#1144: Ruling on Leverage in Islām

QUESTION:

“Sallam alaykum ya Shiek,please what is the Islamic ruling about leverage in general and leverage in trade,jazakhallahu khyran as you answer. ”

ANSWER:

Wa Alaykum Salam Warahmatullah Wa barakaatuh.

As for Leverage, it is a term used in Finance and Business to refer to the amount that is taken or given in debt to finance an investment or a project. So it is a borrowed capital. This borrowed Capital in corporate finance itself is a form of income.

A company for instance may use leverage to finance a project by borrowing money from investors to finance it instead of selling stock or shares. The implication of so doing is that they can easily pay the investor what is borrowed and its interest in the short term rather than have him buy a stock or a share and have an equity and a foothold in the company.

Know, O brother, that the Money Leverage System as is used in modern corporate organizations is Haraam by consensus as it is interest and usury in its form and shape. Allah has commanded:

يَٰأَيُّهَا ٱلَّذِينَ ءَامَنُواْ ٱتَّقُواْ ٱللَّهَ وَذَرُواْ مَا بَقِىَ مِنَ ٱلرِّبَوٰٓاْ إِن كُنتُم مُّؤْمِنِينَ (البقرة – 278)

“O You who believe, fear Allah and leave that which remains of the proceeds of Ribaa if indeed truly you are Believers”

Let not anyone who believes in Allah and the Last Day deal in this for they are cursed the one who gives, who takes, who witnesses, who records and who facilitates.

We ask Allah for Guidance and Thabaat.

Amin
Jazakumullahu Khayran

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