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Thursday, 14 March 2013

Paying back loans in different currencies.

Q;Suppose there was a person "A", who borrowed 2170 Australian dollars from a Person "B" in Australia an year ago. The Value of 1 Australian dollar at that time was equal to 70 Pakistani Rupee. Now the value of one Australian dollar has increased to 102 Pakistani Rupee. Person "A" wants to return the money in Pakistani Rupees,But he says that he will pay according to the value of Australian dollar one year before i.e 70 Pakistani Rupees. Person "B" says that no, he has to pay me according the current value of Australian dollar i.e 102 Pakistani Rupees. What to do? A;All-Praise is due to Allah, It is not permissible for the one who borrows money from anyone to commit himself to repaying the loan based on the value of the currency at the time when the loan is repaid, rather he must repay the loan with the same value as it had at the time he took it. This is the view of the majority of scholars both classical and modern, and it is what is stated in fatwas issued by contemporary fiqh councils. This applies if the currency remains in circulation, even if the exchange rate changes. See Islam Q&A Fatwa: 95515. And Allah knows best...

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