Islam calls Muslims to be cooperative and helpful. A Muslim will be rewarded for helping his fellow Muslims, even by lending them money if they need it. However, a Muslim should be cautious lest his money is used in illegal ways. Therefore, if a Muslim has doubts that the borrower might spend his money in illegal ways, then he has the right to stipulate that his money should not be spent in haram ways.
Sheikh Ahmad Kutty, a senior lecturer and Islamic scholar at the Islamic Institute of Toronto, Ontario, Canada, states: It is unquestionably permissible for a lender to stipulate conditions that the money he is lending is not to be used for purposes or things that are considered haram (unlawful) or sinful by Allah. However, no one has the right—based merely on conjecture—to suspect someone of committing a sin, for everyone should be deemed innocent until proven otherwise.
However, if one has a strong suspicion that the money, he is lending a person is going to be used for committing sins or offences, then he has a responsibility to make sure that it is not used for such purposes; otherwise, he is guilty of facilitating or being complicit in sin. In Islam, every Muslim is obligated to try his best to remove corruption according to the best of his ability and means.
This is not the same as compulsion in religion. Just as committing a sin or offence is haram, likewise, it is also haram to facilitate a sin. By lending money to someone while knowing fully well that the amount could be used for a crime or sin is therefore also considered haram. It is no different from helping a person to drink poison to kill himself, for sins are worse than poison and have more disastrous effects on individuals and societies.