Loans in Islam are established upon solid rules of justice, free from exploitation or fraud.

Among the most important types of loans are:

The Good Loan (Qard Hasan):

This involves lending to someone in need for essential consumer goods. Such a person must find someone among the members of society willing to grant them a loan out of solidarity and mutual assistance, establishing foundations of love among people and avoiding animosity and envy between the wealthy and those in hardship. In the event that repayment proves impossible, the loan is settled from the Zakat of Muslims.

The Investment Loan (Qiradh/Mudarabah):

In this model, the financier partners with someone skilled in trade, industry, agriculture, or contracting—the former contributing capital and the latter contributing labor. The outcome between them is to share the profit according to the agreed-upon ratio. If a loss occurs, the worker incurs no financial loss other than their time and effort, thereby remaining safe from being humiliated by debt to the capital owner.

Financial loss falls solely on the capital, and since profit is achieved in the majority of cases, it is in the financier's interest to operate through this method, as they will receive the larger share of the profit. This is a sound, psychologically comfortable, and financially profitable approach that has proven successful in past and present experiences. Were we to apply it more broadly and generally, we would find immense goodness and eliminate financial anxiety along with the violent shocks resulting from transactions with pre-determined interest rates over fixed periods—the practice currently applied in many countries around the world.

The Paradigm of Other Economic Systems

The capitalist system asserts that money must yield money after a period from its borrowing, whether for a consumer purpose or otherwise—even if to satisfy the pangs of hunger—or for an investment purpose, even if the borrower suffers a catastrophic loss due to force majeure. We all know that money without labor is sterile, so how can the sterile give birth?

Islam prohibited this type of transaction due to its lack of the spirit of cooperation among people, as it obligates the borrower to return the principal along with its interest even if a loss occurs—even if the matter requires selling their residential home and furniture. The financier will not relinquish their money unless the borrower is deprived of their civil rights in society, which crushes their morale and humanity. True Islam safeguards humanity because it is far more valuable and precious than materialism; based on this principle, it prohibited fixed interest over specified periods, which is designated in Sharia as Riba (usury).

Opposing systems state that there is no private ownership for the individual. This system contradicts the human disposition (fitrah) upon which Allah created His servants. When an infant is born crying, it settles contentedly upon acquiring ownership of food through nursing. As the child grows, its material instincts develop alongside it; it then collides with this system, which kills ambition within it, preventing it from aspiring to a better life and a brighter future, clothing it in gloom, rebellion, and dissatisfaction. This is impermissible in Islam because humanity loses the practice of its Allah-given freedom to employ its ambition within the framework of justice and order.

The Balanced Islamic System

When comparing the Islamic system with other systems applied in the East and West, we find that the loan system in Islam is a balanced and just middle path capable, upon its implementation, of bringing happiness to humanity, as it contains the remedy for all ailments. It recognizes ownership within the bounds of humanity and for its service, and it commands cooperation. Thus, it is a cooperative system to the utmost degree.

Why then do we, the community of Muslims, drift right and left, blundering about, when safety and peace lie within our hands?

Would you like to translate any further historical pieces from Al-Mujtama magazine or analyze specific economic concepts mentioned in this text?

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Published in Issue No. 1 of Al-Mujtama Magazine, Tuesday, March 17, 1970