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Fatwa CenterTaking gold as security for a loan
Question
A Muslim business man wants to help poor muslims by this way: Any Muslim who is in need of money will bring him some gold or jewlery, say it is 50 grams. he takes that gold and gives them the money according to the gold price that day. And later whenever the person comes back with that amount of money the business man will take it and will give him back the same amount of the gold i.e 50 grams, irrespective of the price on that day. Is it allowed. He says I am doing only to help them.
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad 
is His slave and Messenger.
If the businessman keeps the gold as a security against the money that he lent to the person who needed it and takes the gold without benefitting from it, but rather only holds onto it, and he returns it to the owner whenever the latter pays back the loan, then this is permissible; and we have clarified that security pledges are permissible in Fatwa 81377.
However, if the businessman benefits from the security (the gold) or buys the gold and gives it back to its owner when he pays back the loan, then this is not permissible because this is a loan with Riba (usury) in the first example, and it is Bay' Al-Wafaa' contract (i.e. a contract whereby the owner of the goods sells it, with the condition that he will have it back once he returns its price to the buyer) in the second example, and this is a defective sale according to the majority of scholars. This is the view that is considered to be most evident by the Fiqh Committee.
Allaah Knows best.
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