Loan is a debt given by one person or organization to another with or without interest and it is usually recorded along with it’s interest rate, date of repayment and principal amount.
The main difference between a conventional loan and Islamic loan is that in conventional loan some amount of interest above the principal amount is charged while in Islamic loan this is not done as it is prohibited in shariyah, Allah subhana wa ta’ala says in the Quran:
Those who take riba (usury or interest) will not stand but as stands the one whom the demon has driven crazy by his touch. That is because they have said: “Sale is but like riba.’’, while Allah has permitted sale, and prohibited riba. So, whoever receives an advice from his Lord and desists (from indulging in riba), then what has passed is allowed for him, and his matter is up to Allah. As for the ones who revert back, those are the people of Fire. There they will remain forever. (Al Quran: 2:275)
The importance of Islamic loan emerges from this main difference; you see Islam is a religion of justice and equality, Prophet s.a.w said, “Behold! the Dispensers of justice will be seated on the pulpits of light beside God, on the right side of the Merciful, Exalted and GlorioUS. Either side of the Being is the right side both being equally mrneritorious. (The Dispensers of justice are) those who do justice in their rules, in matters relating to their families and in all that they undertake to do.
(Sahih Muslim 1827)
Asking for interest is injustice because the person pays what he didn’t take, as interest increases in some terms over time the person who has borrowed money goes deeper into debt and is thus engulfed in more difficulties then before, Islam prohibits this kind of tyranny.. But this is not the only benefit and importance of Islamic loan, there are many others.
Great stress has been laid in our religion on helping the poor and the needy, a portion of ones income is for charity in the form of Zakkah so giving out loans is also essential with this regard, the Prophet of Allah Muhammad s.a.w said, “On the night on which I was taken on the Night Journey (Isra), I saw written at the gate of Paradise: ‘Charity brings a tenfold reward and a loan brings an eighteen fold reward.’ (Sunnan Ibn Majah, Vol. 3, Book 15, Hadith 2431)
Islamic loan is important for the economy, as it is more affordable to return it, more people take loan and invest in different fields which is beneficial for the economy.
Many times a person has skill and talent but due to lack of financial capabilities and the stern rule of return for conventional loan he is unable to put into action his abilities, Islamic loan is thus important as it provides an opportunity both for rich and poor to avail from it and build a better future. Thus Islamic loan invites more people into the market.
It is also important because those taking and giving the loan don’t act as borrowers and lenders but as buyers and sellers, because of which it is specified what the money is being used for. Thus a connection between financial market and economic activity is established increasing the importance of Islamic loan.
Loan is something that a person takes in dire need only, Islamic loan is also important because a person resorts to it instead of begging, while with conventional loan a person may be more inclined towards begging because of high interest rates which keep increasing with the passage of time.
It is through Islamic loaning system that in many western countries Muslims are now able to buy their own homes and businesses while before they were unable to do so and many resorted to either living on rent or committing sin.
Lastly Islamic loan is also important because it not only brings benefit to the borrower but also reward for the lender as the Prophet Muhammad s.a.w said, “No Muslim lends a loan to another Muslim twice but it will be like giving it once in charity.” (transmitted by ibn majah)
