Both of them have passed away. He was a close friend of my father’s. He had a tailor shop, then he opened a shop selling construction materials when he saw the trend in the construction sector. My high school years. Inflation was at its peak. You cannot repurchase a product you put on the shelves a month ago at the price you sold it. In this situation, you are not making a profit, but rather incurring a loss. Those were the times when teachers listed rulings one after the other, such as “the price difference between cash and credit sales is forbidden, adding inflation difference to the debt is forbidden, stipulating the devaluation of currency due to inflation during the contract is forbidden, anything that unilaterally benefits one party in contracts is forbidden,” etc. But none of these were enough to cover the creditor’s loss.
He did it like this, the late one; for the goods he sold on open account credit, he said, “The current selling price is this, but when it comes time to pay the debt, I will take the selling price of this item on that day,” and wrote the name of the goods sold in the receivables ledger instead of money. I remember it just like today, in those years when I was a brand-new theology student, I would be asked in Tavşanlı every time I went, “Is this permissible?”
Now pay attention; who did that late brother get a fatwa from? No one at all? Even if there was someone to say it’s permissible, you couldn’t find it at that time. Especially among our scholars who had a conservative understanding of religion in our town of 10,000 people. Under the socio-economic conditions of 14 centuries ago, they answered the views of Imam Azam and Imam Abu Yusuf by reading them from translation books. I wish they had made the right choice. I wish they had looked at the prevailing and widely accepted fatwa among the existing fatwas. Because Imam Abu Yusuf says that if the borrowed currency loses its value, it can be indexed to silver, which has its own value and does not lose value. From here, they could make analogy-based jurisprudential judgments and produce different rulings to cover the creditor’s loss. Alas!
Let my question not go unanswered. Who did he get permission from? From no one. From his own mind, conscience, the undeniable realities of life, and from the depletion of his capital day by day if he continued like that. Let me put it in a famous saying; life does not tolerate a vacuum. If you do not renew existing rulings under changing and evolving conditions, if you do not update your legal opinions based on changing background conditions, people will fill that gap. Indeed, as they closed and will close yesterday, today, and tomorrow.
It was a long introduction. That’s okay. Turkey is experiencing déjà vu right now. The scene I’m trying to depict, which I actually experienced myself, 40-50 years ago, is happening again in Turkey now. And in this context, I am constantly receiving questions. It is impossible not to sympathize. Devout people want their commercial profits to be halal. Therefore, they are in search of a solution that will both protect their interests and ease their consciences. The purpose of the questions asked is this.
I’m not writing an article in an academic journal. I’m writing evaluations in a daily newspaper with a simplified style. Otherwise, I can write a long series of articles, as known by the readers of this column, starting with Quran, Sunnah, tradition, and using technical terms related to jurisprudence and its branches. But journalist colleague Adem Yavuz Arslan gets angry with me. He says, “Your articles are turning into wrestling columns.” And I agree with him. This time, I promise, it won’t turn into a wrestling column. I will finish the article with a single text, with the requirement of making references to tradition and using technical terms where necessary, and I will answer this question.
1- As everyone knows, inflation means the devaluation of money, the decrease in purchasing power, and the increase in the prices of goods and services.
2- In today’s economic system, interest is used as one of the solutions to deal with the social, economic, and moral problems caused by inflation.
3- Whether the interest added to the debt, let’s say at a rate of 5%, should be below or above the inflation rate is the main issue of the debate.
4- In tradition, this issue has been approached in four different ways:
a) Inflation/devaluation of currency at the time the contract is made is not discussed. If devaluation occurs by the time of payment, the party suffering the loss can demand compensation for this difference.
b) No, compensation cannot be demanded. This is considered real interest. However, it is also an undeniable fact that loss cannot be denied; therefore, the parties should settle the loss between themselves amicably.
c) At the moment when inflation occurs, the creditor may be given the sole right to terminate the contract.
d) Devaluation cannot be demanded, and the debt should be paid in the same amount, i.e., the same quantity, as money is. Because money is equivalent to goods.
I kept it brief because I said I wouldn’t get bogged down in details, but I can’t help but say this: The general opinion prevailing in all four schools of thought is that the debt should be paid in the amount agreed upon at the time the contract was made. The first three views I listed are considered exceptional views within the schools of thought.
5- Well, although they all converge at the same point, there is another different situation from the previous point: non-payment of the debt on time in today’s business world. This is a common practice. This situation is evidence in favor of adding the inflation difference to the contract. Also, classical Islamic jurisprudence books contain opinions that support the creditor’s right to include a hypothetical income in the debt by means of an expert report if the debtor, who is able to pay the debt, does not pay it.
6- Based on the points I have written so far, you may wonder whether conditions such as “the inflation rate at the time of signing the contract is added to the debt” would fall within the framework of gharar (ambiguity) and jahala (ignorance) in Islamic law. Yes, it might, and it could lead to serious disputes and disagreements between potential buyers and sellers. Therefore, it should be clearly stated from the beginning what will be used as a reference to determine the inflation rate, with a sentence that leaves no room for interpretation or ambiguity.
7- Can a contract be agreed upon in which a debt initially made in Turkish Lira is paid in gold or foreign currency, which is not affected by inflation or is predictably affected? Yes, it can.
The second question; can the inflation difference be requested or added to the debt when the debt is paid in gold or foreign currency at the time of payment? In my personal opinion, no. Why? Because initially converting a transaction from Turkish Lira to gold or foreign currency is already done to avoid the devaluation of Turkish Lira. But if there is an adverse development against the creditor in the future, and if there are negative developments in the value of gold and foreign currency for the creditor, I believe that it would not be correct to burden the debtor with an additional obligation. Therefore, either the inflation rate at the beginning should be added to the main debt, or the agreement should state that the payment will be made in gold and foreign currency from the beginning, and this should be the end of the agreement. However, if the debtor accepts this and pays the inflation difference, I have nothing to say about that.
8- To sum up, the inflation rate mentioned from the beginning of the contract could be added to the debt as a term. There is no harm in this if the parties accept it willingly. However, when paying the debt in gold or foreign currency at the time of payment, I do not think it is appropriate to request or add the inflation difference. This is because the conversion of the transaction from Turkish Lira to gold or foreign currency is already made to avoid the devaluation of Turkish Lira. Adding the inflation difference on top of that would not be justifiable, in my opinion.
9- In installment purchases, the inflation difference should not be requested. The seller’s responsibility is to determine the price difference between cash and credit sales at the time of sale according to the payment terms, taking possible inflation into account. Asking for the inflation difference on top of that when there is a deviation from the forecasted inflation can lead to serious disputes and disagreements between the buyer and the seller.
10- As I mentioned from the beginning, the inflation rate should apply to transactions that are considered ghabn-i fahiş (excessive deception) and are beyond tolerable levels. Otherwise, small losses, i.e., ghabn-i yesir (small deception), which can be tolerated in commercial life, should be accepted.
That’s all I can say on this topic.