An interest-bearing government loan

Question

Question no. 1: The Government of India gives a loan-seeker some amount of money as a loan in connection with trade and the like; then the government fixes instalments for the return of this money and takes something in excess of the principal. In such a case, should we Muslims take it or not? And what is the ruling on money dealings with the government in this situation? (2) A few of us young men have pooled money among ourselves and opened a fund, and many goods are purchased under this fund.

Answer

(1) This is interest, and taking interest is haram and giving it is also haram. Whoever can manage without this loan should by no means take the loan. (2) Two prices should be set for the goods, one for cash and the other for credit; then the buyer should be asked, “How will you buy — for cash or on credit?

Source: Fatawa Mahmudiyya

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