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SALES ON INSTALLMENTS

Compiled By:
Prof. Dr. Mohd. Ma’sum Billah
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Quote - The Council of the Islamic Fiqh Academy, holding its sixth session held in Jeddah, Kingdom of Saudi Arabia, from 17 to 23 Sha'ban, 1410 H (Corresponding to 14 - 20 March 1990);

Having studied the papers presented to the Academy on the subject of "Sales on installments", and having listened to the discussion that took place on the subject;

RESOLVED

First:  It is permissible to fix an increased price for a commodity sold on deferred payment, as compared to its cash price. It is also permissible to mention different prices for cash and deferred sales. Even the deferred prices can vary according to the different periods specified for payment, and such variance can be expressly disclosed by the seller to the customer.

But the sale cannot take place until the parties agree to contract a particular mode of payment and specify whether the payment is in cash or deferred. Therefore, if the sale takes place without specifying a single particular mode of payment, leaving it uncertain whether the buyer shall pay in cash or in installments, the sale is not valid according to Sharia'h Second:It is not permissible, in installments sale, to fix the spot price on cash basis, then to charge interest expressly tied with different periods, as separate from the price of the commodity, no matter whether the parties have agreed on a particular rate of interest or have left it to the current market rate.
Third If the buyer/debtor delays the payment of installments after the specified date, it is not permissible to charge any amount in addition to his principal liability, whether it is made a pre-condition in the contract or it is claimed without a previous agreement, because it is ''Riba'', hence prohibited in Shari'a.
Fourth:It is prohibited (Haram) for a solvent debtor to delay the payment of the insallments from their due dates. However, it is not permissible in Shari'a to impose a compensation in case he delays the payment.
Fifth:It is permissible for the seller to impose a condition in the sale agreement that if the debtor/the buyer delays the payment of some installments, all the remaining insallments shall be due at once before their agreed date. This condition may be a valid condition, provided that the buyer had agreed to it when entering into the sale agreement.
Sixth:The seller has no right to secure the ownership (of the sold commodity) after the sale has taken place. However, it is permissible for him to impose a condition that the buyer shall mortgage the sold commodity with the seller to secure his right of receiving the deferred installments of the price.

AND THE COUNCIL RECOMMENDS

   to carry out further study in some issues relating to the " Sale on installments" so that it may be possible to find out an absolute ruling about them after preparing sufficient research material on them.

         Among these issues are the following:
a)      Discounting the Bills of Exchange through banks
b)      Payment of debt before its due date against a rebate i.e. the issue of "Da'wata ajjal".
c)      The effect of the death (of one of the parties) on the remaining
installments.

Verily, Allah is All-Knowing

(Source: "Resolution and Recommendations of the Council of the Islamic Fiqh Academy (1985-2000)” , IRTI.)

 

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