Credits and Loan: Problems and Solution


Credit, as one can easily see today, has became one of the most popular method of trading and payment among worldwide society. Since it gives convenience and ease for most people rather than direct payment, no wonder that it keeps gaining favors day by day, from all levels of society, including muslim.

It is known that the credit system has long been a part of human economical life, even in the era of Allah’s apostle, Muhammad Shallallaahu ‘alayhi wa Sallam. Back then, it’s system was much more simple, as people’s social and economic system itself. But today, it has developed lots of forms, which are probably similar in names and mentioning, but differ in essence and way of conduct.

credit and loan problems and solution

Thus, it is very important for one to understand the details of every forms of credits, in order to compare it’s equalities with practices done in our Prophet Shallallaahu ‘alayhi wa Sallam’s time, and determine it’s verdict eventually.


As explained earlier, credit is one of the trading system that has undergone improvement in it’s core meaning and practices. If previously it was carried out only by a single method, between sellers/product owners, and their buyers, today, it has incorporated a novel type: an indirect, third-party mediated system.

In this system, the buyer as the first party will transact with the followings:

Second party: Goods owner/seller

Third party: Financing or funding company, or bank. This type of credit widely found in home and vehicle loans.

Now, is the ruling of this novel system equals the direct, conventional one?

Here, I would like to take our readers to conduct an in-depth study over this two matters, may Allah gives us light to do so.


Basically, direct type of credits between seller and buyer is a permissible mode of trading in sharia, aka islamic jurisdiction. This legal status for credit is still valid even though the price of buying through credit system is more expensive, compared to cash-buying. This is the stronger stance- based on my knowledge-, and is also the stance of majority of the scholars. This ruling is concluded based on several argumentations as follows:

First: The common scopes of ayah in Al-Qur’an Al-Kareem:

يَا أَيُّهَا الَّذِينَ آمَنُوا إِذَا تَدَايَنْتُمْ بِدَيْنٍ إِلَى أَجَلٍ مُسَمّىً فَاكْتُبُوهُ. البقرة: 282

“O you who believe! When you contract a debt for a fixed period, write it down.” (Al Baqara: 282)

Second: Hadith narrated by ‘Aisha radhiya Allaahu ‘anha

اشترى رسول الله صلى الله عليه و سلم من يهوديٍّ طعاماً نسيئةً ورهنه درعَه. متفق عليه

“The Prophet -Shallallaahu ‘alayhi wa Sallam- bought some foodstuffs on credit from a Jew and mortgaged an iron armor to him.” (Muttafaqun ‘alayh)

In this hadith, The Prophet- Shallallaahu ‘alayhi wa Sallam bought foodstuffs by credit, and mortgaged his armor as a guarantee. Thus, this hadith becomes a clear foundation to legalize trading by postponing cash payment, and credit undoubtedly  is one form of such trade.

Third: Hadith narrated by Abdullaah ibn ‘Amr Al ‘Ash radhiya Allaahu ‘anhu

أن رسول الله صلى الله عليه و سلم أمره أن يجهز جيشا قال عبد الله بن عمرو وليس عندنا ظهر قال فأمره النبي صلى الله عليه و سلم أن يبتاع ظهرا إلى خروج المصدق فابتاع عبد الله بن عمرو البعير بالبعيرين وبالأبعرة إلى خروج المصدق بأمر رسول الله صلى الله عليه و سلم. رواه أحمد وأبو داود والدارقطني وحسنه الألباني

“The Apostle of Allaah- Shallallaahu ‘alayhi wa Sallam commanded him (Abdullaah ibn ‘Amr) to equip an army, but the camels were insufficient (to be ridden by them). So he commanded him to keep back the young camels of sadaqah, and he was taking a camel to be replaced by two when the camels of sadaqah came.” (Recorded by Ahmad, Abu Dawud, Ad Daruquthni and labeled “hasan” by Al Albanee)

In this story, The Apostle of Allaah -Shallallaahu ‘alayhi wa Sallam ordered Abdullaah ibn ‘Amr Al ‘Ash to buy every camel for the army by the price of two camels, by debt. It is clear that he would not agree to do purchasing with such expensive price (200% of the real price) if the transaction was done by cash. Thus, we can see that in this hadith, there was an additional price due to procrastination of payment (debt).

Fourth: The common scope of hadith of salam (trade by order)

Salam is one of the legal form of trading permitted by Islamic law. The form of salam is an order of goods by cash payment in advance. This transaction is the reverse form of credit. When The Prophet Shallallaahu ‘alayhi wa Sallam explained the ruling for this transaction, he indirectly required that the price of goods by cash transaction should not be changed.

The Prophet -Shallallaahu ‘alayh wa Sallam- said:

من أسلف فليسلف في كيل معلوم ووزن معلوم إلى أجل معلوم. متفق عليه

“Whoever pays in advance the price of a thing to be delivered later should pay it for a specified measure at specified weight for a specified period.” (Muttafaqun ‘alayh)

The comprehension taken from four previous arguments and many others, fits a principle in islamic jurisprudence, which states that the basic verdict for every form of trade is permissible. Despite that, some scholars argued that as long as  there is no definite argument that forbids a form of trade, then the trade is legal and permitted to be conducted.

While the more exact meaning of The Prophet -Shallallaahu ‘alayhi wa Sallam’s saying:

من بَاعَ بَيْعَتَيْنِ في بَيْعَةٍ فَلَهُ أَوْكَسُهُمَا أو الرِّبَا. رواه الترمذي وغيره

“Whoever sells two transactions in one transaction, he should (legally) only take the lowest price, otherwise he’ll (be considered) do usury.” (Recorded by Tirmidzi and others),

is the one explained by Ibn Al Qayyim and other scholars ([1]), that the prohibition mentioned in this hadith is for ‘inah. And ‘inah is a form of trade, where one sold his good to another by debt, then when  the good was already in the buyer’s possession, the previous seller immediately bought it back by cash, but with lower price.

Ruling Regarding Third-party participation in Credit System

To give an easier way to understand this type of credit and it’s ruling, I would like to give a brief example as follows:

Mr. Ahmad wanted to buy a motorcycle by credit, so he went to one of the showroom which allows payment by credit (in cooperation with a specific bank or financing company). After choosing the vehicle and term of credits he desired, he was asked to fill and sign over a form, most of the time together with a  guarantee, and a sum of money as down payment ([2]). The price of the motorcycle if it were bought by cash is Rp 10.000.000,-, so when someone buy it by credit, the price will be increased to Rp 12.000.000,- or even higher.

After the contract was signed, and Mr. Ahmad as the buyer has carried away his new vehicle, he will then be responsible to deposit his installments to the bank or financing company as the creditor, and not to the showroom where he bought his motorcycle.

Similar practice could also be found in home loans, or others.

The question raised from this example will be; why does Mr. Ahmad have to pay his deposits to the bank or financing company, and not to the showroom where he did his transaction?

The answer is simple:

Because the bank or financing company involved, has already signed an agreement with the showroom, with a core statement as such: if any buyer wants to buy by credit, the bank will pay the item on his behalf by cash. The consequence is the buyer will automatically be registered as the bank’s customer, hence he must pay the rest of the installments to the bank. By that, after a form been signed, the showroom will soon get it’s cash payment, and the buyer becomes customer of the bank.

This kind of practice, according to Islamic jurisprudence, is one termed by hawalah, which means transfer of credit to the third party with certain conditions.

Hawalah itself is legal in islamic law, but it’s status will be different when it is joined with a trading  contract in one transaction. Unfortunately, this is the case of the third-party mediated credit system, or triangle-type system.

If we examine this triangle-type system more thoroughly, we can barely see that there are two interpretation of it that supports each other and lead to a similar conclusion in ruling. And that interpretations are:

First: Bank already gave the credit to the buyer with the sum of Rp 10.000.000,-, and simultaneously it paid the number to the showroom. Then, Bank demanded the buyer to pay the installments in a sum of Rp 13.000.000. If this is the interpretation, then this practice is clearly a usury (riba nasi’ah/riba jahiliyyah). And the ruling is as mentioned by the hadith below:

عن جابر قال: لعن رسول الله صلى الله عليه و سلم آكل الربا وموكله وكاتبه وشاهديه، وقال: هم سواء. رواه مسلم

“Narrated Jabir radhiya Allaahu ‘an hu: The Apostle of Allah -Shallallaahu ‘alayhi wa Sallam cursed the usurer, the one who give/pay the usury (the client), the writer (his secretary), and the two witnesses. And he (The Apostle) also said: “They are equal in sin” (Recorded by Muslim)

Second: Bank had bought the motorcycle from the showroom, and re sell it to the buyer. And if this is the interpretation, then bank had sold the motorcycle it bought before removing the item from the showroom to it’s own place (bank). Thus, it had sold an item which was still not in it’s full possession. As the proof, the certificate and other documents regarding the motorcycle all were written on the name of the buyer, not of the bank. Hence, this practice is one form of innovation in usury that is also illegal in islamic law:

عن ابن عباس رضي الله عنه قال قال رسول الله صلى الله عليه و سلم: من ابتاع طعاما فلا يبعه حتى يقبضه. قال ابن عباس: وأحسب كل شيء بمنزلة الطعام. متفق عليه

“Narrated Ibn ‘Abbas -radhiya Allaahu ‘anhu-, Prophet Shallallaahu ‘alayhi wa Sallam said: ‘Whoever buys a foodstuff, he should not sell it until it reach his place (before receiving it).’ Ibn ‘Abbas said: I consider that all types of sellings should be done similarly (as foodstuff mentioned here)” (Muttafaqun ‘alayh)

A hadith narrated by Zaid ibn Thabit below shares the same point of view as of Ibn ‘Abbas’:

عن ابن عمر قال: ابتعت زيتا في السوق، فلما استوجبته لنفسي لقيني رجل فأعطاني به ربحا حسنا، فأردت أن أضرب على يده، فأخذ رجل من خلفي بذراعي، فالتفت فإذا زيد بن ثابت فقال: لا تبعه حيث ابتعته حتى تحوزه إلى رحلك فإن رسول الله e نهى أن تباع السلع حيث تبتاع حتى يحوزها التجار إلى رحالهم. رواه أبو داود والحاكم

“Ibn ‘Umar said: I bought olive oil in the market. When I became its owner, a man met me and offered good profit for it. I intended to settle the bargain with him, but a man caught hold of my hand from behind. When I turned, I found that he was Zayd ibn Thabit. He said: Do not sell it on the spot where you have bought it until you take it to your house, for the Apostle of Allaah- Shallallaahu ‘alayh wa sallam – forbade to sell the goods where they are bought until the tradesmen take them to their houses.” (Recorded by Abu Dawud and Al Hakim) ([3])

The scholars have mentioned several wisdoms from this prohibition, amongst them are:

First, because the ownership upon the unreceived goods of the seller could still be canceled due to particular reason, such as the goods were ash-burned before he possessed it completely, or water-depraved, etc. Thus when the seller intended to re-sell them, he could not deliver them to the consecutive buyer.

Second: As explained by Ibn ‘Abbas to his student named Thawus, when he questioned the cause of this prohibition:

قلت لابن عباس: كيف ذاك؟ قال: ذاك دراهم بدراهم والطعام مرجأ.

“I (Thawus) asked ibn ‘Abbas: “How is that?” He replied, “It will be just like selling money for money, as the foodstuffs has not been handed over.” ([4])

Ibn Hajar stated regarding Ibn ‘Abbas’ explanation above: “If one bought foodstuffs with the price of 100 dinar- for example- and he had paid the price, while the foodstuffs were not yet handed to him, then he wanted to re-sell the foodstuffs to other person by 120 dinar and he got his cash directly from the second buyer, while the foodstuffs were still with the first seller, then this person (the one who do the re-selling) seemed to sell/exchange (giving debt) his 100 dinar with 120 dinar. As the consequence, this prohibition is not only applied upon foodstuffs (but also upon other commodities as well-ed)” ([5])

By this explanation, we could conclude that buying houses or vehicles through loans and credit facilities as what has been done in our society today is forbidden, since it is just another form of usury.


As the solution for this “credit-taking-form” usury, which will never be blessed by Allah The Exalted, we can use the first method of credit, that is by directly buy the goods from the seller, without any involvement of a third party. For example, through “al wa’du bis syira'” contract (the buying promise). This is when a person wanted to buy something but he didn’t have enough money to buy it. So he  asked someone (for example a businessman) who have the amount of money needed, to buy the item he intended. After the item was bought, and been handed over to the first buyer (the businessman), the person who initially want the item could buy it from him in a term of installments/debt, and by giving him appropriate profits.

And if due to some reasons this solution could not be applied, I advise to all the respectful readers to be patient and not transgressing the law of Allah The Exalted, only to achieve the desired goods without considering His blessings and pleases. Along with the patience, it will be better to save money and lead a modest way of life, and not compelling ourselves too much in fulfilling our needs. Try to be proud and grateful for every fortunes Allah had granted to us, so that we will be easier to be thankful upon every graces we possess. Because if we truly be able to be thankful of Allaah’s graces, He will double fold His rewards upon us.

وَإِذْ تَأَذَّنَ رَبُّكُمْ لَئِن شَكَرْتُمْ لأَزِيدَنَّكُمْ وَلَئِن كَفَرْتُمْ إِنَّ عَذَابِي لَشَدِيدٌ . إبراهيم 7

“And remember! Your Lord caused to be declared (publicly): If ye are grateful, I will add more (favours) unto you; but if ye show ingratitude, truly My punishment is terrible indeed.” (Ibrahim: 7)

And for each of us to firmly believe that whoever do piety in  Allah’ favor, through obeying His  orders and leaving His prohibitions, then it is a must that Allah will grant him an easy and full of blessed way out, as His promise:

ومن يتق الله يجعل له مخرجا ويرزقه من حيث لا يحتسب

“And whoever is careful of (his duty to) Allah, He will make for him an outlet. And give him sustenance from whence he thinks not.” (Ath Thalaq: 2-3)

It was once said by the scholars that:

من ترك شيئا لله عوضه الله خيرا منه

“Whoever left a thing in the cause of Allah, certainly He will replace it for him with a better one.”

And Allah Knows best.



1. Explained in his book I’lamul Muwaqqiin and Hashi’ah ‘ala Sharh Sunan Abi Dawud

2. Some of the showrooms do not require down payment.

3. Although there is Muhammad Ibn Ishaq among it’s chain of narration, but he had explicitly stated that he heard this hadith directly from his teacher, as stated in the book titled At Tahqiq. Read: Nasbur Rayah 4/43, and At Tahqiq 2/181

4. Narrated by Bukhari and Muslim

5. Fathul Baari, by Ibn Hajar Al Asqalany, 4/348-349


Author: Dr. Muhammad Arifin Badri
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