Can I Offer an Incentive When I’m Seeking a Loan?

Answered by Shaykh Faraz A. Khan

Question: What is a halal form of offering incentive to a loaner when requesting a loan. I am a small business owner seeking to purchase a building/shop and I am in need of start up money. Everyone is interested in investing in exchange for a continuous percentage of profit. I am more interested in one-time loans, but I do not know the best way to present it to them in a way they feel benefits them.

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states.

In Islam, a loan is considered a type of charity, that is to say, no benefit can be attached to it. One simply lends a particular amount of money, and then takes back that same amount of money upon the due date.

There can be no worldly incentive associated with the contract; the only incentive that can be offered is otherworldly, i.e., reward in the next life. Many Companions are reported to have said, “Any loan that comes with a benefit is a form of usury.” [Bayhaqi, Sunan Saghir]

Having said that, the otherworldly incentive is huge. A person who seeks a loan is often in grief or difficulty, and our Beloved Messenger (peace and blessings be upon him) said, “Whoever relieves a believer from a worldly grief, Allah will relieve for him one of the griefs of the Day of Judgment. Whoever provides ease to a person in difficulty, Allah will provide him ease in this world and the next… Allah continues to aid the servant so long as the servant aids his brother.” [Muslim]

Please also see this related answer, specifically dealing with the reward of giving a loan:

Loans Entailing More Reward than Charity and the Validity of an Estate’s Executor Being a Beneficiary in the Will

Finally, one could consider using Islamic alternatives such as financing mechanisms predicated upon profit and loss sharing, such as joint partnership (sharika/musharaka) and silent partnership [of capital and labor] (mudaraba). For more detail, please see An Introduction to Islamic Finance by Mufti Taqi Usmani.

And Allah knows best.
wassalam
Faraz

Checked & Approved by Faraz Rabbani