Islamic Views on Debt and Credit

Amid the hustle and bustle of daily life, debt and credit transactions are common. Urgent needs often compel individuals to seek financial assistance to lighten their burdens. However, these transactions can sometimes lead to emotional and social challenges.

Some lenders demand repayment without considering the borrower’s circumstances, while stories abound of borrowers who evade their obligations, disappearing despite their promises to pay. The phrase “don’t take your debts to the grave” is one many of us know well.

Azhar Alam, S.E., M.S.E.I., Lc., an expert in Islamic economic law and the halal industry at Universitas Muhammadiyah Surakarta (UMS), responded to this social issue by emphasizing that the ethics of managing debts and credits, both for lenders and borrowers, extend beyond financial concerns. He explained that these transactions carry a moral and spiritual responsibility.

“Islam places great importance on the proper procedures for debt and credit. It’s a social responsibility that must be conducted with the right adab (proper manners),” explained the UMS Islamic Economic Law lecturer. “If our intention is to help, then it must be sincere, debt should not become a tool to pressure someone in a vulnerable situation. People who owe money are often already in a position of need and urgency,” he added.

According to Azhar, debt and credit in Islam are governed by a binding contract and guided by sincere intentions. Both borrowers and lenders are expected to uphold ethical practices that promote mutual benefit rather than sowing discord.

The lecturer from the UMS Faculty of Islamic Studies further explained that, in Islam, debt and credit can generally be divided into two types. The first is social debt, typically exchanged between individuals without involvement from banks or intermediaries. The second is business debt, which is governed by banking regulations or other financial institutions.

In Islam, debt and credit are seen as acts of social respect, emphasizing responsibility, trust, and good manners between both parties. Detailed guidelines are provided to prevent any social conflicts. “This is why Islam places such importance on ethics, to preserve harmony among people," said Azhar.

In Islam, the essence of a debt and credit is rooted in trust and honesty, rather than threats or intimidation. Debt collection follows clear principles, emphasizing patience by allowing a grace period and the borrower’s ability to repay into consideration.

The fundamental principle of debt and credit requires a valid contract and mutual consent between the lender and borrower. Beyond financial responsibility, this contract also carries a significant moral obligation.

“Islam sets guidelines for these contracts to promote openness and honesty between both parties,” said Azhar. He added that in Islam, debt and credit agreements must avoid any element of usury and should be grounded in the intention to help and provide relief.

Islamic teachings do not always require borrowers to provide collateral for debts. Azhar emphasized that trust is a key foundation in these transactions.

While collateral may sometimes be necessary, it is not the primary requirement in Islamic debt and credit practices. “If collectors rely too heavily on collateral, the intention to help often gets sidelined,” said Azhar. Islam places high value on trust-based relationships and emphasizes consideration of the borrower’s ability to repay.

Lending to a relative or friend without a formal agreement still requires careful consideration. Azhar suggested that, before extending a loan, the lender should assess their own financial capacity and be mindful of the potential risks involved.

“If we’re prepared to lend money, we should also be prepared to let it go if repayment becomes difficult. In banking, there’s the concept of the 5 Cs: character, capacity, capital, conditions, and collateral,” Azhar added. However, for social debts, it’s often enough for the lender to simply consider the debtor’s character and circumstances.

“For instance, when lending to relatives or close friends, we can usually gauge how much to lend and understand the risk of whether the money will be repaid or not,” he said.

Additionally, as lenders, we should practice good adab, starting with the sincere intention to help selflessly. “Nulung dudu menthung,” Azhar said, quoting a Javanese proverb that means helping not burdening.

Lenders are encouraged to be understanding and patient with borrowers who are struggling to repay their debts. In challenging times, Islam even promotes the idea that debtors may forgive some or all of the debt as an act of kindness. This principle is supported by the words of Allah SWT, who emphasizes compassion in financial dealings.

وَإِنْ كَانَ ذُو عُسْرَةٍ فَنَظِرَةٌ إِلَىٰ مَيْسَرَةٍ ۚ وَأَنْ تَصَدَّقُوا خَيْرٌ لَكُمْ ۖ إِنْ كُنْتُمْ تَعْلَمُونَ

Meaning: But if the debtor is in straitened circumstance, let him have respite until the time of ease; and whatever you remit by way of charity is better for you, if only you know. (Qur’an Surah Al Baqarah [2]: 280)

Similarly, several Hadīths mention the virtue of those who give respite to those who struggle to repay their debts. One of them, Rasulullah shallallahu ‘alaihi wa sallam said:

مَنْ أَنْظَرَ مُعْسِرًا أَوْ وَضَعَ عَنْهُ أَظَلَّهُ اللَّهُ فِى ظِلِّهِ

“Whoever grants respite to a debtor in difficulty will receive a charity for him every day, and whoever grants him respite after his debt has been settled will receive a charity like that for him every day,” (Hadith Muslim).

In Islam, borrowers are expected to repay their debts promptly and honor the trust placed in them. Having sincere intentions to fulfill repayment is essential. Additionally, borrowers are encouraged to pray to Allah for sustenance and ease so they can fulfill their obligations as soon as possible.

“This shows that, in Islamic teachings, debt is fundamentally about maintaining our integrity,” Azhar explained.

The desire to pay off debts but lacking the means is a challenge that many borrowers face. In Islam, those who are unable to repay are encouraged to give honest reasons to the lender. Honesty and goodwill are essential for borrowers to maintain trust and potentially receive a respite

“The key is that we must never underestimate debt. I’d also like to mention a story about the Prophet Muhammad, where he refrained from leading the prayer over a deceased person who hadn’t repaid his debt during his lifetime. I hope this serves as an important lesson for all of us,” he reminded, urging Muslims to always honor their commitments in any debt agreements.

According to Muslim.or.id, it is narrated that the Prophet Muhammad once hesitated to pray for someone who had passed away with unpaid debt. This account was  shared by Salamah bin Al-Akwa’ radhiyallahu 'anhu, who described the incident as follows:

أنَّ النبيَّ صَلَّى اللهُ عليه وسلَّمَ أُتِيَ بجَنَازَةٍ لِيُصَلِّيَ عَلَيْهَا، فَقالَ: هلْ عليه مِن دَيْنٍ؟، قالوا: لَا، فَصَلَّى عليه، ثُمَّ أُتِيَ بجَنَازَةٍ أُخْرَى، فَقالَ: هلْ عليه مِن دَيْنٍ؟، قالوا: نَعَمْ، قالَ: صَلُّوا علَى صَاحِبِكُمْ، قالَ: أَبُو قَتَادَةَ عَلَيَّ دَيْنُهُ يا رَسولَ اللَّهِ، فَصَلَّى عليه.

A dead person was brought to the Prophet so that he might lead the funeral prayer for him. He asked, "Is he in debt?" When the people replied in the negative, he led the funeral prayer. Another dead person was brought and he asked, "Is he in debt?" They said, "Yes." He (refused to lead the prayer and) said, "Lead the prayer of your friend." Abu Qatada said, "O Allah's Apostle! I undertake to pay his debt." Allah's Apostle then led his funeral prayer. (Hadith Bukhari).

In Islam, debt repayment is considered an absolute obligation, as each person will be accountable to Allah SWT for it. However, it’s equally important for debt collectors to approach the situation with kindness and respect, avoiding any actions that might harm the relationship.

As Muslims, it is wise to avoid getting into debt whenever possible. If circumstances make it necessary, debt should be taken on only for primary or secondary needs, with a sincere commitment to repay it promptly. As the Prophet said:

مَن أخَذَ أمْوالَ النَّاسِ يُرِيدُ أداءَها أدَّى اللَّهُ عنْه، ومَن أخَذَ يُرِيدُ إتْلافَها أتْلَفَهُ اللَّهُ

The Prophet (ﷺ) said, "Whoever takes the money of the people with the intention of repaying it, Allah will repay it on his behalf, and whoever takes it in order to spoil it, then Allah will spoil him." (Hadith Bukhari).

“There is nothing wrong with asserting your rights, but remember to do so with adab, as Islam has taught a respectful approach.  Avoid taking on debt unless truly necessary, certainly not for ego or luxury needs. Both creditors and debtors should always uphold adab in their dealings,” Azhar concluded.

Writer: Genis Dwi Gustati

Editor: Al Habiib Josy Asheva

Translator: Farizal Luqman Majid