This is iA the most comprehensive resource for this question on the internet.
We present views from IslamQA.org, IslamQA.info, and Islamweb, then our resident expert Mufti Faraz Adam presents his views, and finally IFG present a commercial perspective on the matter.
View One: Islamqa.org
Question: It is the scheme run by the government on certain sectors. The scheme is: 25% amount of the scheme will be paid by the government and 75% of the loan will be directed to any bank to pay on interest. If we calculate the interest repayment it comes to nearly 25% which is already paid by the government. It means we get a loan with no interest and we have to pay only the principle amount. This type of loan scheme is only for particular sectors and eligibility criteria. As these types of schemes are particularly for minority community and many Muslims involve in it. Can this be halal?
If you are satisfactorily sure that you will be able to pay the loan within the prescribed period and the interest amount will not exceed the government subsidy, then it is allowable to take loan availing such schemes. But, if you fear that the interest amount may exceed the govt subsidy, then it is better to avoid.
Taken from: https://islamqa.org/hanafi/darulifta-deoband/27821
View Two: Islamqa.info
Question: The government in our country offers a loan to young people who graduate instead of employing them in government service. Is this loan halaal or haraam
The scholars are unanimously agreed that if it is stipulated that a loan be repaid with an additional amount, this is riba, which is haraam.
Every loan in which it is stipulated that something extra be paid back is haraam, and there is no difference of scholarly opinion on this point. Ibn al-Mundhir said: They are unanimously agreed that if the lender stipulates that the borrower should pay something extra or give him a gift, and he gives the loan on that basis, then taking the extra amount in return for that is haraam.
It was narrated that Ubayy ibn Ka’b, Ibn ‘Abbaas and Ibn Mas’ood forbade loans that brought benefits. End quote. Al-Mughni (4/211)
Ibn ‘Abd al-Barr said: Every additional amount given in return for a loan or favour that benefits the lender is riba, even if it is just a handful of animal feed. That is haraam if it is stipulated. End quote.
Al-Kaafi (2/359).
Based on this, if the loan is riba-based, whereby it is stipulated that the amount borrowed be repaid with interest, then it is not permissible for you to take this loan, because the contract is based on riba, and it is clear to you that riba is a major sin. May Allaah make you independent of means so that you have no need of this loan and similar schemes.
But if this loan is a “goodly loan” and does not involve riba, and the borrower is required to repay only what he took, and no more, then there is nothing wrong with taking out this loan and benefiting from it.
And Allaah knows best.
Taken from: https://islamqa.info/en/answers/69973/is-it-permissible-to-take-a-loan-from-the-governments-social-fund
View Three: Islamweb
Since the government subsidy is conditional on borrowing with Riba (interest and/or usury) from the bank, then it is not permissible to enter into such transaction unless one is in dire necessity. Dire necessity is when a person reaches the state that if he does not consume what is forbidden, he will die or will nearly die. Allah Says (what means): { …while He has explained in detail to you what He has forbidden you, excepting that to which you are compelled… } [Quran 6:119]
If one is not compelled by necessity or dire need to engage in Riba, then it is not permissible for him to engage in it. The fact that the government gives a grant to those who borrow money for that investment project does not make it permissible to enter it. There is nothing good in Riba and there is no blessing in it. Allah Says (what means): { Allah destroys interest and gives increase for charities… } [Quran 2:276]
Nonetheless, in regard to such questions, we advise that the question be asked to the European Council for Fatwa and Research (ECFR), or to the Assembly of Muslim Jurists of America (AMJA), and other institutions that are specialized in issuing Fataawa about the affairs of the Muslim communities in western countries because these communities have special conditions and circumstances that may have an effect on the Fatwa, and these institutions are more familiar with them.
Allah knows best.
Taken from: https://www.islamweb.net/en/fatwa/396886/government-provides-conditioned-subsidy-for-business
Mufti Faraz view:
To follow.
The IFG view:
This topic is a tricky one as government schemes vary a lot and the fiqhi ruling is dependent on the specifics.
We have previously discussed our thoughts on a UK government subsidy (article available here) which has elements of haram involved.
Overall our thoughts are:
- Where a government scheme makes a contribution and requires the rest to be funded by way of an interest-bearing loan, this should be avoided as you are going to avail of in interest-bearing loan for that 75%. It is not appropriate to try to dress the 25% from the government as a payment for the interest and therefore viewing the 75% as an interest-free loan. The government’s 25% may happen to roughly cover the interest payments but that was not its intent. The government money is simply a gift to you - and one that unfortunately requires you to take out a haram loan.
- Where a government scheme pays you interest along with a large gifted payment - we are of the view that such schemes are intended as a transfer of money from the government to you and the interest earned (by using the savings account infrastructure) is a by-product of the delivery mechanism as opposed to the end in itself. As such as suggest purifying such wealth of any interest, and keeping the bonus.