DEBT MANAGEMENT IN DEBT MANAGEMENT IN ISLAMISLAM

Salaudeen Jubril ASalaudeen Jubril A

jubrilsalaudeen@gmail.comjubrilsalaudeen@gmail.com

The TrickThe Trick

Debts LeverageDebts Leverage

Geared Credit AllowanceGeared Credit Allowance

Float pay later FacilityFloat pay later Facility

Flexibility I.O.U Soft-loan Flexibility I.O.U Soft-loan

DEBT: State and National LevelDEBT: State and National Level

With regard to the community level, With regard to the community level, specialists have described the negative specialists have described the negative consequences and the danger it poses to consequences and the danger it poses to the economy: the economy:

Debt is tearing down schools, clinics and Debt is tearing down schools, clinics and hospitals and the effects are no less hospitals and the effects are no less devastating than war. devastating than war. Adebayo AdedejiAdebayo Adedeji

The Debt MapThe Debt Map

Key

SILIC: (RED)Severely indebted low-income country (or HIPC: Highly indebted poor country)

SIMIC: (BLUE) Severely indebted middle-income country

MILIC: (YELLOW) Moderately indebted low-income country

What we pay and who is paidWhat we pay and who is paid

Each year developing countries pay the West nine times Each year developing countries pay the West nine times more in debt repayments than they receive in grants.more in debt repayments than they receive in grants.

The UK Charity Comic Relief raised £26 million in 1997. The UK Charity Comic Relief raised £26 million in 1997. Africa paid this back in debt service in just over a day. Africa paid this back in debt service in just over a day.

Each person in the Third World owes about £250 to the Each person in the Third World owes about £250 to the West - much more than a year's wage for many. West - much more than a year's wage for many.

Of the 32 countries classified as severely indebted low-Of the 32 countries classified as severely indebted low-income countries, 25 are in sub-Saharan Africa. income countries, 25 are in sub-Saharan Africa.

Cont…Cont…

Africa spends four times as much on debt Africa spends four times as much on debt repayment as she does on healthcare. repayment as she does on healthcare.

For a billion people, development is being For a billion people, development is being thrown into reverse. After decades of thrown into reverse. After decades of steady economic advance, large areas of steady economic advance, large areas of the world are sliding back into poverty.the world are sliding back into poverty.

EffectEffect

Debt is in one of the principal causes of Debt is in one of the principal causes of poverty; poverty;

it has hampered the economic it has hampered the economic development of essential services such development of essential services such as healthcare and education. as healthcare and education.

Ecuador spends 47% of its government Ecuador spends 47% of its government income on servicing debt and only 12% on income on servicing debt and only 12% on education and just 7% on healthcareeducation and just 7% on healthcare

SolutionSolution

Cancellation of the backlog of unpayable Cancellation of the backlog of unpayable debt of the poorest countries - most of debt of the poorest countries - most of which are in Africa. which are in Africa.

This could signal the beginning of dramatic This could signal the beginning of dramatic improvements in healthcare, education, improvements in healthcare, education, employment and development for employment and development for countries crippled by debt (Nigeria)countries crippled by debt (Nigeria)

Debt: Language and ShariahDebt: Language and Shariah

The fuqaha’ define dayn (debt): an obligation to The fuqaha’ define dayn (debt): an obligation to be fulfilled, al-Mawsoo’ah al-Fiqhiyyah (21/102).be fulfilled, al-Mawsoo’ah al-Fiqhiyyah (21/102).

linguistic dayn (debt) in Arabic has to do with linguistic dayn (debt) in Arabic has to do with submission and humiliation. submission and humiliation.

The connection between the shar’iah meaning The connection between the shar’iah meaning and the linguistic meaning ;The debtor is a and the linguistic meaning ;The debtor is a prisoner, prisoner,

The Prophet (S.A.W) said: “Your companion is The Prophet (S.A.W) said: “Your companion is being detained by his debt.” Narrated by Abu being detained by his debt.” Narrated by Abu Dawood, 3341; classed as hasan by al-Albaani Dawood, 3341; classed as hasan by al-Albaani in Saheeh Abi Dawoodin Saheeh Abi Dawood

The weight of DebtThe weight of Debt

We were sitting with the Messenger of Allaah (peace and We were sitting with the Messenger of Allaah (peace and blessings of Allaah be upon him) when he raised his blessings of Allaah be upon him) when he raised his head towards the sky, then he put his palm on his head towards the sky, then he put his palm on his forehead and said: “Subhaan-Allaah! What a strict issue forehead and said: “Subhaan-Allaah! What a strict issue has been revealed to me!” We remained silent and were has been revealed to me!” We remained silent and were afraid. The following morning I asked him, “O Messenger afraid. The following morning I asked him, “O Messenger of Allaah, what is this strict issue that has been of Allaah, what is this strict issue that has been revealed?” He said, “By the One in Whose hand is my revealed?” He said, “By the One in Whose hand is my soul, if a man were killed in battle for the sake of Allaah, soul, if a man were killed in battle for the sake of Allaah, then brought back to life, then killed and brought back to then brought back to life, then killed and brought back to life again, then killed, and he owed a debt, he would not life again, then killed, and he owed a debt, he would not enter Paradise until his debt was paid off.” al-Nasaa’i, enter Paradise until his debt was paid off.” al-Nasaa’i, 4367. 4367.

ImplicationImplication

Beware of debt, for it starts with worry and it Beware of debt, for it starts with worry and it ends with war. Narrated by Imam Malik in al-ends with war. Narrated by Imam Malik in al-Muwatta’ (2/770). Muwatta’ (2/770).

In Musannaf ‘Abd al-Razzaaq (3/57) it says: Ibn In Musannaf ‘Abd al-Razzaaq (3/57) it says: Ibn ‘Umar (may Allaah be pleased with him) said: O ‘Umar (may Allaah be pleased with him) said: O Humran, fear Allah and do not die in debt, lest it Humran, fear Allah and do not die in debt, lest it be taken from your good deeds when there will be taken from your good deeds when there will be no dinars and no dirhams. be no dinars and no dirhams.

According to World bank, “There According to World bank, “There are presently 15 to 17 million are presently 15 to 17 million Nigerians who are financially Nigerians who are financially overextended.”overextended.”

CLOSER HOME: WHAT IS DEBT?CLOSER HOME: WHAT IS DEBT?

Debt occurs when Debt occurs when goods, services, or goods, services, or money is received in money is received in exchange for a exchange for a promise to pay a promise to pay a definite sum of money definite sum of money at a future date.at a future date.

DEBT IN CAPITALISM DEBT IN CAPITALISM ADVANTAGESADVANTAGES

ConvenientConvenient Useful for emergenciesUseful for emergencies Often required to hold a Often required to hold a

reservationreservation Ability to purchase Ability to purchase

expensive items soonerexpensive items sooner Eliminates the need to Eliminates the need to

carry large amounts of carry large amounts of cashcash

DISADVANTAGESDISADVANTAGES Paying interestPaying interest Additional fees are Additional fees are

commoncommon Temptation to Temptation to

overspendoverspend Can cause large Can cause large

amounts of debtamounts of debt Identity theftIdentity theft

Debt in IslamDebt in Islam Islam permits assuming debt within Islam permits assuming debt within

affordable limits. If debts are incurred affordable limits. If debts are incurred responsibly then prompt and full repayment responsibly then prompt and full repayment is important.is important.

The Prophet Muhammad (SAW) said, “the The Prophet Muhammad (SAW) said, “the best among you are those best in paying off best among you are those best in paying off debt” (Muslim) and “procrastination (delay) debt” (Muslim) and “procrastination (delay) in repaying debts by a wealthy person is in repaying debts by a wealthy person is injustice” (Bukhari).injustice” (Bukhari).

Paying debtPaying debt

““Whoever contracts a debt intending to Whoever contracts a debt intending to repay it, Allah will repay it on his behalf, repay it, Allah will repay it on his behalf, and whoever contracts a debt intending to and whoever contracts a debt intending to waste it, Allah will bring him to ruin” waste it, Allah will bring him to ruin” ( Bukhari).( Bukhari).

The prophet supplicationsThe prophet supplications

““Allah, I seek refuge with You from sin and Allah, I seek refuge with You from sin and debt”.debt”.

Managing DebtManaging Debt

When someone remarked, “how often you When someone remarked, “how often you seek refuge from heavy debt”, he (S.A.W) seek refuge from heavy debt”, he (S.A.W) replied, “when a man gets into debt, he replied, “when a man gets into debt, he speaks and tells liesspeaks and tells lies, and , and he makes a he makes a promise and breaks itpromise and breaks it” ( Bukhari and ” ( Bukhari and Muslim).Muslim).

How do we Manage debtHow do we Manage debt

1. Pay off1. Pay off 2. Debt Forgiveness2. Debt Forgiveness 3. The family assume the debt3. The family assume the debt 4. Management by Dua4. Management by Dua 5. The community assume the debt5. The community assume the debt

Paid off by the familyPaid off by the family

The Prophet (peace and blessings of The Prophet (peace and blessings of Allaah be upon him) said: “The soul of the Allaah be upon him) said: “The soul of the believer is held hostage by his debt in his believer is held hostage by his debt in his grave until it is paid off.” Narrated by al-grave until it is paid off.” Narrated by al-Tirmidhi, 1078. Tirmidhi, 1078.

Debt forgivenessDebt forgiveness

““If the debtor is in difficulty, grant him time If the debtor is in difficulty, grant him time till it is easy for him to repay. But if ye till it is easy for him to repay. But if ye remit it by way of charity, that is best for remit it by way of charity, that is best for you if ye only knew” (2:280)you if ye only knew” (2:280)

““If anyone would like Allah to save him If anyone would like Allah to save him from the hardships of the Day of from the hardships of the Day of Resurrection, he should give more time to Resurrection, he should give more time to his debtor who is short of money, or remit his debtor who is short of money, or remit his debt altogether.” (Muslim)his debt altogether.” (Muslim)

USING CREDIT WISELYUSING CREDIT WISELY

Good Credit PurchasesGood Credit Purchases Buying a house on credit is a smart move as Buying a house on credit is a smart move as

home values rise quickly and you can gain home values rise quickly and you can gain equity through appreciation.equity through appreciation.

Financing an education is a good investment Financing an education is a good investment in the future. Your earning potential will in the future. Your earning potential will eventually outweigh the cost of tuition.eventually outweigh the cost of tuition.

Be careful :Buying a car on credit purchase. Be careful :Buying a car on credit purchase. It is important to not get caught up in buying a It is important to not get caught up in buying a car for more than you can afford.car for more than you can afford.

USING CREDIT WISELYUSING CREDIT WISELY

Bad Credit PurchasesBad Credit Purchases Credit card debt and other consumer debt is Credit card debt and other consumer debt is

the worst type of debt. Interest rates and fees the worst type of debt. Interest rates and fees on borrowing money this way will be the on borrowing money this way will be the highest of all, mostly because there is rarely a highest of all, mostly because there is rarely a tangible item as collateral.tangible item as collateral.

Financing a car for longer than the life of the Financing a car for longer than the life of the vehicle can also be an unwise credit decision. vehicle can also be an unwise credit decision.

CREDIT CARDSCREDIT CARDS

Credit cards are a great concept, but Credit cards are a great concept, but they end up bringing financial ruin to they end up bringing financial ruin to many people who use them.many people who use them.

TIPS WHEN USING CREDIT CARDSTIPS WHEN USING CREDIT CARDS

Never use credit cards as extra money. Never use credit cards as extra money. Always allocate money from your current Always allocate money from your current funds or monthly income in order to funds or monthly income in order to immediately payoff whatever you finance.immediately payoff whatever you finance.

Read the fine print on the agreement to Read the fine print on the agreement to make sure you are getting the best terms make sure you are getting the best terms available.available.

DEBT TO INCOME RATIODEBT TO INCOME RATIO

Most experts recommend that no more Most experts recommend that no more than 28% of your gross monthly income be than 28% of your gross monthly income be used to pay for your housing expenses used to pay for your housing expenses (including mortgage or rent, taxes and (including mortgage or rent, taxes and insurance).insurance).

They also recommend that your total D/I They also recommend that your total D/I be no more than 36% when paying all of be no more than 36% when paying all of your recurring debt.your recurring debt.

It is important to keep these D/I ratios in It is important to keep these D/I ratios in mind when acquiring new credit to ensure mind when acquiring new credit to ensure you are always an attractive credit risk to you are always an attractive credit risk to any financial institution.any financial institution.

Don’t find yourself being declined because Don’t find yourself being declined because you have taken on too much debt.you have taken on too much debt.

BUDGETSBUDGETS

A BUDGET HELPS YOU ORGANIZE A BUDGET HELPS YOU ORGANIZE YOUR SPENDING BY:YOUR SPENDING BY: telling you what money comes in, what money telling you what money comes in, what money

goes out, and where it goesgoes out, and where it goes helping you identify expenses that aren’t as helping you identify expenses that aren’t as

important to you so you can free up money for important to you so you can free up money for those that arethose that are

showing you where some changes might be showing you where some changes might be neededneeded

BUDGETING PITFALLSBUDGETING PITFALLSThere are three main reasons budgets fail.There are three main reasons budgets fail.

1. Negative attitude – Try not to think of a 1. Negative attitude – Try not to think of a budget as a financial diet. Try to think of it budget as a financial diet. Try to think of it as a means to an end.as a means to an end.

2. Lack of motivation – The best motivators are 2. Lack of motivation – The best motivators are generated internally. It is important to generated internally. It is important to honestly believe that budgeting can help you honestly believe that budgeting can help you meet your goals.meet your goals.

3. Unrealistic expectations – The reality is that 3. Unrealistic expectations – The reality is that budgeting is an endurance event. Those budgeting is an endurance event. Those who stick with it through thick and thin will who stick with it through thick and thin will come out ahead financially.come out ahead financially.

TIPS FOR CREATING A BUDGETTIPS FOR CREATING A BUDGET

Use a templateUse a template Add/delete categories as applicableAdd/delete categories as applicable Plan on paying more of your debtPlan on paying more of your debt Prioritize your spending by determining wants Prioritize your spending by determining wants

versus needsversus needs Have both a positive attitude and a positive Have both a positive attitude and a positive

ending balanceending balance Put any annual payments into monthly payment Put any annual payments into monthly payment

figuresfigures

DEBT MANAGEMENT PROGRAMSDEBT MANAGEMENT PROGRAMS

If you do get yourself into a financial If you do get yourself into a financial nightmare, there are ways to get back on nightmare, there are ways to get back on track successfully and without ruining track successfully and without ruining you’re your self.you’re your self.

Debt management programs, which are Debt management programs, which are also known as credit counseling sessions, also known as credit counseling sessions, can save you a lot of money and years of can save you a lot of money and years of paying on your debt if you have a good paying on your debt if you have a good one. ( every mosque should have one)one. ( every mosque should have one)

DEBT MANAGEMENT PROGRAMSDEBT MANAGEMENT PROGRAMS

A good debt management set-up is aA good debt management set-up is a

third party who will contact your creditors to:third party who will contact your creditors to: Re-bargain your interest rateRe-bargain your interest rate Negotiate a payment structure with the Negotiate a payment structure with the

creditor that you can affordcreditor that you can afford Determine a realistic amount of time for your Determine a realistic amount of time for your

debt to be eliminateddebt to be eliminated

KEYS TO DEBT MANAGEMENT PROGRAMSKEYS TO DEBT MANAGEMENT PROGRAMS

Key factors to keep in mind when selecting aKey factors to keep in mind when selecting a

good debt management program:good debt management program: Your current creditors lower your interest rate Your current creditors lower your interest rate

and not just your payment.and not just your payment. It is very important you continue to receive It is very important you continue to receive

your statements to ensure no payments are your statements to ensure no payments are past due.past due.

It is not a loan. The out-fit collects the It is not a loan. The out-fit collects the payment from you and allocates it to your payment from you and allocates it to your creditors.creditors.

DEBT MANAGEMENT PROGRAMSDEBT MANAGEMENT PROGRAMS

For someone who gets into a bad financial For someone who gets into a bad financial position, these programs can be the key to position, these programs can be the key to getting back on track.getting back on track.

Most programs structure your payments to Most programs structure your payments to eliminate your debt in 4-5 years.eliminate your debt in 4-5 years.

They make it so no new revolving They make it so no new revolving accounts can be opened while accounts can be opened while participating in the program so once you participating in the program so once you have paid the debts off, you can have a have paid the debts off, you can have a fresh start.fresh start.

Learning to make wise decisions with Learning to make wise decisions with your purchases, investments, and your purchases, investments, and debt can be the key to your success.debt can be the key to your success.

End of PresentationEnd of Presentation

Thank YouThank You