The ‘debt’ of the world’s poorest countries is currently estimated to stand at $2.7 trillion. Since 1996, the world’s 66 poorest countries have paid a total of over $230 billion to service their foreign debt - this amount far exceeds any aid they have received. Indeed, indebted countries are paying around $118 million every day in interest and principal payments - although payments far greater than the original loan amount have already been made. Debt is one of the principal causes of poverty; it has hampered the economic development of indebted countries and prevented them from investing in essential services such as healthcare and education. Are there any additional insights that can be gained through analysing the debt crisis from an Islamic perspective? Are there any specific Islamic teachings and guidance that Muslims can refer to when considering solutions? This paper examines Islamic teachings on debt and, with references from the Qur’an and ahadith, argues that for Muslims there are indeed strong and clear faith-based reasons for advocating debt cancellation.

Much of this debt is ‘unjust’. It has arisen from loans knowingly granted to dictators or oppressive regimes, provided by lenders who knew that funds would be misappropriated through corruption, or used for projects that would fail because of poor advice or incompetence by the lenders. The debt is, therefore, largely a consequence of reckless, negligent and self-interested lending by the governments of rich countries and international financial institutions. Not only are successor governments burdened with paying off the debts of their predecessors, but also, because the loans were not used productively, there are insufficient means to repay. Poor countries are often forced into taking out new loans just to service the old ones. They are trapped in a vicious circle of debt. 

From an ethical and moral perspective there are, therefore, clear reasons why the un-payable and unjust debts of the world’s poorest countries should immediately be cancelled in full by fair and transparent means. Cancelling these debts would release funds that poor countries could invest in social welfare, resulting in, for example; millions of children being able to attend school; reducing the incidence and impact of HIV/AIDS, malaria and other infectious diseases; increasing the provision of safe drinking water and sanitation facilities; and reversing the loss of environmental resources.

This paper briefly examines Islamic teachings on debt with references from the Qur’an and ahadith. It argues that Islam urges Muslims to strive for social justice; this requires a fair and equitable distribution of wealth, the provision of basic necessities of life to the poor and needy as well the protection of the weak against economic exploitation by the strong. The un-payable debt that currently burdens many poor countries has arisen through loans that were given irresponsibly by rich countries and frequently misspent by corrupt and dictatorial regimes in poor countries. It is unjust to force their successor governments to repay. Furthermore, the loans that were given contravened many aspects of Islamic financing; they were not given on the basis of risk sharing and they charge interest. In addition, for those genuinely unable to meet their debt repayments, Islam encourages the debt to be forgiven. Therefore, this paper concludes that there is clear support in Islam for those movements which advocate for justice on behalf of the poor and marginalised and that argue in favour of debt cancellation.

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