This is iA the most comprehensive resource for this question on the internet.
We present views from IslamQA, Islamweb, and IslamQA.org, then our resident expert Mufti Billal Omarjee presents his views, and finally IFG present a commercial perspective on the matter.
View One: IslamQA
If the loan that you are going to get is a goodly loan in which there is no stipulation of interest, there is nothing wrong with you taking it and starting a business with it, so long as you resolve to pay it back, because the Prophet (peace and blessings of Allaah be upon him) said: “Whoever takes people’s wealth intending to pay it off, Allaah will help him to pay it off, but whoever takes it intending to use it up (without repaying), Allaah will destroy him.” Narrated by al-Bukhaari (2387).
But if it is a loan in which interest is stipulated, it is not permissible to take it, even if the interest is little, because of the stern prohibition on riba and its abhorrent nature, and because of the reports which state that the one who consumes it and the one who pays it are cursed. It makes no difference whether the riba is with the state or with institutions belonging to it or with people in general.
There are means of earning halaal income, even if it seems that they are few. But the one who fears Allaah will find ways and doors will be opened to him, and he will find provision from places he never imagined, as Allaah says (interpretation of the meaning):
“And whosoever fears Allaah and keeps his duty to Him, He will make a way for him to get out (from every difficulty).
- And He will provide him from (sources) he never could imagine. And whosoever puts his trust in Allaah, then He will suffice him. Verily, Allaah will accomplish his purpose. Indeed Allaah has set a measure for all things”
[al-Talaaq 65:2-3]
It is not permissible for anyone to seek to hasten the provision that has been decreed by committing haraam actions. The Prophet (peace and blessings of Allaah be upon him) said: “The Holy Spirit (Jibreel) has inspired to me that no soul will die until it has completed its appointed term and received its provision in full, so fear Allaah and do not be desperate in seeking provision, and no one of you should be temped to seek provision by means of committing sin if it is slow in coming to him, for that which is with Allaah can only be attained by obeying Him.” Narrated by Abu Na’eem in al-Hilyah from the hadeeth of Abu Umaamah; classed as saheeh by al-Albaani in Saheeh al-Jaami’, no. 2085.
The scholars of the Standing Committee for issuing Fatwas were asked: Because there are no opportunities for work in our country, the state has started a social fund program, which refers to small projects for newly-graduated youth. I submitted my project to them, and my project has to do with agriculture, because I have experience in this field. After discussing the project and studying its feasibility, an agreement was reached and I was approved for a loan from to the bank. At that point I found out that the matter is a loan to be paid off after five years or over five years, with interest at a rate of 9%. Some people say that it is riba, so I decided not to go ahead until I ask you. What is the ruling on this loan?
They replied:
If the matter is as described in the question, then this action is not permissible, because it is clearly based on riba. Allaah has forbidden riba and cursed the one who consumes it, the one who pays it, the two who witness it and the one who writes it down. You should seek provision in permissible ways. Allaah says (interpretation of the meaning):
“And whosoever fears Allaah and keeps his duty to Him, He will make a way for him to get out (from every difficulty).
- And He will provide him from (sources) he never could imagine. And whosoever puts his trust in Allaah, then He will suffice him. Verily, Allaah will accomplish his purpose. Indeed Allaah has set a measure for all things”
[al-Talaaq 65:2-3]
‘Abd al-‘Azeez ibn ‘Abd-Allaah ibn Baaz, ‘Abd al-‘Azeez Aal al-Shaykh, ‘Abd-Allaah ibn Ghadyaan, Saalih al-Fawzaan, Bakr Abu Zayd.
End quote from Fataawa al-Lajnah al-Daa’imah (13/425)
Source: here
View Two: Islamweb
It is forbidden to work in a bank that deals with Riba (i.e. interest and/or usury) except in case of necessity in a way that you do not find a permissible job to spend on yourself and on whomever you are obliged to spend. However, the necessity is valued according to its proper value and whenever you find another permissible job, it becomes forbidden for you to stay in that bank; for more benefit, please refer to Fataawa 127388 and 142583 .
As regards taking a loan from this bank with interest, then this is not permissible as this is making other people consume Riba and it is confirmed in the Hadeeth that “ Allaah has cursed the one who consumes Riba (i.e. usury or interest), and the one who gives it to others to consume. ” [Muslim]
Finally, the good objectives should not be achieved by forbidden means.
Source: here
View Three: IslamQA.org
As is common knowledge, interest-based transactions and the taking or giving of loans on interest is completely, decisively and categorically forbidden (haram) in Islam, hence there can be no justification for it. The evidences for its prohibition and sternness are clear and well-known in the Qur’an and Sunnah. To reject the prohibition of Riba is considered disbelief (kufr) and to be involved in it a major sin.
Explain to your friend that taking of loans on interest is a major sin, regardless of whether the loan is to start a business or otherwise. He must look for permitted alternatives in order to initiate his business, for which he may refer to some Islamic banks or financial institutions.
It should be remembered here, however, that if one initiated a business by taking interest-based loans, and gained profit on lawful (halal) business, the profit earned would be Halal, although the act of taking interest-based loans was unlawful.
Your friend says that he earns the money by working hard, hence if his business is lawful, the money and income gained will be lawful (halal) even if the business was initiated with an interest based loan. However, he must repent to Allah Most High and abstain at once from taking further loans on interest. May Allah guide us all, Ameen.
And Allah knows best
[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK
Source: here
Mufti Billal Omarjee view:
The above fatwas are self explanatory. Interest is haram and therefore you cannot take an interest based loan to start a business.
The IFG view:
You cannot take an interest-bearing loan to start a business - and you don’t necessarily need to.
There are various ways to start a business without taking such a loan:
- Bootstrapping. Just make do with what you have and slowly build up the business that way. This helps you preserve long-term equity in the business, keeps it organically growing, and teaches you efficiency.
- Go for sharia-compliant debt options. These are more readily available in the Middle East. But even in the UK they are beginning to appear. See here.
- Go for startup equity funding. Here investors will give you money for a share of your business. This is perfectly halal. We run an angel syndicate that invests in startups - we’ve invested £3m+ in the last year in 10 startups. See here.