Dental practice case study

Introduction:

In a world increasingly driven by consumer culture and financialisation, debt has become a ubiquitous aspect of life for many individuals and nations. Islam offers profound insights into the handling of debt, encouraging timely repayment and promoting a life free of debt. Debt is a serious matter in Islam. It is a responsibility that should not be taken lightly or neglected. The Prophet (peace and blessings of Allah be upon him) used to seek refuge with Allah from being overburdened by debt and he warned against lying and breaking promises when dealing with debt. In this article, we will explore some of the Islamic teachings and principles regarding debt and how to repay it in a timely and ethical manner.

The Islamic View On Debt

Islam does not prohibit debt; it recognises the fact that people may face circumstances that necessitate borrowing. However, it emphasises caution, responsibility, and most importantly, the intention and effort to repay the debt promptly. One of the foundational elements in Islamic financial ethics is the prohibition of 'Riba' (usury or interest). This reflects, among many other things, the Islamic principle of social justice, ensuring that the burden of risk is not disproportionately placed on the borrower and preventing exploitative lending practices. Here, the Shariah protects the borrowers and debtors. The Shariah encourages lenders to go easy with debtors, and in fact, Shariah promotes helping those struggling with interest-free loans as well as grants.

The Virtue Of Prompt Repayment

Shariah is a perfect balance. Whilst it has guidance addressed to the creditor to guide their conduct, Shariah also protects creditors and lenders, and has guidance addressed to borrowers and debtors. The following guidance shows how Shariah balances the rights and ensures everyone’s rights are upheld.

The virtues of repaying debts promptly are emphasised throughout the teachings of the Prophet (peace and blessings of Allah be upon him). Paying off debt is a virtue and a means of attaining Allah's reward and forgiveness. It is a way of fulfilling one's duty and honouring one's trust. It is also a way of expressing gratitude and kindness to the creditor who helped the debtor in his time of need.

The Prophet (peace and blessings of Allah be upon him) said, "Whoever takes a loan intending to repay it, Allah will help him, and whoever takes a loan intending to waste it, Allah will destroy him." [Sunan Ibn Majah]

He also said, "If anyone remits anything from a debt owed to him, he will have that amount recorded for him as a charity." [Sunan Abu Dawud]

In another Hadith it was reported: "The soul of the believer is suspended because of the debt until it is settled." [Tirmidhi] This Hadith indicates the serious implications of dying in a state of debt and underscores the urgency of repayment.

The Prophet (peace and blessings of Allah be upon him) would supplicate to Allah to save him from debt. He would say, “O Allah, I seek refuge in You from a soul that does not satisfy and from a heart that does not humble itself and from a supplication not heard and from knowledge that does not benefit and from a deed not raised up and from a debt that never ends.” (Musnad Ahmad)

In another narration, the Prophet (peace and blessings of Allah be upon him) sought Allah’s refuge from debt. Abdullah ibn Umar narrates, "When the Prophet contracted a debt transaction, he would say: O Allah, I seek refuge in Thee from care and sorrow, from incapacity and laziness, from stinginess and cowardice, and I seek refuge in Thee from the burden of debt and from being humbled by people." [Abu Dawud]

Whilst prompt payment has been encouraged, unjustified delay has severe warnings. Abu Hurairah reported that the Messenger of Allah said: "Procrastination (delay) in repaying debts by a wealthy person is injustice." [Bukhari]

Hence, the AAOIFI Standards unequivocally state: “Default in payment by a debtor who is capable of paying the debt is Haram (prohibited).”

In one narration, he said: “Delay in payment by a solvent debtor would be a legal ground for his being publicly dishonoured and punished.” [Musnad Ahmad]

Advice To The Creditors

Islam is beautiful in that it addresses all parties with that which concerns them. Each party is given guidance to ensure that they are doing their best that they can do, that they are being the best version of themselves. Just as debtors are warned on delaying payment unnecessarily, creditors are encouraged to go easy. Giving loans to the needy is a noble act of charity and kindness in Islam. It is a way of helping others and relieving their distress.

The Prophet (peace and blessings of Allah be upon him) said, "A man would give loans to the people and he would say to his servant: If the debtor is in hardship you should forgive the debt that perhaps Allah will relieve us. So when he met Allah, then Allah relieved him." [Sahih Bukhari]

It is also encouraged to give respite or deferment to the debtor if he is unable to pay on time. The Prophet (peace and blessings of Allah be upon him) said: “Whoever gives respite to one in difficulty, he will have (the reward of) an act of charity for each day. Whoever gives him respite after payment becomes due, will have (the reward of) an act of charity equal to (the amount of the loan) for each day.” [Sunan Ibn Majah]

Moreover, it is permissible to reduce the amount of the debt or waive it altogether as a gesture of generosity and goodwill. The Prophet (peace and blessings of Allah be upon him) said, "If anyone remits anything from a debt owed to him he will have that amount recorded for him as a charity." [Sunan Abu Dawud]

Debt And Society: A Broader Perspective

Islam does not just focus on individual actions but also considers social responsibilities and collective well-being. Helping those in debt is seen as a meritorious act, leading to divine reward.

In one narration, it is stated, "Whoever relieves a believer's distress of the distressful aspects of this world, Allah will rescue him from a difficulty of the difficulties of the Hereafter… and whoever alleviates [the situation of] one in dire straits who cannot repay his debt, Allah will alleviate his lot in both this world and in the Hereafter." [Sahih Muslim]

The Practical Aspect: Managing Debt

Given the emphasis on prompt debt repayment and avoiding debt where possible, Islam encourages pragmatic approaches to financial management. This includes effective budgeting, prudent spending, and exploration of viable income sources before resorting to borrowing. Furthermore, when borrowing is deemed necessary, it encourages a clear understanding and documentation of the debt terms to prevent future disputes or misunderstandings.

Conclusion

In the Islamic worldview, debt is not merely a financial issue but a matter involving ethics, morality, and social responsibility. While borrowing is not prohibited, there is a clear emphasis on the virtues of prompt repayment and the spiritual and ethical implications of living a debt-free life. Furthermore, the alleviation of others' debt is seen as a meritorious act, showcasing the communal and compassionate dimensions of Islamic financial ethics.This holistic approach can offer valuable insights for contemporary societies grappling with the ethical and societal implications of widespread indebtedness. Ultimately, the Islamic teachings on debt prompt individuals to practice responsible borrowing, timely repayment, and to strive for a life free from the burdens of debt.

What Is The Recovery Loan Scheme

The Recovery Loan scheme was launched on the 6th April 2021 by the UK government as a successor to the government’s Interruptions Loan Scheme and bounce back grants from 2020. As with any loan scheme, this scheme requires the payment of interest. This, of course, is contrary to Islamic Sharia law principles that forbid the collection or payment of interest.

For many Muslim-owned and backed businesses, the question has arisen as to whether the Recovery Loan Scheme is Sharia-compliant. Before we address that, we need to look at the Recovery Loan Scheme and its key features.

The Recovery Loan Scheme provisions were put in place by the government to ensure that they were able to provide financial support to UK businesses. The government wanted to offer additional funding to businesses in the UK that needed the funding to survive the economic turmoil brought on by the pandemic.

The Recovery Loan Scheme’s main purpose is to facilitate recovery and growth post-pandemic. The payments from the Recovery Loan Scheme also aim to ensure that businesses survive during the transitional period back to regular business activities.

The scheme is open to any business that is:

• Trading in the UK
• Able to show it has been adversely affected by the pandemic
• Not involved in any insolvency proceedings
• A viable business if not for the pandemic

How The Recovery Loan Scheme Works

The Recovery Loan Scheme wants to facilitate a full return to business activities for those businesses that have been impacted by the pandemic. The successive lockdowns have affected many small and medium businesses that have been unable to earn an income from their trade.

The Scheme is targeted at businesses that are viable enough to afford debt finance. The British Business Bank administers the Scheme. The actual funding is made available via a range of accredited lenders.

As with any process that involves applying for a loan, businesses need to make a formal application via the lender of their choice.

The loan consists of standard commercial lending terms and this includes the payment of interest on the loan amount. The interest rate varies depending on the lender who provides the loan.

Features Of The Recovery Loan Scheme

An approved lender of the Scheme can provide various loan products including:

• Overdraft facilities
• Asset finance monies
• Term loans
• Interest and fees payments

Any business applying for a loan through the Scheme can borrow up to £10 million. There are also minimum facilities that start in the sum of £1,000.

Some other key features are:

• Guarantee: the government itself guarantees up to 80% of the loan to the lender, irrespective of the size of the loan. This guarantee is not provided to the business, but direct to the lender.
• Interest: any business that takes out a Recovery Scheme Loan will have to make interest and fees payments from the date the loan is drawn. Although interest rates are capped at 14.99%, lenders are encouraged to keep the rates low.
• Term: terms vary from 3 months to 6 years.

What Are The Sharia Rules Relating To Loans And Interest

Sharia law prohibits businesses from paying or receiving interest. Interest, known as riba in Sharia law, is forbidden as it is seen as a mechanism that promotes social injustice. One of the central concepts of Islamic Finance is that Muslims cannot benefit from lending money and paying interest on loans.Sharia law deems riba as an exchange with no equity. That means that it encourages an exchange that is considered to be unequal and unjust. Riba is considered to be an exploitative transaction.

Bottom Line

If we have a look at the Recovery Loan Scheme, it relies on interest payments as a key feature of the Scheme’s repayment terms. The interest element of the Scheme deems it to be non-compliant with Sharia law. In this case, the business will be repaying the full loan amount plus interest at a rate decided on by the lender.

The Scheme goes against the Sharia principle of ensuring investments and payments are socially responsible.

Sharia law clearly states that lending with the payment of interest favours lenders who make money at the expense of the borrower. Islam forbids the receipt of income from money alone, and this is precisely what interest payments are.

Islamic Finance is based on ethical economic principles. The Recovery Loan Scheme is therefore not Sharia-compliant as the interest payment element of the Scheme is contrary to Sharia principles.However, businesses that operate within Islamic Finance principles can still recover from the pandemic. Islamic Finance is focused on sustainable economics and there are products available within the Islamic Finance market that can assist businesses with economic recovery.

The Qardus Option For Business Funding

We provide finance to small and medium-sized enterprises with growth potential that the business owners want to unlock. The funding available is from £50k to £200k with terms of between 6 and 36 months.

Our funding process is rooted in Islamic community principles and is certified as Sharia-compliant. As a result, we don't charge interest and we don't work in business sectors considered damaging to society, such as alcohol, tobacco or gambling.

Because of our principles, our funding solution is an attractive option for Muslim business owners, but we also provide funding to business owners outside the Muslim community.

We offer fast, flexible and affordable business growth funding that's firmly grounded in ethical principles.

For Muslims living in the UK, they are bound by the rules and laws relating to inheritance tax and wills. These rules are not based on Sharia law or Islam but are the rules of the country in which you reside. Whilst Sharia rules include provisions relating to managing the estate on the death of someone, the rules in the UK are more stringent and need to be understood.

Islamic Sharia law states that Muslims need to ensure that their assets are distributed according to Islamic rules on their death. Sharia rules outline how assets should be divided amongst surviving relatives.

For Muslims living in Muslim countries, the laws relating to inheritance and intestacy are based on Sharia rules so this makes things easier when it comes to the division of assets. However, for Muslims living in non-Muslim countries such as the UK, if they die without a will then their assets will be distributed in accordance with the domestic laws and not Sharia law.

WHAT IS INHERITANCE TAX?

Inheritance tax is essentially a tax applied on the estate of someone who dies. This tax is paid on the property and assets of the deceased above the inheritance tax threshold.

The aim of inheritance tax is to generate revenue for the government and to implement broader policies. For those wanting specific information about their tax liability they should speak to professionals who are experts in the field of tax and estate planning/ decision making.

HOW MUCH IS TAX FREE ON INHERITANCE?

Currently, in the UK inheritance tax is charged on 40% on all assets that exceed what is known as the nil rate band of £325,000.

No inheritance tax is payable on the first £325,000 of the estate. Above that, 40% inheritance tax is charged. This amount is lower if leaving your home to direct descendants.

ARE MUSLIMS EXEMPT FROM INHERITANCE TAX?

Muslims in the UK are not exempt from paying inheritance tax. However, there are some rules in the UK tax regime that can accommodate cultural or religious practices. These include:

• Charitable donations: zakat and sadqa payments and charitable bequests in wills made to qualifying charities can benefit from exemptions.
• Spouse exemptions: Normally, the transfer of assets between spousal beneficiaries is exempt from inheritance tax.
• Business relief: there are also some exemptions and reliefs that apply to businesses and agricultural assets.

DO MUSLIMS IN THE UK PAY INHERITANCE TAX?

Yes, Muslims in the UK are subject to the laws and rules relating to inheritance tax.

Inheritance tax in the UK is not based on religion but on the actual value of the estate and the rules of the country you live in.

HOW TO LEGALLY AVOID PAYING INHERITANCE TAX?

There are some strategies you can use legally to reduce your inheritance tax bill.

• Create a tax efficient Islamic will
• Effectively utilise the nil rate band
• Speak to professionals and experts for advice on managing your assets
• Use the spouse exemption
• Invest in business or agricultural property
• Set up tax efficient trusts
• Make use of charitable donations
• Gift your assets in a tax efficient way

Always speak to Sharia tax experts when planning your will and estate distribution.

WHO IS EXEMPT FROM PAYING INHERITANCE TAX IN THE UK?

There are some people and assets that are exempt from inheritance tax including spouses and direct dependents. The general rule is that if your estate exceeds the £325,000 threshold you need to start thinking about estate planning.

Exemptions under the tax rules are subject to conditions and criteria, so always speak to experts before making any decision.

WHAT ARE THE RULES ABOUT INHERITANCE IN ISLAM?

Islam sets out some clear provisions when it comes to inheritance and death. The first step is to ensure you have a legally valid will in place.Islam sets out the order or priority when it comes to the distribution of funds. The order of payments is as follows:

• funeral costs and expenses
• Outstanding debts
• Bequests to be honoured (but not where the value exceeds one third of the value of the estate/remaining assets
• distribution of remaining assets to family

Whilst Islam predetermines how our estate is divided on our death, it is still important to ensure we have a will in place.

WHAT HAPPENS IF YOU HAVE MORE THAN ONE WIFE?

In the UK as the inheritance tax rules are not based on religion, this means that if Islamically you have more than one wife the tax rules will be applied as per UK laws.

Only the legal marriage (as per UK rules) will be recognised for the purposes of determining inheritance tax responsibilities and liabilities.

CAN HALF-BROTHERS INHERIT IN ISLAM?

The rights of the half brothers inheritance depends on many factors including the presence of other heirs in the family, and the proportion of shares (see above) and order or priority.

Half brothers and sisters can inherit if there are no full brothers and sisters.

RIGHTS OF DAUGHTERS IN ISLAM?

Islam focuses on the equality of gender when it comes to inheritance rights. Daughters are entitled to inherit from parents who are deceased alongside other relatives.

Islam states that daughters are allocated a share in accordance with the principles outlined below.

As primary heirs, daughters will take priority over distant relatives.

The Division Of Jewellery In Islam

When it comes to jewellery, Islam provides guidelines for the distribution of the estate of the deceased and these guidelines include jewellery. Those distributing the estate should be mindful of the fixed shares for the different categories of heirs as stipulated by Islamic rules.

Jewellery is considered part of the estate of the deceased and is subject to Islamic rules of asset division. Of course, the deceased can leave specific bequests in their will when it comes to jewellery and it is expected that the other heirs honour the wishes of the deceased and consent to the bequests.

Islamic Rules Relating To Wills And And Payment To Heirs

Sharia law states that you can distribute up to one third of your estate however you want to on your death. This applies as long as the third share is passed on to someone that is not already entitled to a fixed share of the estate.How is the remaining inheritance divided in Islam?The remaining two thirds of the estate on death should be distributed as follows:

• the surviving wife is entitled to receive one eighth of the husband's estate. If there are no children from the marriage then the wife receives one quarter of the estate.
• the surviving husband will be entitled to a quarter of his deceased wife's estate. If there are no children of the marriage then the husband received one half.
• depending on what the entitlement of the surviving spouse is, the mother of the deceased is entitled to one sixth of the estate. This figure is one third in the event that the deceased had no children.
• If the deceased's father is alive, then the mother is entitled to one quarter of the estate (where there are no children).
• If the deceased does not have a spouse, children or father, then the mother will inherit one half of the estate.
• If the deceased leaves behind no children, the father of the deceased will receive the surplus after distribution.
• If the deceased leaves behind one (or more) son, then the father is entitled to one sixth of the estate (but no entitlement to any surplus).
• If the deceased is survived by a spouse and daughters, then the father of the deceased will receive one sixth of the estate. In addition, the father will receive one sixth of any remaining surplus once the division of the estate has completed.
• surviving children are entitled to the surplus of the estate once the remaining spouse and parents have received their share.
• male grandchildren and children are entitled to over 50% of the estate when compared to the female children and grandchildren.
• If there are two plus surviving daughters then they will share two thirds of the estate equally between themselves (as long as there are no other surviving relatives).

CAN YOU REFUSE INHERITANCE IN ISLAM?

The simple answer to this is yes, you can refuse inheritance. However, any voluntary refusal should be made after careful consideration.

WHICH COUNTRIES HAVE NO INHERITANCE TAX?

There are many countries across the globe that do not have inheritance tax regimes. These include:

• UAE
• Saudi Arabia
• Qatar
• Oman
• Bahrain
• Monaco
• Brunei
• Slovakia