Can I Adjust a Loan Repayment for Currency Devaluation?
Hanafi Fiqh
Answered by Shaykh Bassem Itani
Question
If I lent money to someone at a time when the currency was stronger than it is today, is it permissible for me to demand repayment equivalent to its original value?
Answer
All praise is due to Allah, Lord of the worlds, and blessings and peace be upon our master Muhammad, his Family, and all his Companions.
Currency Devaluation and Loan Repayment
This issue has become increasingly common in our time, particularly with the depreciation of certain currencies like the Turkish lira, Syrian pound, or Lebanese pound.
The scenario is as follows: you lend someone money, and after a period of time, the value of the currency has significantly decreased. You then demand that the borrower repay the loan at the value it had at the time of lending.
The Principle of Fairness in Loan Repayment
Repaying the same nominal amount of a loan in cases of severe currency devaluation can cause significant harm to the lender.
Therefore, it is just to take into account the value of the currency at the time the loan was given when determining the repayment, provided the borrower is capable of repaying the equivalent value. This is aligned with the principle of fairness stated in the verse:
“You may retain your principal—neither inflicting nor suffering harm.” [Quran, 2:279]
This verse prohibits the lender from wronging the borrower by demanding an increase on the loan, and likewise prohibits the borrower from wronging the lender by repaying a depreciated amount. Repaying the nominal amount during times of severe devaluation means returning the capital in form but not in substance, which causes clear harm to the lender and is considered unjust. The verse calls for fairness to both the lender and the borrower. The principle of adjusting the loan to reflect the value at the time of lending is consistent with the opinion of Imam Abu Yusuf in the Hanafi School of thought. [See: Ibn ‘Abidin, Radd al-Muhtar]
Consideration of the Borrower’s Financial Capacity
However, in many cases, borrowers may be unable to repay the adjusted value due to their limited financial means.
Many borrowers, such as those with fixed incomes in the depreciated currency, may not have seen an increase in their earnings that matches the inflation in the country, making it challenging to repay the loan based on its original value.
In such situations, demanding repayment at the original value could cause undue hardship.
Arbitration and Reconciliation
It is advisable for both parties to agree on a specific amount—whether in the same currency, a different currency, or in kind, such as an item (e.g., a car) of equivalent value—to prevent harm to either party.
Suppose they are unable to reach an agreement. In that case, they can resort to arbitration by choosing an arbitrator, such as a knowledgeable scholar experienced in financial transactions, who will make a binding decision for both parties.
If arbitration is not accepted or if one party refuses, the other party has the option of taking the matter to an Islamic court to resolve the dispute.
I advise you to seek reconciliation, as it brings peace of heart, helps maintain good relations between the parties, and prevents hatred and resentment. Allah has placed great virtue in reconciliation, as He says:
“And reconciliation is best.” [Quran, 4:128]
And Allah is the source of success and goodness.
[Shaykh] Bassem Itani
Shaykh Dr. Bassem Hussayn Itani was born in Beirut, Lebanon, in 1965. He earned his Ph.D. in Islamic Studies in 2005. Among his mentors were Shaykh Muhammad Taha Sukkar, Shaykh Adib al-Kallas, Shaykh Mulla Abdul ‘Alim al-Zinki, Shaykh Abdul Rahman al-Shaghouri, Shaykh Abdul Razzaq al-Halabi, Shaykh Dr. Mustafa Dib al-Bugha, Shaykh Dr. Wahba al-Zuhayli, Dr. Muhammad al-Zuhayli, and others, may Allah have mercy on them all.
Shaykh Itani has a rich background in both academic and administrative fields. He has held significant positions in many governmental and non-governmental institutions in Lebanon and abroad. This includes his role as a member of the Academic Committee at SeekersGuidance and a senior teacher with the free online global seminary.
From 2020 to 2021, he served as the Dean of the College of Da‘wa – University for Islamic Studies (Lebanon) – Postgraduate Studies. He was the Director of Dar Iqra for Islamic Sciences from 1998 to 2018. Shaykh Itani is a well-versed teacher in several academic subjects, including Fiqh, Usul, Aqida, and Tafsir. He has supervised and examined numerous Master’s and Doctoral theses at various universities and colleges in Lebanon.
His contributions to Islamic sciences are also evident in his writings and research. His notable works include “The Relied-upon Statements of Imam Zufar in the Hanafi School,” “Collective Ijtihad: The Sublimity of Thought in the 21st Century,” and “Custom and its Impact in Islamic Jurisprudence.” Shaykh Itani has actively participated in numerous scientific conferences and seminars, both in Lebanon and internationally. He is linguistically adept, excelling in Arabic, proficient in French, and comfortably conversant in English.
