Often, an entrepreneur has to borrow money to start a business, or an investor is lending money to someone to start a business. While there are whole books written on the topic of Islamic finance and the multiple financial instruments available for this type of commercial transaction, the Qur’an in one ayat (Surah Baqarah, 282) details the basic rules for borrowing and lending in Islam.
O ye who believe! When ye deal with each other, in transactions involving future obligations in a fixed period of time, reduce them to writing Let a scribe write down faithfully as between the parties: let not the scribe refuse to write: as Allah Has taught him, so let him write. Let him who incurs the liability dictate, but let him fear His Lord Allah, and not diminish aught of what he owes. If the party liable is mentally deficient, or weak, or unable Himself to dictate, Let his guardian dictate faithfully, and get two witnesses, out of your own men, and if there are not two men, then a man and two women, such as ye choose, for witnesses, so that if one of them errs, the other can remind her. The witnesses should not refuse when they are called on (For evidence). Disdain not to reduce to writing (your contract) for a future period, whether it be small or big: it is juster in the sight of Allah, More suitable as evidence, and more convenient to prevent doubts among yourselves but if it be a transaction which ye carry out on the spot among yourselves, there is no blame on you if ye reduce it not to writing. But take witness whenever ye make a commercial contract; and let neither scribe nor witness suffer harm. If ye do (such harm), it would be wickedness in you. So fear Allah. For it is God that teaches you. And Allah is well acquainted with all things (2: 282)
It is the order of the Holy Qur’an, when the matters of borrowing money arise, whether it be for small or large amounts, it should be written down in a contract. Also, if possible this transaction should take place in front of two witnesses, so that there is no dispute at a later stage. Some Scholars state it is preferable and some state it compulsory to write down a loan transaction. If for any reason, in the future there is a dispute, this written document can be produced as proof. In the Shari’ah, it is not a sin to take a loan (non-interest) in the state of necessity. However, to not return the borrowed money is oppression and a sin.
The Prophet stated: ‘A Muslim is the brother of another Muslim. He should not oppress his brother or hand him over to the enemy. The individual who fulfils the need of his Muslim brother, Allah will fulfil his need. That individual who removes a difficulty from his Muslim brother, Allah will remove his difficulty on the Day of Judgement.’ (Sunan Abu Dawood vol 2, p314)
The taking of a loan is not something that a respectable individual would do without necessity, to create a burden upon themselves. When it is a necessity, then people should seek to assist their relatives and Muslim brothers, according to ones capability.
The Virtue of Lending Money: Sayyidina Anas bin Malik related that the Prophet stated: ‘During
the journey of Me’raj, I saw written on the door of Jannah: ‘The one who gives charity is rewarded tenfold. The one who gives a loan is rewarded 18 fold.’ I asked Jibrail : ‘Why does the one who gives a loan get rewarded more?’ Jibrail replied ‘The one who gets charity (they usually posses a small amount already) and the one who seeks a loan only does so when he is in dire necessity.’ (Sunan Ibn Majah, P175)