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 Predatory lending is any lending practice that imposes unfair or abusive loan terms on a borrower. It is also any practice that convinces a borrower to accept unfair terms through deceptive, coercive, exploitative or unscrupulous actions for a loan that a borrower doesn’t need, doesn’t want or can’t afford.

By definition, predatory lending benefits the lender, not the borrower, and ignores or hinders the borrower’s ability to repay the debt. These lending tactics often try to take advantage of a borrower’s lack of understanding about loans, terms or finances in general.

The Quran, the sacred text of Islam, teaches that individuals who exploit borrowers are defying God’s will because:

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“God permits commerce and prohibits usury,” and it disapproves of those who charge interest to increase their own wealth. The Quran then goes even further, saying that if a borrower is unable to repay a loan, the lender should be patient. The text even suggests that the lender’s best option might be to “give up the loan as charity.” Hadith and Sharia—Islamic teachings and law—promote an economy of partnership, or risk sharing, between lender and borrower.

The predatory lending practices are the result of two factors. First, the lender only supplies the capital and reaps the profit and two the loss is not shared. Islamic finance, as it was designed to be the most equitable possible, rectifies these two issues. Riba or interest is not permitted in Islam so any practice which only provides capital without doing any work is forbidden. Secondly the loss is also shared by both the parties and in that case the relationship becomes much more balanced than if it were based on the western banking values. It is in lieu of the above harms that Islam prohibits predatory lending practices .

 

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