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Ruling of Sharia on Installment Sale

Answered according to Shafi'i Fiqh by Darul Iftaa Jordan
I work for a company that sells electrical appliances to another company in exchange for (8%) as discount over the market price. These companies do marketing campaigns to sell these commodities in installment for a higher price where they add 20% over the cost. It is worth mentioning that even if the customer came to the company and wanted to pay in cash, he won`t be given the (8%) discount. Is this method of business permissible from the view point of Sharia?

Answer:

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

Installment sale is permissible and there is no sin in it. Actually, the majority of the scholars are agreed that this form is permissible under the condition that the price is determined upon concluding the sale contract, not after that, in addition to specifying dates of payments.

This is based on the following Hadith: Narrated `Urwa:

Aisha said, "Barira came to me and said, 'I have agreed with my masters to pay them nine Uqiyas (of gold) (in installments) one Uqiya per year; please help me.' I said, 'I am ready to pay the whole amount now provided your masters agree that your Wala' will be for me.' So, Barira went to her masters and told them about that offer but they refused to accept it. She returned, and at that time, Allah's Messenger (PBUH) was sitting (present). Barira said, 'I told them of the offer but they did not accept it and insisted on having the Wala'.' The Prophet (PBUH) heard that." `Aisha narrated the whole story to the Prophet. He said to her, "Buy her and stipulate that her Wala' would be yours as the Wala' is for the manumitter." `Aisha did so. Then Allah's Messenger (PBUH) stood up in front of the people, and after glorifying Allah he said, "Amma Ba`du (i.e. then after)! What about the people who impose conditions which are not in Allah's Book (Laws)? Any condition that is not in Allah's Book (Laws) is invalid even if they were one hundred conditions, for Allah's decisions are the right ones and His conditions are the strong ones (firmer) and the Wala' will be for the manumitter." {Agreed upon}.

This is the installment sale, which the Messenger of Allah has approved of.

Moreover, An-Nawawi (May Allah be pleased with him) said: "But if he says: "I will sell you this commodity for one thousand dinars in cash or two thousand in installments……then the sale contract is valid." {Rawdat At-Talibeen, V.3:P.397}. Consequently, it is permissible for the above company to buy commodities in cash and sell them by installments.

In conclusion, it is permissible for the owner of the first company to deduct (8%) from the price of the commodities and that the second company adds (20%) as profit provided that the price and the payment dates are determined upon conclusion of the sale contract. And Allah the Almighty knows best.

  

This answer was collected from the official government Iftaa Department of Jordan.

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