Is Any Benefit from a Loan Prohibited in Islam?

It is a well-established rule in the Shariah (Islamic law) that a loan contract is of a charitable nature and as such the lender may not stipulate any excess or benefit from the borrower. However, it is also known in the Shariah that if the benefit from a loan comes to the lender voluntarily and it is not stipulated in the loan contract then it is permissible. This exception derives from some reports that the Prophet used to repay his debt with some increment, and to this effect he said: "The best amongst you are those who benevolently repay their debts”. Moreover, within Islamic law there exist some juristic opinions allowing the lenders to derive some indirect benefits from the loan contract, such as stipulating that the repayment of the debt is to be made in a place different from the one where the loan was first initiated, as this may save transfer costs and effort, or in utilizing, with conditions, the assets mortgaged against the loan. These exceptions may in principle nullify the general understanding that “any loan which results in a benefit is considered a form of usury” in Islam. The paper comes to define the prohibited benefits on a loan in Islam, thereby building the basis for addressing important questions, such as: i) are reciprocal loans prohibited in Islam? ii) is repaying the loan with excess to cater for inflation lawful? iii) is the benefit that pertains to the lender and does not harm or burden the borrower lawful? Answering these questions shall help set out the parameters for what constitutes unlawful benefits obtainable from a loan contract. © Author