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  • Why Riba Is Not Allowed When Money Is Loaned To A Business?

    Posted by Nadeem Minhas on August 9, 2021 at 6:57 pm

    To my understanding Ghamidi Sahib said in many videos that Riba is not allowed because borrowed money is used by the borrower and then borrower has to regenerate cash to return to the lender. That means Riba is not allowed on the money loaned for someone’s personal and pressing needs. For example someone needs money for a child’s wedding, for medical expense, etc.

    My question is why Riba is not allowed for business loans? It seems like it is very beneficial for businesses and growth of economy.

    -First, borrowing money to start or expand a business is not a pressing need of an individual. It is an informed choice.

    -A business borrows money expecting to make much more money than the interest they expect to pay. The business buy’s assets with the money and sell them to make profits.

    -A business puts lender’s money on risk, and yet gets an opportunity to make money on lender’s money.

    -For a lender, it is very difficult to invest in a small business and track its profits to make sure lender receives a portion of a profit. Instead an interest based loan makes it very easy for investors to invest in small business expecting a fixed return on the money. It promotes more investments from lenders and more people are able to start new businesses.

    Faisal Haroon replied 2 years, 6 months ago 2 Members · 5 Replies
  • 5 Replies
  • Why Riba Is Not Allowed When Money Is Loaned To A Business?

    Faisal Haroon updated 2 years, 6 months ago 2 Members · 5 Replies
  • Faisal Haroon

    Moderator August 9, 2021 at 8:36 pm

    Please watch from 1:15:48 to 1:20:30:

    https://youtu.be/ZAch89JqHqQ?start=1h15m48s

  • Faisal Haroon

    Moderator August 9, 2021 at 8:37 pm

    In the following video series Ghamidi sahab has explained riba in a lot of detail, including business financing:

    Discussion 30863

  • Nadeem Minhas

    Member August 9, 2021 at 8:51 pm

    Great! Ghamidi Sahib’s answer makes sense. It is a departure from most other scholars, but I believe Ghamidi Sahib is right.

    The only thing that is still vague is how to distinguish between loan or for profit investment. For profit investment with fixed profit each month makes sense, but when you want to draw your investment out and you demand the same amount as invested, wouldn’t it become a loan then?

    If you want to draw your investment out and you are returned in proportional to business total value growth or decline, then it would be investment not loan.

    What do Ghamidi Sahib say about how to withdraw your investment?

  • Nadeem Minhas

    Member August 9, 2021 at 9:09 pm

    Also I think the initial investment has to be fixed for a minimum period of time for the investor or business owner to judge how much midian profit is normal in such period to determine monthly fixed payment of profit.

  • Faisal Haroon

    Moderator August 9, 2021 at 10:08 pm

    An investment is an investment. Withdrawal of an investment doesn’t turn it into a loan.

    Fixing the initial investment for a specific period of time can be determined between the lender or the borrower. As long as it’s a fair transaction for either party, there can’t be any restrictions from the religious viewpoint.

    I suggest that you watch the video series I shared above for more clarity on the topic.

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