Can a Gold Loan Be Repaid in Gold or Its Equivalent Value at Repayment?

Answered by Shaykh Muhammad Carr

Question

I have 100g of gold, which represents my entire life savings. Despite my current financial difficulties, I do not sell it and continue to pay zakat on it yearly.

However, a close friend asked me to borrow 50g of gold from my 100g, requiring me to sell it on his behalf.

Can I lend him 50g of gold and have him repay me either with an equivalent amount based on the gold price at the time of repayment or by purchasing 50g of gold for me later?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

May Allah reward you for diligently dispensing your zakat and ensuring your transactions are shari‘a-compliant.

Allah (Most High) says,

“You may keep your original wealth, neither wrongdoing nor being wronged.” [Quran, 2:279]

You may lend him 50g of gold; he must repay you in gold. This is the most straightforward arrangement for your situation.

Alternatively, at the time of repayment, you may request an equivalent amount in a currency of your choice. This practice, known as substitution (istibdal), is permitted in the Shafi‘i school.

However, contractually obligating the borrower to repay the equivalent value in another currency is considered indexing, which most scholars do not permit.

Gold for Gold

A loan is defined as the altruistic act of giving wealth to a borrower for their benefit, expecting repayment of the same. [Shirbini, al-Mughni]

Loans should be repaid in the same generic type (jins) as borrowed initially, at their nominal value, except in cases of hyperinflation. Ibn Naqib states, “It is necessary to return the like thereof.” [Ibn Naqib, ‘Umdat al-Salik]

Substitution

“The borrower must return the equivalent if no substitution occurs. Suppose the borrower substitutes a liability of wheat for clothing or dirhams. In that case, it is not considered impermissible, as it is permissible to substitute anything except the specific item or commodity being sold (muthamman).” [Dimyati, I‘anat al-Talibin]

Since substitution is permissible, one may exchange the gold for a currency amount at maturity, provided that the relevant conditions for the gold-to-currency exchange are fulfilled. The Prophet (Allah bless him and give him peace) said,

“If the types differ, then sell as you wish, provided it is hand to hand.” [Muslim]

Opportunity Cost

A hadith states,

“On the night I was taken on a journey (to Jerusalem), I saw inscribed on the door of Paradise, ‘Charity is multiplied ten-fold, while giving a loan eighteen-fold.’ I said, ‘O Jibril, how come a loan is more meritorious than charity?’ He replied, ‘Because the beggar asks (for charity) despite having wealth, while the one seeking a loan does not do so unless out of real need.’” [Ibn Maja; Bayhaqi, Shu‘ab al-Iman; Tabarani, al-Mu‘jam al-Awsat]

Lenders are only entitled to the principal amount; Allah (Most High) says,

“And you may keep your original wealth” [Quran, 2:279]

It is understood that when a person apportions—qard (loan) literally means “to cut”—a portion of their wealth for lending purposes, they forgo potential investment opportunities. This loss is referred to as “opportunity cost.” The lender will be rewarded for this sacrifice in the Hereafter. Charging for this loss, however, constitutes an unjust benefit (riba).

Loans must be repaid at their nominal value, regardless of inflation. Scholars have permitted deviation from nominal value to intrinsic value only in cases of hyperinflation. Inflation is a negative phenomenon—we pray that Allah (Most High) reduces the prices of goods and the cost of living.

That said, nothing prevents philanthropists (lenders) from taking measures to protect themselves against inflation, provided such measures comply with the rules of the Sacred Law.

I pray this is of benefit, and Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.