Subject : Conditions for Settling a Debt with a Different Kind of Currency

Fatwa Number : 2032

Date : 07-05-2012

Classified : Usury (interest) &Loans

Fatwa Type : Search Fatawaa

Question :

I borrowed a sum of money from my brother and we documented that in writing for preserving rights. After three months, he told me that he wanted to assess the value of that loan in gold(e.g. I borrowed from him an amount that equals 500 grams of gold), and that I should repay him in gold at the time of settlement(i.e. I should repay the value of 500 grams of gold at the time of settlement). You should pay attention to the fact that we haven`t agreed on this manner of repayment in the first place, so what is the ruling of Sharia in this regard ?

The Answer :

All perfect praise be to Allah. Blessings and peace be upon Prophet Mohammad: It is permissible for a borrower to settle a loan in a form other than the one it was borrowed in the first place such as paying in gold instead of banknotes, but within two conditions: First: It wasn`t agreed upon earlier, rather, it was suggested upon repayment since agreeing on repayment in gold instead of banknotes, and not putting it into effect instantly leads to Ribaa An-Nasee'ah, which is an increase in the amount due, in return for a delay in payment. Second: Abiding by the gold price on the day of repayment, not the day of borrowing. Al-Kateeb Ash-shirbini(May Allah have mercy on his soul) says: “ It is permissible to repay the debt in a form other than the one in which it was borrowed in the first place. This is based on the Hadith of Ibn Omar(May Allah be pleased with them) who said: “ I used to sell camels for gold and take silver instead, sell in silver, and take gold instead, so I went to the Prophet(PBUH) and asked him about that. He said: “ It is okay so long as each of you(seller and buyer) collects what is his.”{At-tirmizi}. Resolution No.75(6/8) by the Islamic Fiqh Academy reads as follows: “ It is permissible for the creditor and the debtor, on the day of repayment, not before, to agree on settling the debt in a different currency, but with the same exchange rate on the day of repayment. It is also permissible in installments debt with a certain currency to agree on settling each installment in a different currency, but with maintaining the same exchange rate on the day of repayment. However, it is a condition that the transaction is completed before both parties depart.” Based on the aforesaid, it is impermissible for your brother to ask you to repay the loan in gold instead of banknotes unless the repayment is put into effect instantly and the creditor receives his money in gold rate on the day of repayment, and not on the day of borrowing the loan. And Allah knows best.

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