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Ribā and Inflation
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Posted on: Wednesday, July 15, 2009 - Hits: 481

Question:
It is evident that the value of the paper-currency has a trend of decrease in the inflationary situation. If a debtor who has borrowed a particular amount of paper currency repays the same amount to his creditor after a substantial time, the creditor can suffer the effects of inflation. If he demands of his debtor to pay more in order to compensate him for loss of value he has suffered, can this demand be treated as a demand for Ribā?

Answer:
An equitable inflationary adjustment does not come under the definition of Ribā as this adjustment is meant to return the full value of the loan to the lender. It does not aim at giving any fixed, predetermined, time related gain on that loan.

The Qur’ān indicates that if the borrower has to pay Ribā, it is exploitation and oppression. Similarly, if the lender is not given his principal back, that too is exploitation and oppression (2:279).1

wassalam

Asif Iftikhar

1. Although, from the religious point of view, no objection can be made to the adjustment, it must be remembered that such an adjustment is not the antidote to inflation. If, on ethical grounds, one gives the lender an allowance, by virtue of the same ethical norms, one should give a similar allowance to a doctor or a teacher or an engineer or a worker who provides his or her services for a specific period of time every day. But that would obviously mean further inflation. The real antidote is more and better investment in productive enterprises to equate the value of goods and services produced in the economy with the currency in circulation and gradual substitution of mere palliatives as deficit financing with real solutions as elimination of Ribā from the economy.

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