Subject : Administrative Fees Paid for Interest-Free Loans

Fatwa Number : 625

Date : 21-04-2010

Classified : Usury (interest) &Loans

Fatwa Type : Search Fatawaa

Question :

I`m the financial officer of a non-profit organization, which gives loans to low-income earners to develop their projects to generate more income. This organization takes a fixed monthly percentage as administrative fees, for example (2%), on the principal amount of the loan. The aim behind collecting this percentage is covering expenses and having the ability to give loans to other projects. However, the surplus of these fees isn`t distributed to shareholders as profits. What is the ruling of Sharia on working in this organization and on distributing the surplus of the administrative fees as profits?

The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon Prophet Mohammad and upon all his family and companions.

 

We have already explained the ruling of Sharia on the administrative fees imposed on some loans. We have stressed that if the fees are used to pay the salaries of the staff in charge of receiving and following up loans without any additional profit, then this is permissible. You may check Fatwa No. (550).

However, if the above organization started taking interests, then this is forbidden usury and it is forbidden for you to work there since Jabir (RA) narrated: "Allah's Messenger (PBUH) cursed the one who accepts usury, the one who gives it, the one who records it and the two witnesses to it, saying: "They are all the same." [Reported by Muslim].

As understood from the above question, the percentage charged under the pretext of administrative fees is over-exaggerated, and intended for usurious profits. Therefore, the surplus of the above fees must be given back to the rightful owners, or distributed amongst poor families or charitable associations that care for orphans. And Allah The Almighty The Almighty Knows Best.

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