Can a loan be repaid with an inflation adjustment?
Prices rise and the money you lent buys less when it comes back. The main Hanafi position, applied to modern money by Mufti Taqi Usmani and the OIC Fiqh Academy, is that a loan is repaid with its like: the same number of the same units. Tying repayment to an index, to gold or to another currency when you lend means you may get back more money than you gave, and that increase is riba.
The guidance
I lent money and prices have risen since. What may I take back?
- Exactly the amount I lent, in the same currencyHalal · A loan · Qur’an 2:279A loan is repaid with its like: the same amount of the same money. This is the main Hanafi position, applied to modern money by Mufti Taqi Usmani and the OIC Fiqh Academy.To protect against inflation, lend in something steadier from the start, such as gold or a stronger currency, and take back exactly that.Other views: Turkey’s Diyanet, citing Abu Yusuf, holds that when money has really lost value, repaying its original value is fairer, and allows the parties to agree on it using official inflation figures. The Maliki school allows value only if the currency collapses.
- The amount adjusted for inflation, as agreed when I lent itHaram · Riba · Qur’an 2:275Tying repayment to a price index, gold or another currency when you lend means you may get back more money than you gave. That increase is riba, and the unknown amount adds uncertainty.
People also ask
How can I protect a loan against inflation?
Lend in something steadier from the start, such as gold or a stronger currency, and take back exactly that. Or make it a sale or a partnership instead of a loan.
What does Diyanet say about inflation and loans?
Turkey’s Diyanet, citing Abu Yusuf, holds that when money has really lost value, repaying its original value is fairer, and allows the parties to agree on it using official inflation figures. This guidance follows the majority view and shows Diyanet’s as a note.
My lender wants me to repay in euros because the lira fell. Is that halal?
A debt is owed in the currency it was made in. You may settle it in another currency at the rate of the day you pay, all at once, but not at a rate fixed when you borrowed. See repaying in another currency.
Related questions
All questionsThe four schools on riba
This guidance follows the Hanafi school as applied today by Mufti Taqi Usmani and the AAOIFI standards. Notes mark where the Maliki, Shafi’i or Hanbali schools differ. The four schools on riba →