Question:
What is the Islamic perspective on Premium Bonds?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
In the UK, a premium bond is defined as a nonmarketable government security issued by National Savings & Investments at £1 each. Periodical interest is not paid; instead the investment is entered into a draw every month to win prizes from £25 to £1 million. The bonds are repayable upon demand.[1]
In simpler terms, a premium bond is a type of bond that you can buy as part of a UK government system in which you have the chance to win money each month for as long as you do not sell the bond.[2]
When analysing this transaction Islamically, effectively, the premium bond holder is advancing a loan to the bond issuers. The bond holder/lender is entitled to a surplus once the stipulated condition in the contract matures.
As a principle, a loan with a conditional increase above the principal amount is interest.[3] Therefore, it is impermissible to invest in Premium Bonds.
And Allah Ta’ālā Knows Best
Mufti Faraz
www.darulfiqh.com