The Difference Between a Loan and a Forward Sale

Question:
The following message was received by the program from Shaqra, signed by one of the brothers, (S. A. M.). Our brother says in his message: It is currently known that people take money from one another as a loan and call it a debt, which is different from a forward sale. My question is: Is the debt, in its current concept, forbidden? And what is the Islamic, Sharia-compliant method for this? Please inform us of this, and may Allah reward you with good.

Answer:
A debt is not forbidden if it is in accordance with the Sharia, and a loan is not forbidden if it is in accordance with the Sharia, and it is also called a debt. Allah the Exalted said: [Surat al-Baqarah: 282]. So Allah, Glorified and Exalted is He, has permitted His believing servants to incur debts and to write that debt for a specified term. There is no harm in incurring debts, and there is no harm in borrowing. Incurring a debt is like buying from your brother an item from the land, a house, a shop, a car, or something else for a known term because you need it, to live in the house, to farm the land, to use the car, or to benefit from it by selling it and profiting from it, or for other such purposes. This is called incurring a debt for a specified term. There is no blame in this if the item sold is owned by the seller and in the seller's possession, for then this sale is called a sale and is called a debt.
Among the forms of incurring debt is what they call a forward sale (salam), which is: you take a specific amount of money in advance from a person, with which he buys something from your liability, such as coffee, sugar, rice, or the like. You take from him, for example, ten thousand riyals on the condition that you give him a sa' (a dry measure of about 3 kg) of wheat of such-and-such a type, or a sa' of rice, after one year, after two years, or after a specific number of months. This is called a forward sale (salam) and is called a loan (sarf). It is that whose price is paid in advance and whose item is deferred. If it is fully known, with all its conditions met, for a known term, or a car whose model and full specifications are known, and you sell it to him from your liability for a known term, taking from him ten thousand or twenty thousand on the condition that you deliver to him after one year or two years a car with such-and-such specifications and such-and-such model, which is known and contains no doubt, or a known amount of sa' of rice or wheat or something else, or of coffee or sugar, or the like, something that is known. The Prophet (peace and blessings be upon him) said when he arrived in Madinah and they were making forward sales of fruits for one or two years, he (peace and blessings be upon him) said: All of this is called incurring debt.
And among them is the loan (qard) as well. You might say to your brother in Allah, or your brother by blood, or your cousin, or your brother-in-law (your wife's father or brother), or others, saying to him: Lend me such-and-such, lend me a thousand riyals, lend me ten thousand riyals as a loan without interest for the sake of Allah. This is called a debt and is called a loan. If your brother in Allah, or your relative, or your brother-in-law gives you the amount of money you requested, this is called a loan, if it is without interest, merely for the sake of reward. This is called a loan because it is an act of kindness, and it is called a debt because it is in the liability. There is no blame in this and there is no harm in it.
But if he says: On the condition that you give me an increase of such-and-such, it becomes riba (usury or interest). If he says: Yes, I will give you a loan of ten thousand, but on the condition that you give me ten, or a hundred, or fifty for every thousand, because of the delay of the money being with you, this is the known riba (usury or interest) which is not permissible. Or if he says: I will give you ten thousand as a loan, but on the condition that you give me your such-and-such car to use for two or three months, more or less, in exchange for this loan, this is not valid, because it is a loan with a condition, and this is not permissible.
Likewise, if he says: Yes, I will give you ten thousand or a hundred thousand as a loan, on the condition that you give me your such-and-such land to farm and benefit from it until you give me my loan, so that he benefits from the land without payment in exchange for this loan. However, if he leases it for the market rate without a condition, leasing it by custom for half the crop, a third of the crop, a known amount of sa', a known amount of dirhams, as a stranger would lease it without a condition between you, and he has leased it from you after that, there is no harm. But Allah knows what is in hearts. If it is without a condition and at the customary rate that others take, yes.
The presenter: The forms present in the market, perhaps His Eminence the Shaykh has heard of some of them?
The Shaykh: Yes, and what are they?
The presenter: They are like when a person in need comes to a merchant who buys and sells in fabrics or foodstuffs or the like, and says: Buy this merchandise for such-and-such amount and pay the value after a year for such-and-such amount. Naturally, the amount will be higher, but that person in need does not take possession of that merchandise.
The Shaykh: This is not valid. They call this tawarruq (a commodity sale used to obtain cash), but they misuse it. The common people call it al-wa'dah (the promise) and they misuse it. He sells the money while he is... sitting, not taking possession, and so the other sells it to him, and so the other, no, this is not valid. The Sharia-compliant trade and Sharia-compliant incurring of debt is that one buys money that exists with the seller, in the seller's possession, then the buyer takes possession of it and holds it and disposes of it, by using it if it is land, by using it if it is a car, by other types of use, meaning: he takes possession of it. This is the Sharia-compliant sale. As for buying this existing money from him... then leaving it and selling it to the seller, selling it to Zayd or to 'Amr, this is not permissible, yes. There is the authentic hadith in this: , . Yes.