I want to know whether it is permissible to borrow money for investments. Does Allah forbid us from buying goods or making investments (even if they are halal) using borrowed money, or does He stop us only from borrowing haram funds? Please, clarify the principle involved here, since I am unclear whether to borrow or not, for halal investments from halal sources?
In the Name of Allah, Most Gracious, Most Merciful. All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
Usury (riba) is impermissible (haram). But it is important to define riba, which is the increase in a loan or debt. It does not matter for which purpose one borrows money; for consumption or investment. So, you can borrow money to invest as long as you are strongly intending and able, to pay it back.
Offering a detailed reply to your question, Dr. Monzer Kahf, a prominent Muslim economist and counselor, stated:
“Riba (usury) is any increment in a loan or a debt as mentioned in Al-Quran, Verse 2:279 that is anything above the principal of the loan or debt. It does not differentiate between loans for consumptions and loans for investment or to buy goods for trade. A loan without interest is of course permissible all the time but a loan with interest is not.
Financing investment from a loan without interest is also permissible. In other words, the prohibition is of the interest not of the loan and purpose of using the money is irrelevant.”
Allah Almighty knows best.