Fatwa ID: 87741
Title: Government Low-Interest Loans to Rescue Small Businesses
Category: Financial Transactions
Scholar: AMJA Resident Fatwa Committee
Date: 03/29/2020

Question

Dear AMJA scholars,

The U.S. government announced a large stimulus package because of the recession that resulted from the COVID-19 outbreak. Part of this package comes in the form of loans for small businesses and are intended to keep the business viable, with low interest rates, and with forgiveness of the principal debt, not the interest, on the condition that the business owner uses the loan to pay specific essential business expenses such as rent, utilities, and the wages and salaries of employees – and does not lay them off. The question here is whether, in light of this crisis, Muslim business owners can apply for those loans?


Answer

In the Name of Allah, the Most Beneficent, the Most Merciful

After the necessary deliberations, and based on the recognition of the magnitude of the current crisis, the Resident Fatwa Committee (RFC)  of AMJA finds it permissible for Muslim small business owners to avail themselves of these government loans for the following reasons:

Taking interest-based loans is forbidden according to the agreement of Muslim scholars. However, necessities warrant concessions in this regard. It appears to the members of the PFC that there is a justifying hardship and public need in our current conditions because of the global recession and the harm that has befallen small business owners in particular.

The lender in this case is the government, which seeks to bring relief to its subjects and save the economy. The government has indicated that it would forgive the principal debt and turn it into a grant, if the borrowers fulfilled the stated conditions. This shows that the intent of this debt is to ease the suffering of the people, and although the interest will not be waived, the principal debt itself would be.

It remains to be said that the application of this fatwa to individual cases requires honesty: whoever intends to fulfill the conditions of turning these debts into grants may apply for them, and whoever thinks that they will not fulfill those conditions, they may only apply for them to repel an existing or expected hardship.

May the blessings of Allah be on His last Messenger, and all praise belongs to the Lord of the Worlds.