Question sent to me today: “Assalamu alaykum shaykhee

I hope you are well. I have lent a brother some money. He is zakat-eligible. How do I go about converting the debt owed to apply to my zakat payment obligations?”

My Answer:

Wa alaikum Salam habeebna sh Ali ,

The short answer is that you cannot simply forgive the debt and count it as your zakat. The majority of scholars, including the Hanafis, Hanbalis, and the stronger position within the Shafi'i school, hold that this does not fulfill your zakat obligation, this was the choice opinion of Ibn Taymiya as well.

Our shaikh Ibn Uthaymin may Allah have mercy on him held this opinion as well and gave three reasons for why it was the more correct one:

First, zakat requires that wealth actually move from your hand to someone else's. Forgiving a debt moves nothing.

Second, a debt you are owed is worth less in reality than cash in hand, so substituting it for your zakat is giving something of lesser value when your obligation is on actual wealth.

Third, and perhaps most honestly, this option usually only seems attractive when you've already given up on getting your money back. In that case, forgiving the debt doesn't cost you anything you expected to keep, and your liquid wealth stays intact. That is a benefit to you, and zakat cannot be a means by which you benefit yourself.

The only scenario that scholars have identified as potentially valid is the following: you give the brother the $1,000 you owe in zakat as an actual cash transfer, placing it fully in his possession with no strings attached. If he then, entirely of his own free will and without any suggestion or expectation from you, chooses to use that money to repay his debt to you, your zakat stands and his repayment is his own independent decision. The moment any arrangement, hint, or mutual understanding connects those two transactions, you are back to the impermissible form. So in practice, you give the money, you say nothing about the debt, and you leave the rest to him.

And Allah knows best.”

End answer