Friday, December 21, 2012

Brief Comments on Riyaadh al-Saaliheen #61

Installments: Tricks of the Trade

While working on this article, a generous number of ideas arose for the title so my wife figured we'd humor you with them rather than let them go to waste!

Beg, Borrow or Steal: Dubious Transactions

Usury: A Capital Offense

Commerce or Coercion? Transactions in Islaam


Deal With It: Transactions of Conscience

The Real Deal

بـسـم الله والحـمـد لله والـصلاة والـسـلام عــلى رسـول الله، وبـعـد

[Sharh Riyaadh al-Saaliheen (6/335-337) of Shaikh al-`Uthaymeen رحمه الله

 Shaikh al-`Uthaymeen رحمه الله said:

There are many foolish people amongst us who take the issues regarding loan as something trivial. For example, a person might find a car which would suffice for his needs for the price 20,000 (Twenty Thousand) Riyals. But he would say (to himself): This (car) is not (good) enough for me. I will purchase a car for 80,000 (Eighty Thousand) Riyals on installments,” or through a loan based on interest (Ribaa) as some of the people do. He would go to a car showroom, choose a car and will ask for the price. He then goes to a trader (businessman) and says to him: “Purchase the car and sell it to me.” Allaah’s refuge is sought, it is all a trick, a fraudulence, trying to deceive Allaah تعالى.

{يخادعون الله وهو خادعهم}

{They seek to deceive Allaah, but it is He Who deceives them} [Surah al-Nisaa’ (4): 142]

Meaning, the trader did not intend to buy the car, nor did he intend to help the borrower; his only intention is to increase (his wealth). If it is said to the trader: “Sell me the car at the same price which you purchased.” He would reply: “What profit is there for me in it? I will only sell it with an increased price.” And it is known about these people, that if the borrower refuses to purchase it, his name is registered on the black list so that he is not entertained a second time. This is coercion. How will they ever deceive Allaah?!

If a person goes to the bank (or a financial institute) and said to them: “Give me a loan of 100,000 (One Hundred Thousand) Riyals with interest.” This is lesser (in degree) than the previous type of loan, because deception is more severe than being straightforward. The deceiver incurs two sins – one for dealing in usury and the other for deception; whereas the straightforward person incurs only one sin – the sin of dealing in usury – accepting that it is a sin and perhaps he may repent from it because a person does not pursue a thing for long if he acknowledges that it is a sin. The problem is with the deceiver, who makes himself believe that it is Halaal and will continue with this action and repeat it. The Prophet صلى الله عليه وسلم said:

البر ما اطمأنت إليه النفس، واطمأن إليه القلب، والإثم ما حاك فى النفس وتردد في الصدر، وإن أفتاك الناس وأفتوك

“Righteousness is that which contents the soul and comforts the heart, and sin is that which causes doubts and perturbs the heart, even if people pronounce it lawful and give you verdicts on such matters again and again” [Musnad Imaam Ahmad (17999, 18001, 18006) on the authority of Waasibah bin Ma`bad رضي الله عنه and graded as “Hasan li ghairihee” by Shaikh al-Albaanee in Saheeh al-Jami` al-Sagheer (948) and Saheeh al-Targheeb (1734). Also in Musnad Ahmad (17742) on the authority of Abu Tha`labah رضي الله عنه and graded as “Saheeh” by Shaikh al-Albaanee in Saheeh al-Jami` al-Sagheer (2881) and Saheeh al-Targheeb (1735)]

Don’t ask anyone, but consult your heart: did you sincerely intend to purchase the car (for yourself) or only at the request of the borrower so that you can directly sell it to him at a higher price? (Answer this sincerely) for the One who will ask you and hold you for account on the Day of Judgment is Allaah the Lord of the worlds, and He تعالى knows what is in your heart.

As for the issue of Tawarruq (a type of transaction), then the commodities are already in possession of the seller for this person and other than him (to purchase). If someone comes to him to purchase it in cash and he sells it to him for 50; and when someone comes to him to purchase it in installments and he sells it to him for 60 – then there is no problem with these type of transactions.

The point is that the person takes every type of precaution from the many different types of usurious dealings and transactions (direct or indirect); and he should stay away from it even if he does not find someone who will make the matter easy for him (i.e. give him a loan without interest).

--end of quote from Shaykh al-`Uthaymeen.

Some guidelines regarding purchasing through installments:

1. Buying and selling in installments is allowed even if there is an increase in the price. Example: Cash price is 50, and purchasing in installments is 70.

2. Possession:

a. A person should not sell that which he does not own (and the buyer should make sure that he only purchases it from the person who already owns it).

Hakeem bin Hizaam رضي الله عنه asked: O Messenger of Allaah صلى الله عليه وسلم! A man comes to me and wants me to sell him something which is not in my possession. Should I buy it for him from the market? He صلى الله عليه وسلم replied: “Do not sell what you do not possess.” [Sunan Abu Dawood (3503), al-Tirmidhee (1232), Ibn Maajah (2187), al-Nasa’ee (4613) and graded as “Saheeh” by Shaikh al-Albaanee]

Narrated 'Amr b. Suh'aib: On the authority of his father said that his grandfather `Abdullaah bin `Amr رضي الله عنهما reported the Messenger of Allaah صلى الله عليه وسلم as saying: “The proviso of a loan combined with a sale is not allowable, nor two conditions relating to one transaction, nor profit arising from something which is not in one’s charge, nor selling what is not in your possession.” [Sunan Abu Dawood (3504) and graded as “Hasan Saheeh” by Shaikh al-Albaanee]

b. A person cannot buy a thing and then sell it on the spot. After purchasing the thing, the person should move to a different location before he can sell it.

Ibn `Umar رضي الله عنهما reported Allaah’s Messenger صلى الله عليه وسلم as saying: “He who bought foodgrain should not sell it until he had taken possession of it.” [Saheeh al-Bukhaaree (2126) and Saheeh Muslim (3648)]

Ibn `Umar رضي الله عنهما reported: “We used to buy food grains during the lifetime of Allaah’s Messenger صلى الله عليه وسلم. He صلى الله عليه وسلم would then send to us one who commanded us to take them (the food grains) to a place other than the one where we had bought them before we sold it.” [Saheeh Muslim (3645)]

Ibn `Umar رضي الله عنهما reported Allaah’s Messenger صلى الله عليه وسلم as saying: “He who buys food grain should not sell that before taking possession of it.” He (Ibn `Umar) said: “We used to buy food grain from the caravans in bulk, but Allaah's Messenger صلى الله عليه وسلم forbade us to re-sell that until we had shifted it to some other place.” [Saheeh Muslim (3646)]

Saalim ibn `Abdullaah ibn `Umar reported: “Ibn `Umar رضي الله عنهما said: “I saw people being beaten during the lifetime of Allaah's Messenger صلى الله عليه وسلم in case they bought the foodgrain in bulk, and then sold them at that spot before taking it to their places.” [Saheeh al-Bukhaaree (2137) and Saheeh Muslim (3650)]

Saalim ibn `Abdullaah ibn `Umar reported: “Ibn `Umar رضي الله عنهما said that they were beaten during the lifetime of Allaah’s Messenger صلى الله عليه وسلم if they had bought food grains in bulk and then sold them in the spot without shifting them (to some other place).” [Saheeh Muslim (3649)]

Note: This is one of the problems that arise when the person purchases a thing (car, a house etc.) in installments from a third party (a trader or a bank) instead of directly purchasing it from the dealers or the owners themselves. When dealing with some of these traders and almost all the banks and other financial institutes, a person gets into a contract in purchasing the thing from them which they do not own.

The second problem is that these types of transactions are Ribaa based. Since these third parties do not own the thing (example a car), they only lend money to the original buyer (mostly in the form of directly paying to the dealer). It does not matter, whether the borrower receives the loan in the form of cash from the bank (and then he buys the car) or when the bank directly pays the dealer – whichever form it is, the loan is in the name of the borrower. So whatever extra money they are getting back is Ribaa. It is money for money, and the commodity is only used as a cover up.

The Third problem is that the banks and the other financial institutes will be selling it to the borrower on the spot. After making the payment, the car is in the banks name. But instead of the bank moving the car to their warehouse, the borrower drives away with it from the showroom.

3. Once the amount is determined then it should not be changed later on. Example, the agreement was to complete the installments in 10 months. But the borrower is not able to complete it 10 months, so he asks credit for additional few months while agreeing to pay an additional amount over what was previously agreed in the contract. This is not allowed. The agreed amount should not change. If the borrower is not able to pay immediately, he should be allowed some time to repay the debtor without charging him extra.

4. It is forbidden to deal with two transactions in one contract.

Narrated `Abdullaah bin `Amr رضي الله عنهما that the Messenger of Allaah صلى الله عليه وسلم said: “The proviso of a loan combined with a sale is not allowable (i.e. it is not allowed to lend on the condition of a sale), nor two conditions relating to one transaction, nor profit arising from something which is not in one’s charge, nor selling what is not in your possession.” [Sunan Abu Dawood (3504), al-Tirmidhee (1234), al-Nasa’ee (4611, 4629, 4630) and graded as “Hasan Saheeh” by Shaikh al-Albaanee]

Note: The most common contract in buying a car through the banks is “rent-to-own” The Council of Senior Scholars has issued the following statement concerning it:

“The Council of Senior Scholars has studied the issue of rent-to-own schemes, and after discussing the matter, the majority of the Council thinks that this kind of transaction is not permissible in sharee’ah for the following reasons:

First: It is a combination of two transactions for one item and is not based on either of them; the two transactions come under two separate rulings and there is a contradiction between the terms of the two transactions.

When something is sold, the item and its benefits or usage must be transferred to the purchaser, so it is not valid for the seller to receive rent for it because it is the property of the purchaser. When something is rented, that means that the usage or benefits of the item (and not the item itself) are transferred to the renter.

Selling something implies that the purchaser both owns the item itself and enjoys usage of it, and if it is worn out or destroyed he bears the cost of that and the loss of both the item and its benefits; none of that falls upon the seller. But if something is rented, the owner who is renting it out bears the cost of any loss or any wear or tear to the item or its benefits, unless the renter has transgressed the limits or shown negligence.

Second: The rental fees are calculated on a yearly or monthly basis in such a way that towards the end of the stated term, the value of the item is paid off, but the seller calls these payments “rental fees”, so that the purchaser cannot not sell the item until he has paid the whole amount. 

For example: If the value of the item in question is fifty thousand riyals and the monthly rent is usually one thousand riyals, he makes it two thousand. In fact this is part of the price until, towards the end of the term, the value of the item is paid. But if the purchaser is unable to make the final payment, for example, the item will be taken away from him on the grounds that it is something rented, and he will not be given back the money that he has paid on the grounds that he has made use of it. 

It is obvious that this is wrongdoing and forcing people to borrow money to make the last payment. 

Third: This kind of contract leads to the poor being careless about debts until many of them end up heavily in debt. It may even lead to bankruptcy for some of the lenders because of losses incurred because of loans to the poor.

The Council thinks that the two parties should look for a sound way, which is to sell the item and put its price in pledge (rahn) and to protect the seller’s rights by letting him keep the contract document and ownership papers etc. 

And Allaah is the Source of Strength. May Allaah send blessings and peace upon our Prophet Muhammad and his family and companions.

Members of the Council of Senior Scholars who signed this statement include the following:

Shaykh `Abd al-`Azeez ibn `Abd-Allaah Aal al-Shaykh
Shaykh Saalih al-Lahaydaan
Shaykh Saalih al-Fawzaan
Shaykh Muhammad ibn Saalih al-‘Uthaymeen
Shaykh Bakr ibn `Abdullaah Abu Zayd.

5. The people should not give in to their desires and force themselves in purchasing a thing which they cannot afford. A small car which can fulfill the needs is better than buying an expensive car on installments and getting into all sorts of trouble.

More on selling in installments:

More Fataawa on Sales and Installments can be accessed here:

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