Is paying administrative fees for taking a loan, a form of riba ?

[ahmad]

Assuming that giving a loan to someone who needs it (without interest)  is an good deed.  Does this leave room for administrative fees ? Or does the point of admin fees defeat the whole purpose of the good deed ?

[Sardar Miyan]

What do you mean Adminstrative fee? Yes either the lender or the person getting loan have to incur necessary fee to finalize the transaction. It would be nice of the lender if he bears such expenses.

[ahmad]

If an institution lends money without interest to a person. The institution has some costs to cover such as the salaries of employees that are going to record and track the loan (an accountant). If the debtor is the one who pays for these fees. Will it be considered RIBA as the debtor will be returning the loan plus an extra amount (the admin fees).

[Sardar Miyan]

When an institution lends free of interest the Adminstrative charges or other establishment charges are part of transaction. The borrower has nothing to do with this he will only return the amount without pay any extra. Where is interest? You wanted to tell something which you are not able to do. You can put any other way

[Joseph Islam]

As-salam alaykum

I feel that it is fair to assume that in some cases (especially where there are larger establishments involved) there is going to be some administration / overhead costs and such costs need to be understood and arguably, absorbed by the one seeking a loan.

However, the administration cost needs to be reasonable and not 'interest' disguised as 'an administration / overhead' cost.

In my humble view, the Quran recognises the concept 'administration / overhead' costs or costs associated outside the amount itself. For example, in the case of the many types of charitable causes, the Quran recognises a category called 'Amilina alayha' (i.e. those that are involved in the collection of funds - 9:60) which is arguably an 'overhead cost' outside the amount itself.

I hope that helps, God willing
Joseph

[ahmad]

Wa Alaykum al salam.
Thank you Br Joseph for you reply.

In the example you kindly provided, the overhead costs are not because of a loan. Actually, one can argue that the "Amilina alayha" did not take any fees for their service. However,  I don't have enough evidence to either support or deny that they took fees.

Overhead or admin fees usually do not exist if the loan is taken from a friend for instance. Building upon that, why would a institution (Not a bank) give loans to people and seek to cover its administrative costs if the whole purpose is to do good.

An example for this is microfinance non-profit institutions, they get give loans with interest to cover their costs, so that they can be able to give loans to more people (greater good). I know some say that since the whole system is made for  helping the poor not for profit . Then it is fine to charge interest. (or the admin costs). Yet is this a valid reason to charge interest ? And from the borrower's perspective its still interest whether its admin costs, costs to expand operations or any other thing.

[2:278] Saheeh International
O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers.

[2:279]
And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.

In my humble opinion,  the principal amount does not include any admin fees its just the amount before adding the interest.

Thoughts ?

[Joseph Islam]

Dear brother Ahmad,

As-salam alaykum

My apologies, my response was not intended to enter into a debate. I merely shared my view on this. I should have made that clear. Once again, I apologise.

However, please see my response to your comments in blue italics.

"In the example you kindly provided, the overhead costs are not because of a loan."

I merely made the point that a concept of 'overhead' costs was recognised by the Quran. It was the concept (of overheads) I was referring to and not whether it was for a loan or otherwise. Even in the context of ‘charity’ as in verse 9:60, what would be the purpose of mentioning this group as a recipient of charity / charitable funds if it was not to compensate them for their services?

People need income to survive and cannot always offer their services for free. I know many charities today throughout the world that employ staff and who they pay for their services (albeit in some cases, nominal). With income, they can feed their own families, pay their own zakat, taxes and contribute to purchasing services which keeps societies afloat. I believe this is not against the Quran especially given the explicit mention in 9:60 of the 'concept'.

"Overhead or admin fees usually do not exist if the loan is taken from a friend for instance."

I have no reason to deny this, nor was this point ever in contention. That is why I shared in bold the words 'some cases' with brackets, the words, "especially where there are larger establishments involved". I was not talking about personal loans between two individuals.

"Building upon that, why would a institution (Not a bank) give loans to people and seek to cover its administrative costs if the whole purpose is to do good."

Some large institutions (I was mainly referring to banks) may give loans to people with 0% interest (with nominal admin fees) to entice their customers with other products they may wish to offer.  The point I intended to make was that some lenders may have administration costs that they wish to cover.

As a crude example, say someone has asked me to lend them 5 particular horses for a show they are taking part in. However, I have costs associated in acquiring those particular horses from another land where they presently reside. Why should I be expected to absorb those costs in retrieving the horses from another land? These would be arguably, overhead costs that should be absorbed by the one seeking to borrow or loan my items.

I feel it is useful to remember that loans are not always ‘paper money’, especially if you consider the 7th century context in which the Quran spoke to the primary audience.

Finally I made it absolutely clear that any administration cost needs to be reasonable and not 'interest' or riba disguised as 'an administration / overhead' cost.

I hope that helps to share my humble perspectives, God willing.

Regards,
Joseph

[ahmad]

Dear brother Joseph,

Thank you for sharing your perspective on the matter. I was not intending to enter into a debate because I know that you are currently busy. I just had some unfinished thoughts about the issue.

Thanks again 

[Joseph Islam]

No problem dear brother Ahmed. Thank you for your understanding. May God bless you and your family iA