Can a creditor derive benefit from the loan given to his debtor?

Q. I took a loan of R100.000 from my friend. I contacted him to pay him the R100.000 back. He told me that I should use the R100.000-loaned money which I want to pay him back to buy stock for him using my import licence. After I buy stock for him using my import licence, he will sell his stock to me with a 20% mark up. So, I will buy his stock with his R100.000-loaned money to me and then I should buy his R100.000 stock from him which I bought for him using my import licence with a 20% mark up. Is this type of arrangement permissible?

A. In principle, every loan that draws a benefit is interest (Riba).

Hence, in the enquired situation, it will not be permissible for the creditor to ask the debtor to purchase stock for him (with his licence) as the creditor is now deriving benefit from his loan to the debtor which is tantamount to interest (Riba).

Accordingly, such an arrangement will not be permissible. Alternatively, you may return the loaned amount and enter into a separate purchase and sale agreement to avoid any element of interest (Riba).

Allah Ta’ala Knows Best

Mufti Ismaeel Bassa