Q: In business, we sometimes suffer great losses when our debtors fail to pay us. To secure ourselves against these losses, we take out credit guarantee (CGIC).
How it works is that I tell CGIC, for example, that the general amount of money owed to me by my debtors at any given point is approximately R40 million. They will then provide me with credit cover and charge me 0.6% p/month of R40 million. When any of my debtors fails to pay me, then as soon as 90 days pass, I issue a letter of demand to the debtor and also inform CGIC. If the debt is not settled by 120 days, CGIC takes over the debt and tries to get the money from the debtor through legal means, etc. They then pay me 70-75% of the debt amount.
Because CGIC is a form of insurance, they also charge an excess i.e. they will not cover the first claim up to R200 000 per annum.
Is credit guarantee (CGIC) permissible in Islam?
A: All forms of insurance are haraam as the elements of gambling and interest are found in them. Hence, this type of insurance where one pays monthly premiums to secure one’s business debts is also impermissible as the elements of gambling and interest are also found in it. Severe warnings have been sounded in the Holy Qur’an and the Mubaarak Ahaadith for the person who gets involved in the grave sin of gambling and interest.
And Allah Ta’ala (الله تعالى) knows best.
Answered by:
Mufti Zakaria Makada
Checked & Approved:
Mufti Ebrahim Salejee (Isipingo Beach)