Debt: Compensation for late payment

Q146 :I gave money on loan to a friend for a specified period of time. When the payment was due, my friend, though acknowledging the debt, claimed that he was not in a position to pay. What sort of sanctions has Islam prescribed in such a situation? Am I entitled to any compensation for late payment?

A146 : When a case of unpaid debts is referred to an Islamic court, the judge is required to look at the financial position of the debtor. If he finds out that debtor appears to have money in hand, he will order him to repay immediately. If he refuses, the judge may order that he be imprisoned until he has paid his debts. If, however, he claims to be insolvent, the lender is required to wait until he has funds to repay. This is not something that he does by choice. Order to delay payment in such cases is given by Allah in the Qur'an. If the lender foregoes his money in such a case, he will be highly rewarded by Allah, and the reward will outweigh by far the benefit he may receive from regaining the money he had lent. Such an action of forgoing an unpaid debt because of the insolvency of the debtor must be voluntary. No pressure needs to be placed on the lender to relinquish his rights. I should perhaps remind you that an insolvent debtor is one of the beneficiaries of zakah. Islam recognizes the difficulty of one who finds himself in a position when he cannot repay his debts. The system of social security which Islam establishes takes care of such people who may have tried hard not to get to such a position. They are helped with zakah funds so that they are relieved of the pressures of being in debt and unable to repay. Compensation to the lender for late payment is unacceptable in Islam. It is akin to usury which Islam strictly forbids. What is the difference between a moneylender who determines beforehand that he will receive a certain amount or percentage over and above the amount he has lent, and one who exacts a financial punishment for late payments? Perhaps I should add that lending to a person in need is an act of kindness. Therefore, you must not waste your reward which you are sure to have from Allah by insisting on having compensation for the late payment, especially if the borrower is truly insolvent.

Our Dialogue ( Source : Arab News - Jeddah )