Is Mortgaging Land for a Loan Permissible in Islam? Key Insights on Riba
Question: If land is mortgaged in exchange for a loan, can the mortgagee benefit from it? Is it permissible to mortgage land for a fixed amount of money? In our case, six acres of land were mortgaged for a loan of seven lakhs, and the land was mortgaged for five years. Moreover, the mortgagee will benefit from the farming profits, and the landowner will not receive any money for five years. Is this arrangement permissible?
Answer: To understand this question, it is important first to understand the concepts of mortgage and loan.
Mortgage: To mortgage something means to pledge an item as collateral with the lender as a guarantee.
Loan: A loan refers to helping someone in need by lending them money without any financial benefit or interest in return.
Keeping these two points in mind, the answer is that when someone loans seven lakhs to another person, they are doing them a favor by providing the loan. The borrower, in turn, has mortgaged some land as a guarantee.
In Islamic Sharia, it is not permissible for the mortgagee to benefit from the mortgaged land, as the Prophet Muhammad (peace be upon him) said, “Every loan that brings a benefit is interest.” (Although this hadith is weak, its meaning is correct.)
In this case, the person is benefiting from the land in exchange for giving the loan, which is considered interest (riba), and it is impermissible. Many people in our society take advantage of mortgaged land in this way, which is not permissible in Sharia.
Therefore, this transaction is predetermined as an interest-based transaction. It is not an act of kindness by lending money but rather a pure interest-based deal, which is prohibited and haram.
Respondent: Sheikh Maqbool Ahmed Salafi Hafizahullah
Jeddah Dawah Center, Saudi Arabia
Interpreter: Hasan Fuzail