All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.
Taking or giving loans with interest (Ribaa) is among the grave major sins. Every one who has money that resulted from Ribaa transactions should repent and get rid of that money by spending it in the general interest of Muslims, like helping the poor and the destitute. As for giving that money to the one who pays back his interest, it needs some details. If he is poor and needy, does not have money to pay back the due interest, and he is obliged to pay it, then giving him the interest money is allowed and not considered as encouraging him to take deal with Ribaa, otherwise it is not allowed.
For more benefit, please refer to Fataawa 84162 and 83300.
Allaah Knows best.