Ethica Institute of Islamic Finance™

(i) Is a government loan that uses the consumer price index and increases by about 3% almost every year based on the rising cost of living considered ribawi or is such a change in the loan amount permissible as it merely reflects current market values? (ii) If an individual has taken such a loan without knowing of it being ribawi what should he do if he hasn't paid any riba yet as the government requires the loan be repaid once the individual's yearly income is above a certain threshold and he has not reached that threshold? (iii) Should he only pay the amount borrowed or the riba as well?

(i) Such a loan would be ribawi. Increasing a loan to reject inflation, movement on an index, a change in the cost of living, or the like, is not permissible. (ii) For ribawi loans already incurred, the individual should make every effort to get out of them as soon as possible, even if it means taken on a second or third job. (iii) He has to pay off whatever he owes, regardless of it being ribawi or not.

7 Day Free Islamic Finance Course

Please enter your first name and email address to start receiving your CIFE™ lessons instantly!

We value your privacy. We will never rent, sell, or spam email addresses.

1,000+ scholar-approved answers and growing...

7 Day Free Islamic Finance Course

ASK AN ISLAMIC FINANCE QUESTION

SEARCH ISLAMIC FINANCE Q&As

What’s New at Ethica