Answered by Shaykh Muhammad ibn Adam al-Kawthari
There are two types of bonds:
1) Prize Bonds:£1 buys you 1 bond. No interest is accumulated or paid. You are always able to redeem your bonds for cash – the same amount as you paid originally. Periodically, a number of ‘prizes’ are distributed and every bond has an equal chance of winning a prize. You may win much or nothing. But you cannot lose your investment.
2) “Bonds” in the traditional sense: You can purchase, for example, government bonds whereby you invest £1000, on which the government will guarantee you a 4% annual return.
There is no doubt that that number 2 is purely riba-based and hence haram as you have mentioned previously, (see:http://www.daruliftaa.org/Premium_bonds.htm).
My question is whether number 1 is also haram?
In the name of Allah, Most Compassionate, Most Merciful,
My previous answer was regarding bonds in the traditional sense, which I termed as ‘Premium Bonds’. However, the following is the answer with regards to prize bonds, regarding which you have asked:
A prize bond in which the original investment remains and one is able to redeem the bond for cash is also unlawful in Shariah.
The reason for this is that, in prize bonds interest is added (according to the ratio of investment) to each person’s original investment and gathered in a joint pool. Then, instead of returning each person their interest, it is all given to the individual who won the prize. Therefore, this prize is pure interest and unlawful.
Due to the original investment being safe, it does not fall within the definition of chancing and gambling which is also unlawful. However, scholars mention that it resembles chancing in that the interest accumulated on the original investment is uncertain. One may receive this interest and more (in the case of winning a prize) or not receive any interest altogether.
In light of the above, any prize received by purchasing these bonds is regarded as Riba, thus unlawful, and included in the Hadith:
“Any lending arrangement which results in some benefits to the lender, is one of the kinds of Riba” (Sunan al-Bayhaqi).
It should be remarked here that the purchaser of theses bonds in reality and according to the principles of Islamic Fiqh is considered to be a lender and not merely a purchaser.
Those that do not receive any prize on the bonds are also sinful due to the fact that they purchased theses bonds with the intention of gaining a prize (interest) which is also unlawful.
In conclusion, purchasing prize bonds in reality is lending money to the issuers of these bonds. Any prize received will be considered Riba, thus unlawful. It will also be impermissible to invest in these bonds with the intention of receiving a prize.
And Allah knows best
Muhammad ibn Adam Darul Iftaa, Leicester, UK