A bank wishes to borrow from another bank an amount in US dollar. The other bank agrees with the condition that, the first bank lends them another amount, in Euro currency. Is this permissible?
There are four opinions regarding the execution of back to back loans:
- According to the four schools of jurisprudence, this sort of transaction is not permissible under any circumstances.
- According to some contemporary scholars, it is permissible if there is a valid shariah reason. This is the opinion of Dr Sami Al Suwailem and Dr Nazih Hamad.
- According to some scholars including some shariah boards, it is permissible under any circumstances.
- According to Ahmad Khalil Islambuli and other scholars, it is permissible to execute back to back loans when the two agreements are not contractually connected to one another. AAOIFI also allows the execution of back to back interest free loans using different currencies.
And Allah knows best!
(Mufti) Billal Omarjee