What is the Islamic perspective on Premium Bonds?

Answered according to Hanafi Fiqh by Darulfiqh.com
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What is the Islamic perspective on Premium Bonds?


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

[1] http://www.qfinance.com/dictionary/premium-bond
[2]  http://dictionary.cambridge.org/dictionary/business-english/premium-bond

[3]  كُلُّ قَرْضٍ يُشْتَرَطُ فِيهِ مَنْفَعَةٌ فَهُوَ حَرَامٌ هَذَا إذَا كَانَتْ الْمَنْفَعَةُ مَشْرُوطَةً فِي الْعَقْدِ فَإِنْ لَمْ تَكُنْ مَشْرُوطَةً فَدَفَعَ أَجْوَدَ فَلَا بَأْسَ (درر الحكام في شرح مجلة الأحكام ج 3 ص 94 دار الجيل)

This answer was collected from DarulFiqh.com, which is operated under the supervision of Mufti Faraz ibn Adam al-Mahmudi, the student of world renowned Mufti Ebrahim Desai (Hafizahullah).