Paying through installments

Definition: It is a postponed payment executed in a fixed number of
instalments at determined times, with a price higher than the cash
price.
Is such a sale allowed? Scholars have two opinions:
1-The first opinion: Many scholars of the Hanafi, Maaliki, Hanbali,
and Shafi'ee schools of jurisprudence rule that it is allowed. They
present the following proofs:
A- This form of sale is an exampleof the sales that are allowed in the
Quran where Allaah Says (what means): "…Allaah has permitted trade and
has forbidden interest…" [Quran: 2:275] And also: "…Except when itis
an immediate transaction which you conduct among yourselves…" [Quran
2:282]
B- Some prophetic narrations show the permissibility of the increase
above the cash price. Forexample, the Prophet ordered'Amr bin Al-'Aas
to equip an army, so 'Amr would buy a camel for the price of two due
to the payment being in instalments. [Al-Haakim & Bayhaqi]
C- In Islam, trades and transactions are generally allowed, provided
they are conducted with a mutual consentof the contractors, unless the
particular type of transaction is specifically forbidden by the
Sharee'ah (Islamic Law). Since there is no convincing proof that this
type of sale is prohibited, it remains allowed. Whoever
claimsotherwise has to provide proof.
2-The second opinion: This is thatof Imaams Zayn Al-'Aabideen 'Ali bin
Al-Husayn and Al-Jassaas from the Hanafi School of Jurisprudence, as
well as others who stated that increasing the price in exchange for
postponing a payment is similar to increasingthe debt in exchange for
postponing its fulfilment. Their proofs are:
A- The verse where Allaah Says (what means): "…Allaah has permitted
trade and has forbidden interest…" [Quran 2:275] means that sales that
include an increase of price in exchange for deferring payments are
forbidden, because they are examples of Riba (interest).
B- The Prophet has forbidden the addition of extraneous conditions to
a sale, or to have two sales in one.
C- There is an analogy of this type of sale with the case where someof
the debt is forgiven when the debtor pays before the due date. This
would mean that time has compensation, and this is plainly Riba.
D- The increase of price because of the deferred payment is an
increase in exchange for nothing in return, therefore it is a case of
Riba, which, by definition, means to hike up the price in exchange for
nothing.
The majority of the scholars have refuted the above proofs, presented
by those who prohibit this sale, as follows:
A- To say that this type of sale is like Riba because of the increase
of price is refuted. The Prophet, has determined the cases of Riba,
and some scholars have limited themselves to these caseswhile others
have added other cases they thought were considered Riba because they
fulfil the same causes. These cases are, however, the object of
disagreement between the scholars. But the matter that is disagreed
about in this particularcase is beyond what was mentioned by the
Prophet and related cases, for it is about asale in which the kind of
merchandise and the evaluation of the price have differed.
B- To say that Riba means an increase in price is also refuted because
almost every sale includes an increase in the price. The
abovementioned verse [Quran: 2:275] mentions the unlawfulness of Riba
in general, but the types of Riba were enumerated by the Prophet and
they were six types. Sale by instalments is not included in these six
types of Riba, nor is it included in the types added to them by some
scholars.
C- Taking as proof the Hadeeth (prophetic narration) that forbidstwo
sales in one, or extraneous conditions in a sale, is refuted because
the forbidden sales in that Hadeeth are in fact sales where either the
price or the merchandise is not specified, which is not the case of
the instalment sale.
In conclusion, the most acceptable opinion is the one adopted by the
majority of the scholars, which allows this type of sale, because of
their strong proofs and because they convincingly addressed the proofs
presented by the other side. Also, the common interest of all the
Muslims requires that it be accepted due to the benefit for both the
buyer and the seller.
Two Fatwas (Legal Rulings) Concerning Instalments:
Question 1: What is the Islamic Ruling concerning the increase in the
price when there is a deferred payment executed in instalments?
Answer: Payment by instalments in sales contracts is allowed if it
includes legitimate conditions and permissible if the monetary amount
of the instalments is defined and the times of payment are fixed; as
Allaah Says (what means): "O you who believe! When you contract a debt
for a specified term, write it down…" [Quran 2:282] And also, due to
the Hadeeth: "Whoever loaned something, let him lend itin a known
measure, or a known weight, and for a fixed term." In addition, we
have the authentic story of Bareerah who emancipated herself from her
masters in exchange for nine Ooqiyyaat (the plural of Ooqiyyah,one of
which is equivalent to three hundred and sixty Dirhams), paying one
Ooqyyah a year, and this was a payment in instalments, and the Prophet
did not condemn it; rather, he approved of it. [Shaykh Ibn Baaz]
This narration indicates that it is permissible to pay in instalments.
Even though the texts state that it is permissible to delay payment,
there is no text that explicitly states that it is permissible to
increase the price in return for the delay.
Hence, the scholars differed concerning the ruling on this issue. Some
scholars said that it is prohibited, on the grounds that it is the
same as Riba. They stated that this was due to the increase in price
in return for the deferment, which is Riba. On the other hand, the
majority of scholars, including the four Imaams, were of the view that
it is permissible. The comments of the scholars of the four Schools of
Fiqh (Islamic Jurisprudence) concerning this include the following:
· The Hanafi School : "The price may be raised in return for delaying
payment," [Badaa'i' Al-Sanaa'i', 5/187]
· The Maaliki School : "For more time some amount may be addedto the
price." [Bidaayat Al-Mujtahid, 2/108]
· The Shaafi'ee School: "Five in cash is equivalent to six in deferred
payment." [Al-Wajeez byAl-Ghazzaali, 1/85]
· The Hanbali School : "Delay adds something to the price." [Fataawa
Ibn Taymiyyah, 29/499]
Question 2: A man living in the United Sates asks if instalments used
in car sales that include a fee for deferring payment is allowed. This
fee increases when the buyer fails to pay on the agreed due dates.
Answer: If someone sells cars or other merchandise for a known fixed
price that is payable by instalments that are fixed both intime and
amount, in such a way that the price does not change when the fixed
time of payment changes (i.e., payment is delayed), then this sale is
allowed, for Allaah Says (what means): " O you who believe! When you
contract a debt for a specified term, write it down…" [Quran 2:282]
But if the price of the merchandise increases if an instalment is paid
after the due date, as it is understood in this question, then this is
forbidden by consensus of the scholars, because this is a case of
Riba, which is mentioned (and explicitly forbidden) in the Quran.[The
General Committee for Religious Research, Fatawa, Da'wah, and
Guidance]