What is the ruling on mobile phone cashback contracts?

CategoriesTrade, Business & All Things Money [552]

What is the ruling on mobile phone cashback contracts?

In the name of Allah, the most Beneficent, the most Merciful.



(A)  Orange for example makes an agreement with (B) example a high street shop that they will give them some hand sets with sims or give them a commission if (B) i.e. high street shops are able to introduce new customers.

(B) (Shops) keeps a portion of the commission and with the extra money to be given as cash back promotes the deal.

(C)    (Customer) enters into the contract with (A) (Orange) with (B) (Shops) acting as an agent.

Note: The cash back is never given by the service provider (Orange)

In the past decade, we have seen the rise of these handheld mobile phones. Once they were classed as a luxury, which only the rich and the well off can afford, but know the majority of the population of England has them.

This is obviously good news for the service providers, whether it is T-Mobile, Orange, Vodafone, O2, Virgin etc as they are cashing in on this boom.

For these service providers to remain ahead in this competitive market, now and then they come up with cheap tariffs, which entice the customers.

The latest tariffs or deals which service providers, T-Mobile and Orange especially have come up with are “cash back schemes” implemented by many companies.

The question, which arises, is that is it permissible or not?

Some shaiks and scholars have concluded that this type of contract involves some element of riba. (Interest)

Their interpretation of this contract is that the contract between the customer and the service provider is a sale (bay’) and the money given by the agent to pay off the contract is a loan.

Furthermore, the Holy Prophet Sallallahu Alahi Wasalam has prohibited the combination of “Bay’ us-Salaf (loan) and “Bay” (sale)

In a Hadith the Holy Prophet (saw) has said:

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They also argue and say that this contract is two transactions (the transaction of taking the loan from the agent and the transaction between the customer and service provider) in one.

This is also prohibited in Islam.

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Finally, their strongest argument is that because this transaction is a loan given by the customer to the company. The money given by the customer is then returned to him either partially or fully with a benefit added, which in our case is a handset plus free minutes of talk time. This is in effect a loan that leads to benefit, which is also prohibited in Islam.

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From what has been mentioned above we can say that the money given by the agents to the customer is not a loan.

Briefly, I would like to mention the Islamic view on a loan. Loans are similar to sales (Bay’), since they involve the exchange of properties.

Allahmah Ibn-Aabideen Shami in Raddul Muhtar (P.179 V.4) has defined the contract as one in which an amount is paid from one party to another, in exchange for a later payment of an equivalent amount.

It has been narrated on the authority of Saaiduna Ibn-Masud Radiallahu Anhu that the Holy Prophet (saw) ha said “every two loans extended by a Muslim to another count as one charitable payment.”

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Thus, loans are recommended for the lender and permissible for the burrower.

There are a few conditions for the loan contract to be correct. (Aqd-Qardh)

One condition, which I mentioned above with the “Raddul-Muhtar” reference, is that loan itself means to pay an amount in exchange for a later payment.

However, in this cash back scheme (as some people say) if the money given by the agent to the customer, who in turn uses it to pay the service provider is a loan then does the customer later repay the loan?

Obviously not! Therefore the money given by the agent cannot be called a loan.

If this is not a loan, then Islamiclly what will we call this scheme.

Looking at this scheme and how it works, we conclude that in this scheme two separate transactions are being done. One separate transaction is being done with the customer and the service provider and another separate transaction between the customer and the agents.

The transaction being done with the customer and the service provider is not that of a sale, but of an ijarah (lease).

The essence of leasing is the sale of the benefit (Manafi’). Thus, the meaning of leasing is the ownership of the benefit.

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It is proven through Quran and Hadith:

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“I intend to wed one of my daughters to you, on condition that you work for me for eight years.”

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“Pay the hired worker his wages before his sweat dries off.”

The condition for the lease to be correct is that there is knowledge of the object or benefit (in this case the handset and free minutes) and the time period (a 12 month or 18 month contract)

All these three are known in this “cash back” scheme.

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This transaction cannot be of a sale. The customers for a period of time are using (borrowing) the airwaves of these companies.

Finally, the transaction between the agent and the customer i.e. the money given by the agent to the customer is not a loan, but a goodwill gesture.

A goodwill gesture on behalf of the agent, who has brokered the deal to help the customers to pay for the cash back.

For example, cash back bonuses from the usage of credit cards are a reward from credit card companies in order to attract customers, and then this is legally called a hiba (gift).

Similarly, the agents who bearing in mind are being paid commission from the service providers (eg T.Mobile) for every customer they attract to this tariff, as a thank you gesture, give some money to help you towards the contract.

Before I conclude, I would like to emphasise that this fatwa deals with the abovementioned scenario.

Only Allah Knows Best.

Mohammed Tosir Miah

Darul Ifta Birmingham

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