Installment Sales in Islam: Halal? New

Islamic Ruling on Buying/Selling on Installments

Question: Is it permissible to buy and sell on installments by increasing the rate?

Answer:

Alhamdulillah…!!

Buying and selling on installments is permissible, provided that the transaction occurs at the same price as the item’s cash price in the market. However, if the price of the item is increased due to installments, making it higher than its cash market price, then it is impermissible and haram. This is because it is one of the many widespread forms of interest (Riba).

Abu Huraira (may Allah be pleased with him) narrated that,

نَهَى رَسُولُ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ عَنْ بَيْعَتَيْنِ فِي بَيْعَةٍ.

The Messenger of Allah (peace and blessings be upon him) forbade two transactions in one transaction.

(Sunan al-Tirmidhi, Hadith No. 1231/Hadith Sahih)

In another hadith, it is further explained:

Abu Huraira (may Allah be pleased with him) narrates that the Prophet (peace and blessings be upon him) said:

مَنْ بَاعَ بَيْعَتَيْنِ فِي بَيْعَةٍ فَلَهُ أَوْكَسُهُمَا أَوِ الرِّبَا

Whoever settles two transactions in one, he may have the lesser of the two, or it is Riba (interest).

(Sunan Abi Dawood, Hadith No. 3461, Hadith Hasan)

(Silsilah as-Sahiha, Hadith No. 2614)

(Irwa al-Ghalil, Hadith No. 1295)

In another narration, the words are:

نهى رسول الله صلي الله عليه وسلم عن صفقتين في صفقة واحدة،

The Prophet (peace and blessings be upon him) forbade two deals in a single transaction.

(Musnad Ahmad, Vol. 8/p. 383, Hadith No. 3783)

Hazrat Abdullah ibn Mas’ud (may Allah be pleased with him), in his explanation of this hadith, says (that two deals in one transaction means) that a person says:

وإن کان بنقد فبكذا وإن كان بنسيئة فبكذا،

This item is for such-and-such price if it’s in cash, and for such-and-such price if it’s on credit.

(Musannaf Ibn Abi Shaybah, Vol. 4/p. 307, Hadith No. 20454)

Similarly, one of the narrators of the above-mentioned hadith from Abu Dawood, Simak ibn Harb (may Allah have mercy on him, a Tabi’i), while explaining the meaning of “two transactions in one,” says that a man sells something and tells the buyer that if you take it for cash, it is for this much, and if you take it on credit (installments), it is for that much.

General commentators of hadith, the Imams, have explained this hadith with the same meaning, including Imam Ibn Qutaybah, Imam Ibn Sirin, Imam Ibn al-Athir, Imam al-Nasa’i, Imam Ibn Hibban (may Allah have mercy on them), and several other Imams.

Some scholars, including muftis from Arab countries, consider it permissible to increase the price on installments. They argue that the hadith which forbids two prices is for those who do not fix the price. That is, when the seller tells the buyer, “this is the cash price and this is the installment price,” and the buyer takes the item without specifying whether he is buying it for cash or on installments, this transaction is haram due to the ambiguity (Jahalat).

And if the buyer specifies that he has bought it for, say, 100 rupees in cash or 150 on installments, then this transaction is valid.

This view is wrong for several reasons. The statement of some scholars who deem it permissible if the price is determined at the beginning is rejected because it contradicts the clear statement of the Messenger of Allah (peace and blessings be upon him).

This is because the Prophet’s (peace and blessings be upon him) clear and explicit command is that it is not correct to set two prices for one item, and if a higher price is charged for credit, it is Riba (interest). This hadith nowhere states that it would be permissible if the price is fixed at the time of purchase or if the buyer willingly agrees to buy at a higher price on credit.

Even if there were no clear and explicit hadith, such a trade is haram because it is an interest-based transaction. Interest on money is also charged for time and delay, and the extra money for goods is also taken for a period and delay, which is Riba.

In conclusion, the first hadith makes it clear that it is not permissible to set two rates for the same item. The second one further clarifies that even if two rates are to be set, the second rate for credit should be lower than the cash rate. If the cash price is kept lower and the price is increased for credit, it becomes interest. The additional amount in the case of credit is, in reality, a charge for the time period, and charging for the time period is interest. Furthermore, the installment business has many worldly harms as well. Just as the lender takes advantage of the borrower’s compulsion in an interest-based loan and takes extra money from him, in the same way, by luring with installments, a poor man’s money is wasted. Just as in the interest-based system, the rich get richer and the poor get poorer and sink into debt, the same is happening in the installment business. The Prophet (peace and blessings be upon him) encouraged avoiding unnecessary debt because many tribulations arise from debt. Sometimes the intention of the borrower changes, and sometimes the lender transgresses, resulting in fights, quarrels, and severing of ties. Whereas these installment businesses have pushed every third person into the mire of debt, which most often results in fights, quarrels, robbery, and deceit.

The Shari’ah commands us to avoid what is clearly haram as well as doubtful matters. So how can it be right to call something permissible in which there is doubt about whether it is Halal or Haram?

The Messenger of Allah (peace and blessings be upon him) said:

The Halal is clear and the Haram has also been made clear, and between them are some doubtful matters. Whoever falls into them is on the verge of committing a sin, and whoever avoids these doubtful matters has protected himself. The example is like that of a shepherd whose flock is grazing around a pasture; it is very likely that the flock will run into that forbidden pasture.

Every king has a pasture, and the pasture of Allah is the things He has forbidden.

(Musnad Ahmad, Hadith No. 18384)

(Silsilah Hadith as-Sahiha, 128)

(((And Allah the Almighty knows best what is correct)))

Reference: https://alfurqan.info/problems/97