unlawful (haram).
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
The more important question is: how do you determine that his money is haram? And what gives you the right to poke your nose in other people’s hearts, actions, and behaviors?
Money can be haram if it is forfeited, i.e., false or not real money, or if you saw the person stealing it from its true owner. Otherwise, you cannot even determine that interest–based banks money is haram.
If the money is stolen or forfeited, you must not borrow it and if you do that knowingly, you are then a part of the crime
Moreover, Dr. Wael Shihab, PhD in Islamic Studies from Al-Azhar University, and currently the Imam of the Downtown Toronto Masjid in Canada, added,
Though you are not to ask about the source of money of the person you would take a loan from, if it happens that you know for sure that his money is 100% haram, I don’t recommend dealing with him.
I think that normal financial dealing with such a person encourages him to continue in earning haram money.
So, I see that if you—and other people as well—avoid normal financial dealings with him, he may reconsider the source of his money and look for halal avenues.
If somebody has halal and haram money, you may take a loan (without interest of course) from him.
However, you should properly advise him to clean himself of the haram sources of money and stick to what is halal.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.