Student loans with interest linked to inflation

Fatawa Question

Assalamu Alaikum. An issue has risen in regards to the position of Islam regarding student loans which have an Interest linked to inflation. So what is the Shari'ah position regarding this type of interest ? (See notes) notes : The rate of interest charged on loan balance will be equivalent to the rate of inflation. This will mean that what you repay will be no more, in real terms, than the amount you borrowed. The rate of inflation is measured according to the Retail Prices Index (RPI), which varies from time to time. The rate will be set out in the regulations each year. From 1st September it 2000 will be 2.6 %. In other terms it is like giving you a loan to what is equivalent to 2 g of gold and I tell you repay me after 1 year the money which is equivalent to 2 g of gold. So if the gold becomes more expensive you end up paying me more than you borrowed.

Fatwa

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Publication Date

2001-03-13

Main Subjects

Financial and Accounting Sciences
Religion
Islamic Studies

Topics

• Islamic jurisprudence
• Inflation(Finance)
• Loans
• Usury

No. of Pages

2

Data Type

Fatawa

Language

English

Record ID

BIM-725615

• APA
• MLA
• AMA