Islamic Banking

Fatwa ID: 03661

Answered by: Alimah Sabrina al-Faarsiyyah

 

Question

In Islamic Banking, it is believed that the "time value of money" is prohibited in loan transactions only, but in case of trading on credit and deferred payment, it is allowed. This seems to be the case of the most popular mode of Islamic Banking, the Murabaha transaction. Can the credit price of any product be higher than the cash or spot price? Isn't the extra amount paid for gaining more payment time akin to interest?

 

بسم الله الرحمن الرحيم

In the Name of Allah, The Most Gracious, The Most-Merciful

 

Answer:

Excess money charged against credit payment is interest, only when the subject matter is money on both sides. However, when a commodity is sold in exchange for money, the seller may take different factors into consideration when fixing the price, including the time of payment. Therefore, a seller, being the owner of a commodity which has intrinsic utility, may increase the price because he allows credit to his client. This is not prohibited by the shari’ah if there is no cheating and the purchaser accepts it with open eyes. Moreover, once the seller has fixed the price by keeping the time in mind, he may not increase/change it. Due to this, if the purchaser fails to pay at the stipulated time, the price will remain the same and cannot be increased by the seller.[1]

 

 

Only Allah knows best

Written by Alimah Sabrina al-Faarsiyyah

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham

 

 


[1] Islamic Finance, pp. 115-116, Mufti Taqi Uthmani

 

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