Question: Is it permissible to accept credit
above the initial loan amount to offset the effects of inflation? If so,
then which inflationary index should be used? If not, then how do you
suggest one recoup the losses due to the time value of money?
Answer: I
understand the question to be the following: "Is it permissible to
lend money and stipulate (i.e. require contractually) repayment in
excess of the principal (i.e. the original amount of money that was
lent), in order to offset the potential loss of purchasing power
associated with inflation?" The answer is "no, it is not permissible to
do so." Such a stipulated increase over principal and the transaction
itself are known as riba (usury). The indicants for its impermissibility
are Qur'an, Sunna and consensus (ijma`).
Note: If your debtor
were to do so unilaterally--i.e. with a) no collusion between you and him and b) no
compliance on his part with expectations based on impermissible cultural
norms that dictate one must pay you back more money than he is lent--this would be
permissible, and even a sunnah since the Messenger did this when
repaying a debt. This practice is called "superior settlement [of
debts]" (ahsan qada').
Note: If there is doubt on your part about whether the party is
acting on a) or b) above, it is better that you not take the additional amount.
Advice: One technique that some investors use to attempt to hedge against some risks associated with inflation
is the following: the lender executes a parallel transaction (e.g. a halal
transaction that appears likely to yield profit) so that he can use of the
profit from the second transaction in order to hedge against potential losses associated
with inflation. This of course requires putting (more) money at
risk.
And Allah knows best.
Wa s-salam
The hopeful slave of Allah
Taha Abdul-Basser