Is it permissible to rent property in order to give it as collateral for a loan?

Question: 265282

I needed to take a loan from the bank, and the bank asked me to give a property as collateral. Unfortunately I do not have any property, so I consulted a friend, and he suggested the following to me: he would give me his property so that I could give it to the bank (as collateral), in return for interest that I would pay to my friend, namely ten percent of the value of the loan, to be paid annually until I pay off the loan. Is that halaal or haraam?

Praise be to Allah, and peace and blessings be upon the Messenger of Allah and his family.

What appears to
be the case is that there is nothing wrong with this transaction, if it is
done by way of renting, in the sense that you rent the property from your
friend, in return for a known amount of money to be paid annually or
according to whatever is agreed upon, then you give it as collateral for
your loan with the bank.

Shaykh Mansoor
al-Bahooti said:

The one who
gives something as collateral must own it, even if he only owns its usage
and not the item itself, such as if he rents something in order to give it
as collateral, or he owns the right to use an item, such as if he borrows it
to give it as collateral, and that should be with the consent of the owner
in both cases. In that case it is valid to give it as collateral even if the
debtor does not tell them – namely the landlord or the lender – the amount
of the debt for which it is serving as collateral. But the debtor should
tell the landlord or the lender what he is giving it as collateral for, and
the length of time for which he is giving it as collateral, so that there
will be no ambiguity or deceit.

End quote from
Kashshaaf al-Qinaa‘ ‘an Matn al-Iqnaa‘ (8/154)

We put this
question to our shaykh, ‘Abd ar-Rahmaan al-Barraak (may Allah preserve him),
and he said:

It is
permissible so long as it is done by way of rental, that is, you rent your
friend’s land during the collateral period.

And Allah knows
best.

Source:

Islam Q&A

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