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. 

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?