Islamic Perspective of Household Debt Management: An In-Depth Study

Abstract

The use of debt in personal life has become crucial in modern times. Nowadays, people prefer to incur debt to fulfill their needs, wants, and demands. However, it is important to have sufficient knowledge and literacy in debt management unless it might be a cause of financial failure. In Malaysia, the tremendous growth of loans and debt-based products has led to a rise in household indebtedness. It seems Malaysian households are suffering from a lack of knowledge about debt and its management. Hence, the aim of the study is to explore the Islamic point of view regarding the management of debt. This study employs a qualitative approach, utilizing in-depth interviews with a group of Shariah scholars. The selection of these scholars follows a snowball sampling technique, ensuring a comprehensive and insightful exploration of this research topic. The findings of the study expose that the rulings on debt and its settlement in Islam vary according to particular circumstances. In general, there is no harm to incur debt as it valid (halal). However, debt should only be used to fulfill necessities, as the absence of it might cause damage to the debtor. On the other side, Islam encourages people to become creditors by giving interest free loans (qard-e-hasan). Moreover, it inspires the creditors to extend the debt repayment period in case of debtors’ inability to pay back the debt within the specific period to ensure social and economic welfare. Thus, the study contributes to improving the knowledge and literacy of the Malaysians about debt and its treatment, ultimately improving their financial behaviors.