Islamic Practices of Debt Management

Know-how debt management are secured, transacted, viewed as, practiced and performed in the Islamic way. Yulyadi explains how:

By L. Yulyadi Arnakim

Concept of debt in Islam is sufficiently guided by Qur’an and Sunnah. Debt in Arabic term known as dayn which is rooted in the same root with diin i.e da ya na, which depict any right or wealth that is payable upon a person either to another person or his Lord based on commitment towards that person or his Lord (Sano, 2001).

This covers two dimensions namely the right of one’s fellow human beings and the right of God. The first dimensions will be all rights arising from financial transactions such as sale contract, lease, credit and rental, or from non-financial transactions such as the dowry of a woman, the cost of damage and the cost of crimes. It also covers the rights, which arise from services.

The latter dimension is more comprehensive in sense that all mankind in this world are being indebted to God, the creator. It includes all religious matters especially that involve the relationship between a man and his Lord such as missing prayers, missing zakat, or sawm. Besides, the debt may be a right or a wealth; it may also in kind as well as in cash. Debt is inevitable element of one’s life. Thus Islam commands its adherents to fulfill their obligation either towards (debt to) mankind or God.

In line with the debt toward mankind, it has been restricted in Islam, in the sense that it should be paid back without involving injustice between the debtor and creditor. Islam encourages Muslims to help each other. In Islam to give loan is better than to give charity. In fact Islam prohibits any acts of begging. For it may humiliate the doers. As prophet Muhammad peace be upon him once was asked by the companion by the name Qabisah to help him to repay the debt.

The prophet then said, “Wait until one gives a charity than we will give it to you” then the prophet said, “Begging is prohibited except in three conditions; one is being indebted and fails to pay it back, the begging is permissible until he fully paid back then he stops begging, one whose property was damaged by the natural disasters so that the begging is permissible until he received a sufficient assistance to survive, and finally the poor and needy one whom has been witnessed by three trustworthy people in his community, the begging is permissible to fulfill his needs. Qabisah, other than three above mentioned, begging is prohibited and those who do it, they eat unlawful things”.

Thus one who takes credit or loan and repays it back is better and respected than those who receive charity. However, Islam has commanded Muslims to give and take debt that is free interest based or Qardh Hasan. As God says, “Who is he that will loan to God a beautiful loan, which God will double unto his credit and multiply many time? It is God that giveth (you) want or plenty, and to Him shall be your return” (Qur’an 2:245)

Al-Qardh al-Hassan means a beautiful loan that does not carry any value added to the principle that is borrowed. In Islamic bank practices, it refers to a credit or loan in which the debtor uses it for the good purposes and later on he has to pay only the same amount with that he took from the bank.

Beside lawful or unlawful consideration in the debt, assets vis a vis liability should be taken into consideration. In buying a car with deferred price or bay’ bi thaman ajil for example, a Muslim should look into type of property. Is a car liability or an asset? How is his financial situation? Islamic financial planners may help him to classify it into either liability or asset. As an asset, the property will increase and become an effective and strong investment in the future. But being a liability it will be a burden in the future.

In addition, Debt in Islam should be written down properly as God says, “O ye who believe! When ye deal with each other, in transactions involving future obligation in a fixed period of time, reduce them into writing, let a scribe write down faithfully as between the parties; let not the scribe refuse to write: as God has thought him…” (Qur’an 2:282).

This verse shows the significance of writing of debt. Debt in Islam is long last liability that does not limit in this world but it is also liability in the hereafter as well. As a result, whatever debt the deceased had, in estate distribution for example, the heirs should settle it first, before the estate is distributed to eligible heirs. As God says, “In what your wives leave, your share is a half, if they leave no child; but if they leave a child, ye get a fourth; after payment of legacies and debts…” (Qur’an 4:12).

The Prophet peace be upon him warned debtor to pay back his debt. For the debt if it is not paid, it will trigger debtor’s soul hanging in the hereafter and will not be accepted by God. As a result, Muslims should be careful when they come into the debt and write it down so that if he fails to pay it back, the heirs or his next kin will settle it down on behalf. In sum, Islam prescribes debt to mankind is more powerful than that of God, for God will not forgive the debtor to mankind unless it is paid and released by the creditor.

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