Do I Have to Pay Zakah on Money I Loaned to Others, and What If the Borrower Cannot Repay?

Do I Have to Pay Zakah on Money I Loaned to Others, and What If the Borrower Cannot Repay?

Question
Do I have to pay zakah on a loan that I have loaned to people? And what if they cannot pay it back and they are poor? Do I have to pay zakah on it? Can I just make this money part of my annual zakah?

Answer
Alhamdulillah, wassalatu wassalamu ala rasulillah, wa ala alihi wa sahbihi ajmain.

1. The Shar‘i Context

Loans (qard hasan) remain your wealth, even when they are in someone else’s hand.
Zakah depends on whether the loan is strong (expected to be returned) or weak (unlikely to be returned).

The scholars divide loans into two types:

1. Strong debt:
   • The borrower is able to repay
   • You expect it to be returned
   • The debt is acknowledged and confirmed
2. Weak debt:
   • The borrower is poor
   • Or unable to repay
   • Or you believe you may never get the money back

The ruling differs based on which type of debt it is.

2. Zakah on a Strong Debt (Expected To Be Returned)

If the borrower is capable of paying, and you expect repayment:

• You must pay zakah on that amount every year, because it is considered part of your wealth even while it is loaned out.

When the borrower finally returns the money, if you did not pay zakah for past years, then you must pay for all past years at once.

3. Zakah on a Weak Debt (Poor Borrower or Unlikely To Return)

If the borrower is poor or cannot repay, or you believe the debt is unlikely to come back:

• You do not pay zakah on it each year.
• You only pay zakah one time, when the money is actually returned to you.

If it is never returned, there is no zakah at all, since you never regained the wealth.

This is the ruling preferred by many scholars because it is based on fairness and the principle that zakah is due only on accessible wealth.

4. Can You Count the Loan Itself as Part of Your Annual Zakah?

If the borrower is poor, some of the sound opinion in Fiqh Committees and councils saying: yes, you may convert the loan into your zakah by formally forgiving it with the intention of zakah.

This is called:
إسقاط الدين بنية الزكاة
Forgiving a debt while intending it as zakah.

Conditions:

• The borrower must be eligible for zakah (poor, unable to repay).
• You must have the intention of zakah at the moment you forgive it.

Once forgiven with this intention, the debt becomes your zakah payment, and no further zakah is due on it.

5. Relevant Usul Principles

الزكاة تجب في المال النامي

Zakah is due on wealth that has the potential to grow.
A strong loan remains wealth that can grow, so zakah applies every year.

العلة تدور مع الحكم وجوداً وعدماً
The ruling exists or disappears depending on whether its cause exists or disappears.

The “cause” (illah) for zakah is ownership of accessible, usable wealth.

• When the debt is unreturnable, the cause for zakah is absent, so no zakah is due.
• When the debt returns to your possession, the cause reappears, and zakah becomes obligatory in that year only, even if the debt was gone for four or more years.

So if someone pays you back after four years when you believed the money was gone, you do not pay zakah for the past four years.
You pay zakah only in the year it returns, because that is when the cause (illah) for zakah exists again.

Final Ruling

1. If the borrower can repay and the loan is expected to return:
   • You pay zakah every year on that amount.
2. If the borrower is poor or unlikely to repay:
   • You do not pay yearly zakah.
   • You pay one year of zakah only when the money is returned.
   • If never returned, no zakah.
3. If the borrower is poor, you may forgive the loan and count it as your zakah, and this is fully valid.

And Allah knows best.