Service fees on a charity's interest-free loans

A question from a charity that runs revolving interest-free loans and deducts 2% from each borrower as a service charge, in which Jordan's General Iftaa Department answered that a borrower may be charged the loan's actual direct cost without any increase, and that anything else is riba. ¹

The charity said an Islamic body asked it to run a revolving interest-free loan project for beneficiaries, deducting 2% from each loan as a service charge while the borrower repays the full amount, with the 2% going to the charity's general costs such as wages, water, electricity and internet; it asked about the ruling. ¹

The Department answered that a borrower may be charged the costs of the loan, such as office work and the wages of staff assigned to following up repayment, provided the amount equals the actual direct cost with no profit at all, following the Hanafi jurists, who placed the fee for writing up a debt on the borrower. ¹ It set conditions: the fees must be purely administrative with no profit, calculated exactly rather than estimated, include only the wages of staff working on these loans alone, exclude premises and furniture also used for other business, and have their method of calculation set out under the supervision of a sharia committee. ¹ It concluded that if the lender keeps to these conditions there is no objection, and otherwise the fees are forbidden riba. ¹

Jordan's General Iftaa Department published this fatwa on aliftaa.jo as no. 3842, dated 14 December 2023. ¹ The museum records this text as a historical document attributed to the body or scholar that issued it; it issues no ruling of its own.