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Fatwa CenterWaiving a Loan as a Part of Obligatory Zakah
Question
A few years ago, I gave money to a couple of friends who were in need. For some reason, they couldn't pay me back. One of them has also passed away. Now, I am thinking of waiving off their loan and counting it as part of my Zakat (since both qualify for Zakat). Can I do that?
Answer
All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad 
is His slave and Messenger.
To begin with, we say: Allah willing, you will be rewarded for lending money to your two friends. This is because lending is considered an act of kindness, a way to relieve the hardship of someone in need, and a form of offering help, all of which are actions for which a Muslim is rewarded. Allah the Almighty says: {And whatever good you put forward for yourselves - you will find it with Allah. It is better and greater in reward.} [Quran 73: 20]
{And whatever good they do - never will it be removed from them. And Allah is Knowing of the righteous.} [Quran 3: 115]
It is mentioned in the Kuwaiti Fiqh Encyclopedia regarding lending: "It is an act of devotion, because it benefits the borrower, fulfils his need, and alleviates his distress.” [End quote]
As for whether it is permissible to consider the loan as part of your obligatory Zakah, the answer is no, because when you initially gave the money, it was with the intention of a loan — not Zakah — and actions are judged by intentions. The Encyclopedia further states: “It is not permissible for a creditor to waive a debt owed by a poor insolvent debtor and count it as part of his Zakah. If he does so, it will not be accepted as Zakah. This is the view held by the Hanafis, Hanbalis, and Malikis (except Ashhab), and it is the stronger opinion among the Shafi'is, as well as the opinion of Abu ‘Ubayd.” [End quote]
Furthermore, it is better for you to waive the debts of your two friends, especially if the living one is unable to repay, and to pardon the one who has passed away. This is for two main reasons:
First: The encouragement found in Islamic teachings to waive the debts of those in difficulty. Allah the Almighty says: {And if someone is in hardship, then [let there be] postponement until [a time of] ease. But if you give [from your right as] charity, then it is better for you, if you only knew.} [Quran 2: 280]
And in Sahih Muslim, it is reported that ‘Abdullah ibn Abi Qatadah 
said: “Abu Qatadah pursued a debtor who tried to avoid him. When he finally found him, the man said: ‘I am in difficulty.’ Abu Qatadah asked: ‘By Allah?’ The man replied: ‘By Allah.’ So Abu Qatadah said: ‘I heard the Messenger of Allah, sallallaahu 'alayhi wa sallam, say: Whoever wishes to be saved from the distresses of the Day of Judgement, let him ease the hardship of a debtor or waive the debt entirely.’”
Similarly, in Sahih Al-Bukhari, it is narrated from Abu Hurayrah that the Prophet, sallallaahu 'alayhi wa sallam, said: “There was a merchant who used to lend money to the people. When he would see his debtor in hardship, he would tell his workers: ‘Forgive him, so that Allah may forgive us.’ So Allah forgave him.”
Second: Your deceased friend is currently burdened by the debt he owed you. A person who dies is not cleared of their debt unless the creditor forgives it or it is paid off on their behalf.
It has been narrated by Abu Hurayrah that the Prophet, sallallaahu 'alayhi wa sallam, said: “The soul of a believer remains suspended due to his debt until it is paid off.” [Reported by Ahmad and At-Tirmidhi, who graded the Hadith as Hasan [good]]
Moreover, the Prophet, sallallaahu 'alayhi wa sallam, even refrained from praying over someone who died with unpaid debt until one of the Companions took responsibility for settling it. This shows the serious nature of debt upon a deceased person. So, if you waive the debt, you will relieve him of a great burden and do a good deed for him after death, just as you did during his life. And Allah never lets the reward of those who do good go to waste.
Allah knows best.
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