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DEBT MANAGEMENT IN

ISLAM
Salaudeen Jubril A
jubrilsalaudeen@gmail.com

The Trick
 Debts Leverage

 Geared Credit Allowance

 Float pay later Facility

 Flexibility I.O.U Soft-loan

DEBT: State and National Level
 With regard to the community level,
specialists have described the negative
consequences and the danger it poses to
the economy:
 Debt is tearing down schools, clinics and
hospitals and the effects are no less
devastating than war. Adebayo Adedeji
The Debt Map
Key

SILIC: (RED)Severely indebted low-income country (or
HIPC: Highly indebted poor country)

SIMIC: (BLUE) Severely indebted middle-income
country

MILIC: (YELLOW) Moderately indebted low-income
country
What we pay and who is paid
 Each year developing countries pay the West nine times
more in debt repayments than they receive in grants.
 The UK Charity Comic Relief raised £26 million in 1997.
Africa paid this back in debt service in just over a day.
 Each person in the Third World owes about £250 to the
West - much more than a year's wage for many.
 Of the 32 countries classified as severely indebted low-
income countries, 25 are in sub-Saharan Africa.

Cont…
 Africa spends four times as much on debt
repayment as she does on healthcare.

 For a billion people, development is being
thrown into reverse. After decades of
steady economic advance, large areas of
the world are sliding back into poverty.
Effect
 Debt is in one of the principal causes of
poverty;
 it has hampered the economic
development of essential services such
as healthcare and education.
 Ecuador spends 47% of its government
income on servicing debt and only 12% on
education and just 7% on healthcare
Solution
 Cancellation of the backlog of unpayable
debt of the poorest countries - most of
which are in Africa.
 This could signal the beginning of dramatic
improvements in healthcare, education,
employment and development for
countries crippled by debt (Nigeria)
Debt: Language and Shariah
 The fuqaha‟ define dayn (debt): an obligation to
be fulfilled, al-Mawsoo‟ah al-Fiqhiyyah (21/102).
 linguistic dayn (debt) in Arabic has to do with
submission and humiliation.
 The connection between the shar‟iah meaning
and the linguistic meaning ;The debtor is a
prisoner,
 The Prophet (S.A.W) said: “Your companion is
being detained by his debt.” Narrated by Abu
Dawood, 3341; classed as hasan by al-Albaani
in Saheeh Abi Dawood
The weight of Debt
 We were sitting with the Messenger of Allaah (peace and
blessings of Allaah be upon him) when he raised his
head towards the sky, then he put his palm on his
forehead and said: “Subhaan-Allaah! What a strict issue
has been revealed to me!” We remained silent and were
afraid. The following morning I asked him, “O Messenger
of Allaah, what is this strict issue that has been
revealed?” He said, “By the One in Whose hand is my
soul, if a man were killed in battle for the sake of Allaah,
then brought back to life, then killed and brought back to
life again, then killed, and he owed a debt, he would not
enter Paradise until his debt was paid off.” al-Nasaa‟i,
4367.
Implication
 Beware of debt, for it starts with worry and it
ends with war. Narrated by Imam Malik in al-
Muwatta‟ (2/770).

 In Musannaf „Abd al-Razzaaq (3/57) it says: Ibn
„Umar (may Allaah be pleased with him) said: O
Humran, fear Allah and do not die in debt, lest it
be taken from your good deeds when there will
be no dinars and no dirhams.

According to World bank, “There
are presently 15 to 17 million
Nigerians who are financially
overextended.”

CLOSER HOME: WHAT IS DEBT?
 Debt occurs when
goods, services, or
money is received in
exchange for a
promise to pay a
definite sum of money
at a future date.
DEBT IN CAPITALISM
 ADVANTAGES
 Convenient
 Useful for emergencies
 Often required to hold a
reservation
 Ability to purchase
expensive items sooner
 Eliminates the need to
carry large amounts of
cash
 DISADVANTAGES
 Paying interest
 Additional fees are
common
 Temptation to
overspend
 Can cause large
amounts of debt
 Identity theft

Debt in Islam
 Islam permits assuming debt within
affordable limits. If debts are incurred
responsibly then prompt and full repayment
is important.

 The Prophet Muhammad (SAW) said, “the
best among you are those best in paying off
debt” (Muslim) and “procrastination (delay)
in repaying debts by a wealthy person is
injustice” (Bukhari).
Paying debt
 “Whoever contracts a debt intending to
repay it, Allah will repay it on his behalf,
and whoever contracts a debt intending to
waste it, Allah will bring him to ruin” ( Bukhari).
The prophet supplications



 “Allah, I seek refuge with You from sin and
debt”.
Managing Debt
 When someone remarked, “how often you
seek refuge from heavy debt”, he (S.A.W)
replied, “when a man gets into debt, he
speaks and tells lies, and he makes a
promise and breaks it” ( Bukhari and
Muslim).

How do we Manage debt
 1. Pay off
 2. Debt Forgiveness
 3. The family assume the debt
 4. Management by Dua
 5. The community assume the debt
Paid off by the family
 The Prophet (peace and blessings of
Allaah be upon him) said: “The soul of the
believer is held hostage by his debt in his
grave until it is paid off.” Narrated by al-
Tirmidhi, 1078.
Debt forgiveness
 “If the debtor is in difficulty, grant him time
till it is easy for him to repay. But if ye
remit it by way of charity, that is best for
you if ye only knew” (2:280)
 “If anyone would like Allah to save him
from the hardships of the Day of
Resurrection, he should give more time to
his debtor who is short of money, or remit
his debt altogether.” (Muslim)
USING CREDIT WISELY
 Good Credit Purchases
 Buying a house on credit is a smart move as
home values rise quickly and you can gain
equity through appreciation.
 Financing an education is a good investment
in the future. Your earning potential will
eventually outweigh the cost of tuition.
 Be careful :Buying a car on credit purchase. It
is important to not get caught up in buying a
car for more than you can afford.
USING CREDIT WISELY
 Bad Credit Purchases
 Credit card debt and other consumer debt is
the worst type of debt. Interest rates and fees
on borrowing money this way will be the
highest of all, mostly because there is rarely a
tangible item as collateral.
 Financing a car for longer than the life of the
vehicle can also be an unwise credit decision.
CREDIT CARDS
Credit cards are a great concept, but
they end up bringing financial ruin to
many people who use them.


TIPS WHEN USING CREDIT CARDS
 Never use credit cards as extra money.
Always allocate money from your current
funds or monthly income in order to
immediately payoff whatever you finance.
 Read the fine print on the agreement to
make sure you are getting the best terms
available.
DEBT TO INCOME RATIO
 Most experts recommend that no more
than 28% of your gross monthly income be
used to pay for your housing expenses
(including mortgage or rent, taxes and
insurance).
 They also recommend that your total D/I
be no more than 36% when paying all of
your recurring debt.
 It is important to keep these D/I ratios in
mind when acquiring new credit to ensure
you are always an attractive credit risk to
any financial institution.

 Don‟t find yourself being declined because
you have taken on too much debt.
BUDGETS
 A BUDGET HELPS YOU ORGANIZE
YOUR SPENDING BY:
 telling you what money comes in, what money
goes out, and where it goes
 helping you identify expenses that aren‟t as
important to you so you can free up money for
those that are
 showing you where some changes might be
needed
BUDGETING PITFALLS
There are three main reasons budgets fail.

1. Negative attitude – Try not to think of a
budget as a financial diet. Try to think of it
as a means to an end.
2. Lack of motivation – The best motivators are
generated internally. It is important to
honestly believe that budgeting can help you
meet your goals.
3. Unrealistic expectations – The reality is that
budgeting is an endurance event. Those
who stick with it through thick and thin will
come out ahead financially.
TIPS FOR CREATING A BUDGET
 Use a template
 Add/delete categories as applicable
 Plan on paying more of your debt
 Prioritize your spending by determining wants
versus needs
 Have both a positive attitude and a positive
ending balance
 Put any annual payments into monthly payment
figures

DEBT MANAGEMENT PROGRAMS
 If you do get yourself into a financial
nightmare, there are ways to get back on
track successfully and without ruining
you‟re your self.
 Debt management programs, which are
also known as credit counseling sessions,
can save you a lot of money and years of
paying on your debt if you have a good
one. ( every mosque should have one)

DEBT MANAGEMENT PROGRAMS
A good debt management set-up is a
third party who will contact your creditors to:
 Re-bargain your interest rate
 Negotiate a payment structure with the
creditor that you can afford
 Determine a realistic amount of time for your
debt to be eliminated

KEYS TO DEBT MANAGEMENT PROGRAMS
Key factors to keep in mind when selecting a
good debt management program:
 Your current creditors lower your interest rate
and not just your payment.
 It is very important you continue to receive
your statements to ensure no payments are
past due.
 It is not a loan. The out-fit collects the
payment from you and allocates it to your
creditors.

DEBT MANAGEMENT PROGRAMS
 For someone who gets into a bad financial
position, these programs can be the key to
getting back on track.
 Most programs structure your payments to
eliminate your debt in 4-5 years.
 They make it so no new revolving
accounts can be opened while
participating in the program so once you
have paid the debts off, you can have a
fresh start.
Learning to make wise decisions with
your purchases, investments, and
debt can be the key to your success.
End of Presentation


 Thank You