Topics: Islamic Finance

Understanding Collateral and Profit in Islamic Finance

Is It Permissible to Take Profit from Collateralized Assets?

Question: If someone has kept an auto (rickshaw) with me as collateral and taken a loan of one lakh from me, and I have given the auto back to the same person to drive, and he is giving me a profit of three thousand per month, can I take this profit?

Answer: First, it is necessary to understand the concept of collateral (rahn). Collateral means keeping something as a guarantee with the lender. If the lender has an auto as collateral, how can he give it back to the person who deposited it as a guarantee? This is a guarantee and security item, which the lender will keep as a guarantee.

One thing is clear that this guarantee item should be kept safely at home, just like gold and silver are kept safely at home. Therefore, the mentioned transaction is not permissible; rather, it is a usurious transaction.

Secondly, if you have your own auto and you rent it out to someone, then it is not permissible to take a fixed amount of three thousand rupees from it, meaning it is not permissible to take a fixed profit.

 Sheikh Maqbool Ahmed Salafi Hafizahullah

❪Jeddah Dawah Center – Al-Salamah – Kingdom of Saudi Arabia❫

Author: IslamicHelper

IslamicHelper

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