Is an Indexed Loan Akin to Unlawful Usury?

Answered by Ustadh Tabraze Azam

Question: Assalamu alaykum wa rahmatullahi wa barakatuh

The other day I was reading about an interest-free loan I was considering on taking. However, they mentioned that the debt would be indexed each year to reflect changes in the Consumer Price Index so that the debt maintains its real value. Thus, no “real” interest would be charged.

Would I be falling into riba if I end up repaying more than what I initially borrowed?

Answer: Wa alaikum assalam wa rahmatullahi wa barakatuh,

I pray that you are in the best of health and faith, insha’Allah.

Yes, because paying a different amount to the one you borrowed would be considered akin to unlawful usury (riba).

The basis in loans is that you need to pay back the exact amount borrowed, regardless of its value on the day it is owed. The details of this discussion are explained by Mufti Taqi Usmani in his Buhuth fi Qadaya Fiqhiyya Mu`asira.

Please also see: Answers Related to Loans

And Allah alone gives success.

wassalam,

Tabraze Azam

Checked & Approved by Shaykh Faraz Rabbani