23 September, 2018
I have a problem concerning whether or not I am committing riba in lending some money to a friend of mine. I lent $100 to a friend of mine. Then I told him that he should pay me back at the end of the month and he agreed that he would pay an interest of $30 dollars if he couldn't pay me back on time. The following month, he still pays me $30 dollars because he couldn't pay me back the $100. The reason why I charged the interest to which he agreed upon is that he would not delay in paying the money and that he would still remember his debt. So, the question is "is my action in charging him an interest of $30 per month to which he willingly agreed upon for borrowing my $100 worth of money deemed as riba? Thank you for your time.
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- Riba is strictly forbidden in Islam. Hence it is the duty of every Muslim to closely observe his earnings and to be completely sure that these earnings are fully free from usury.
2- Riba is the interest that one gains from lending money to others. Therefore, it is clear that the interest you gain from the one you lend this money is considered riba.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
This is of course riba. Riba is always consensual and cannot be otherwise. If it is not consensual, it is then theft or robbery!
In Islamic finance practice, they impose a high fine in order to deter the debt from any delay. But this fine is given to charity as any earning by a loan is riba and is in fact taking a part of the property of the other person without any justification, because by lending you transform your property from cash to a debt and the debt, by its own nature, does not increase.
These 30s that you are getting must be counted toward payment of the 100 Dollars.
Almighty Allah knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.