Chapter: Loans

His statement, “Chapter: Loans”: A loan is one of the gratuitous contracts. Contracts are divided into categories: exchange contracts, gratuitous contracts, and security contracts. Thus, a pledge and a guarantee, for example, are security contracts, while a gift, bequest, charity, and similar transactions are gratuitous contracts; loans are likewise among them. Exchange contracts include sales, leases, and the like.

Linguistically, a loan means cutting; hence miqrad (scissors), because it cuts cloth.

In the Sacred Law, it means giving property to someone so that he may benefit from it and return its equivalent.

Our words, “return its equivalent,” exclude a loan for use, because in a loan for use one does not return an equivalent; rather, one returns the very item itself.

This definition is open to criticism. The correct definition is: “transferring ownership of property...” For if you say, “giving property to someone so that he may benefit from it...,” this implies that the borrower owns only the right of benefit. In reality, however, he acquires full ownership of the item itself. Thus, it is the transfer of ownership of property to someone so that he may benefit from it and return its equivalent.

It is a contract of assistance, intended to transfer ownership of what is lent to the borrower—that is, to transfer ownership to the person to whom you have lent of the tangible items, or benefits, that you lend him, according to the view that lending benefits is permissible. It is therefore a contract of assistance; it is not intended as an exchange or a means of profit. Rather, it is pure benevolence. For this reason, a loan is permissible even though its outward form resembles riba: if he sells one dirham for another and the two parties do not