What is the ruling on the loan given to a soldier, where he does not pay the increase (riba), but the government pays it?

The questioner : In the sense that one of the brothers raised an issue, we informed him of what is in our knowledge, but he was not convinced, so please elaborate on the answer.

The Shaykh : Please go ahead.

The questioner : We have a category of army personnel who are given a specific loan, say twenty thousand, with riba attached to it. The borrower does not bear the riba; rather, the state bears it on his behalf. Whether it is borne from the start, meaning he does not pay that riba, or he pays it and then it is returned to him. So, there are two scenarios: the first is that he does not pay the twenty thousand nor the increase, or another scenario where he pays the twenty thousand with the increase, and then the government returns the increase to him.

The Shaykh : I mean, how is it? Is he given the choice between one of the two scenarios?

The questioner : I imagine the brother who mentioned it to me is imagining a real-world scenario.

The Shaykh : Is the reality one thing?

The questioner : The reality is one thing: it is all a riba loan, but the government bears the riba.

The Shaykh : How does it remain? How does the government bear it? Let us see?

The questioner : I mean, the government pays it on his behalf.

The Shaykh : I understood that, but practically how? I mean, you are the government and I borrowed twenty thousand, so you impose on me that I pay five percent increase for every hundred. So when I pay you twenty thousand, I pay you twenty thousand plus five percent. I have fulfilled the principal and the riba to the state, so how does the state return the riba to me?

The questioner : Because it is not the state that lends; there is a third party, which is private banks.

The Shaykh : So let us say the bank, how does it return the riba to me?

The questioner : The bank does not return it.

The Shaykh : Then, my brother, I am asking. I asked you about the state, you said it is not the state, you said the bank. When we asked you how the bank returns it, the bank does not return it. Who returns it?

The questioner : Okay, can I put the scenario briefly?

The Shaykh : That is what I am asking about.

The questioner : I mean, there is a bank with capital, for which the state is not responsible. The state agrees with it to lend a certain person an amount, which is twenty thousand. This person returns the twenty thousand to the bank, and the riba that accrues to him is paid by the government.
Al-Halabi : Shaykh, he does not pay anything to the bank, even to get it back again.

The Shaykh : There is a difference.
Abu Layla : Yes, there is a difference between the first statement and this one.

The questioner : This is a scenario.

The Shaykh : No, first...

The questioner : Is this understood now?

The Shaykh : No, excuse me, here you are now using an expression that contradicts your previous expression, so if that is the case, the matter changes.
Al-Halabi : Now, he returns the twenty thousand to the bank, and he does not return anything extra to it, let alone get back this extra amount, right or not?

The questioner : Correct.
Al-Halabi : Rather, the extra amount, which is the riba, is paid by the state to this bank, which is the third party.

The questioner : This is a scenario.

The Shaykh : This is a scenario. Allow me to say this is another scenario between individuals. If I said to you, give so-and-so twenty thousand, and for you, in exchange for every thousand, there is a grant, does this scenario apply to that one?

The questioner: Yes.

The Shaykh : It applies.

The questioner : It applies, with the clarification of one thing: that person is the one who requested the loan from you, from the start. I mean, it was not a gift from you; you gave it to him, he requested it.

Another questioner : Here there is a point: the bank is in agreement with the state to give people loans, and he pays his riba. If the man does not want to pay the riba, the government goes to pay it on his behalf.
Al-Halabi : It seems there is something with the professor that made him stay silent and be patient.

The questioner : Of course, we need to think, because the issue is haram and halal.
Al-Halabi : Allahu Akbar. Okay, Shaykh, your expression "grant" in the example you mentioned, does it differ from the scenario of riba that is in the original research?

The Shaykh : No, we may end up with it. We are uttering this speech...
Al-Halabi : As a research, I mean.

The Shaykh : As a research, as you noticed, what stopped me? I want to see if it is really a grant, or is it a deception regarding riba?
Al-Halabi : May Allah reward you with good.

The Shaykh : Yes, if we stop at this scenario, that the three of us—I am saying to Zayd, give so-and-so this much, and for you, this much percent—is this same transaction permissible? This scenario that we posited does not take the issue out of the riba transaction, because it helps the rich to turn away from the good loan.