Should Zakat be Paid by a Creditor on a Loan?

Whether a creditor must pay Zakat on a loan depends on the situation and the school of thought they follow. 

Here’s a breakdown of both factors:

Circumstances:

• Loan unlikely to be repaid: If the creditor doubts they will recover the loan, they may still choose to pay Zakat on it each year it remains unpaid.
• Loan given for business purposes: If the borrower is using the loan for business activities, the creditor may exclude this amount from their Zakat calculation until it is repaid.
• The loan is received after being outstanding: Once the creditor recovers the loan, they may be required to pay Zakat for all the previous years it remained unpaid.

Different Schools of Thought:

• Hanafi & Hanbali: Zakat is due each year on debts expected to be repaid, but the creditor pays it only after receiving the loan back.
• Shafi'i: Zakat must be paid at the end of each year on debts that are likely to be recovered.
• Maliki: Some debts require Zakat annually, while others are subject to Zakat only once, upon repayment.

General Principle:

Zakat is typically due on strong debts, meaning loans that the creditor is confident will be repaid. 

While scholars may differ in approach, the underlying principle of Zakat emphasizes the purification of wealth and responsibility toward those in need. It's a reminder that our blessings are not just ours to keep, but to share.

Organizations like Pakistan Sweet Home uphold this spirit by offering more than just support—they create homes for orphans where compassion becomes a lifelong commitment.

And Allah knows best!

 Other Zakat Questions You May Have

• Is Zakat Required on Sukuk al-Ijarah?
• Is Zakat Obligatory on Illegitimate Earnings?
• Can Unlawful Earnings Be Purified by Giving Zakat?
• Is Zakat Obligatory on a Personal Pension Plan?
• Does Zakat Apply to Property Pension with Physical Assets?
• Is Zakat Payable on Undeveloped Land and How is it Assessed?