Is it permissible to take an interest bearing loan if the subsidy is more than the interest?
Hope you are doing well. I had a question to ask and request you to give your opinion and vice in this respect. A close relative of mine asked me if I will be interested in setting up a small business, in partnership with some other people. These small scale industries are promoted by the state government and in this particular case will be providing a huge subsidy of 40%. The problem however is that these projects almost invariably require involvement of a bank to ensure various things including license for the project. It seems like one just cannot do without a bank in these matters. I have tried to look for Islamic banks in the area and it does not look like is possible. Now involving a traditional bank would require paying interest on the money borrowed. I am aware of the fact that interest is not allowed in Islam and a large majority of Ulema would say the same. However, what I was thinking was that if the total amount of interest paid is below or equal to the subsidy provided by the government then probably this may be OK. I thought that you may have some experience with these kind of things and may provide some important insight. Looking forward to your reply.”
Could you please shed some light on it? I have found a fatwa from deoband darul-uloom similar to this ( link given below). Do you think the same fatwa applies in this case too?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
In the inquired case, the interest based loan would still be impermissible.
Even though you are being subsidised by the government, it doesn’t justify the taking of interest. The bank and the government are two different parties; hence, even if the subsidy is more than the interest, the usage of the interest would be impermissible.
The principle of adjusting the interest against another amount is only applicable where the interest is paid by the same debtor who owns the principal.1
Mufti Muhammad Taqi Usmani mentions in his Contemporary Fatwaa.(pg 202) This principle is applicable only where the interest is paid by the same debtor who owns the principal. If the principal is deposited in the bank A and the interest is paid by the bank B, the interest in that case, cannot be adjusted against the loss of principal deposited with bank A.
And Allah Ta’āla Knows Best
Mufti Arshad Ali
Darul Iftaa, Jaamia Madinatul Uloom (Trinidad)