The reality of inflation

CategoriesTrade, Business & All Things Money [480]

The reality of inflation

In the name of Allah, the most Beneficent, the most Merciful.  

Answer

The reality of inflation is that there is excess on one side and in truth it is exchanging money for money with more from one side, which is clearly Riba and prohibited. By using the term “inflation” the reality of the transaction will not change as consideration is given to the substance of the transaction and not the terms used.

Mufti Muhammad Ibn Adam (DB) has given an example, which clearly indicates to the impermissibility of repaying a loan on the inflation rate.

“If a person was to give one kilo of wheat as a loan, the value of which was, for example: two pounds. Now at the time of repaying this loan, the price of one kilo wheat fell to one pound. In this case all the fuqaha (jurists) are unanimous that he will still give one kilo back and not half kilo due to the fall and decreasing in the value of wheat.” (Ibn Hazm, al-Muhalla, 6.347; Ibn Qudama, al-Mughni, 4.207; Dardir, al-Sharh al-Saghir; 3.290-291; Haskafi, al-Durr al-Mukhtar, 5.161)
The above proves that when a loan is paid back, then the rate of inflation is not considered according to Shariah. One can only claim back exactly the amount, which was given as loan. Anything other than that will be considered Riba, thus unlawful and sinful. (www.daruliftaa.com)

Only Allah Knows Best

Mohammed Tosir Miah

Darul Ifta Birmingham

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