I have a series of questions about islamic loans. My first question is this:
If person 1 loans 100k to person 2 and creates a contract which states that the agreed payback date is 25 years from now. How much does person 2 pay back person 1?
We all know that the value of money reduces due to inflation. For example, 35 years ago, my dad bought a house for 5k, now to buy a similar house you have to pay 200k.
So my question is, should inflation be taken into account according to islam?
What confuses me is that if person 1 is only entitled to 100k after the 25 years, he will in effect be at a huge disadvantage, i.e. in real terms, he will not get back what he loaned person 2.
At the same time, if person 2 gives back person 1 more than 100k, that is potentially interest which is haraam.
So just to clarify, how do long term halaal loans work in islam when it comes to inflation?