Praise be to Allah.
The lender’s use of the collateral is subject to further discussion:
Firstly: if he uses it and benefits from it without the permission of the borrower, then that is not permissible under any circumstances, because the Prophet (blessings and peace of Allah be upon him) said: “It is not permissible to take the wealth of any Muslim except with his willing consent.” And he (blessings and peace of Allah be upon him) said: “Your blood, your property and your honour are sacred to you, as sacred as this day of yours, in this land of yours, in this month of yours.” And he (blessings and peace of Allah be upon him) said: “Every Muslim is sacred to his fellow Muslim, his blood, his property and his honour.” And there are many hadiths which speak of this. So it is not permissible for the lender to make use of the property given as collateral without the permission of the borrower.
It says in al-Mughni: We do not know of any difference of scholarly opinion regarding this.
But if the borrower gave the lender permission to make use of the property given as collateral, if what is owed is a loan, then it is not permissible for the lender to make use of the property given as collateral, even if the borrower gave permission for that, because this comes under the heading of riba, because the Prophet (blessings and peace of Allah be upon him) said: “Every loan that brings a benefit is riba.” Even though there is some discussion about the soundness of this hadith, the scholars are unanimously agreed about that, that it is not permissible for the lender to make use of and benefit from the borrower’s property because of the loan. So this comes under the heading of riba, and it is not permissible to write that down or to witness it, because the Prophet (blessings and peace of Allah be upon him) cursed the one who consumes riba, the one who pays it, the two who witness it and the one who writes it down.” And this comes under the heading of riba.
So if the debt is a loan, and the borrower gives something to the lender as collateral, it is not permissible for the lender to make use of it, whether the borrower gave permission or not, because this is riba.
But if the debt was not a loan, such as if it was the price for sold goods, for example, and the like, and he gives him permission to make use of it, then there is nothing wrong with that, because there is no reason to prevent it. End quote.
Majmu‘ Fatawa al-Shaykh Salih al-Fawzan (2/505).
And Allah knows best.
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