The topic is self-explanatory, and may have already been discussed. As far as I can remember, this aspect of it that I’m about to quote has not come across me. So please excuse me If I’m presenting a repeated point of view.
I found this somewhere while looking up Interest-Free Auto Loan; just for information sake. The source of the remark is less relevant than that content. I’d like your views in the light of scriptural evidence (Quran and/or Hadith) on what is quoted.
Re: Interest vs. Riba-Free Auto Loan
The problem I always see here is and the way I look at it is … Will the amount being paid in instalments be equal to the amount if paid in full on the spot. If not - then it is interest. The muftis who are focusing too much on the wording of the contract do not see this. They look too much at a fixed value on paper.
Business is about having a fixed mark-up that I bought item x for £1000 and I will sell it for £1200 … If someone buys it from me, they either pay £1200 straight away or they can pay me £200 per month for 6 months to EQUAL the sale value.
So it is important to define riba as opposed to bay’un … If you look at the root words of these two terms you see how they appear in the Qur’an in their various manifestations to get a better picture of the terms.
The Quranic Arabic Corpus - Word by Word Grammar, Syntax and Morphology of the Holy Quran
The Quranic Arabic Corpus - Word by Word Grammar, Syntax and Morphology of the Holy Quran
As can be seen there is a verse that refers to rib’a being haram yet bay’un as halal. What is the difference if both are done for profit?
Well it is all to do with one being a moving target and the other being tied into a promise - secure. rib’a shares its meanings with something like bread that rises as it bakes … an expansion. You will find that every form of rib’a is about altering a base condition, where two things are deemed like for like, but this definition changes based on an external factors not dependent on any of the two things.
Time based increase - i.e. that because you are going to pay me in bits over time - I am going to charge you more - is what is haram. It penalises a person based on his buying power, because of the rate in which he can buy … It gives an unfair advantage on already richer people.
By making interest halal - the muftis are making it harder on the poor not easier … They don’t realise that interest can suffocate people. The irony is that it happens to be the poorer people who want to get loans … Which causes another concern - that what are we doing for societies if we are encouraging them to purchase when they do not have the means to sustain them?
Re: Interest vs. Riba-Free Auto Loan
AsSalaamo Alaikum, and JazakAllah Khair brother Psyah for addressing the core of it. I agree, moving words around doesnt make it halal; it is almost akin to creating a wilfull diversion of the truth.
Re: Interest vs. Riba-Free Auto Loan
And on that same note, what do you think about the supposed Islamic Finance options whether for Vehicle or for home. They present their idea like this,and I'm paraphrasing "Bank buys the car/house that you want to buy. Then marks it up, and sells it to you on installments."
Isn't that pretty much the same thing? If you bought the house/car from the source, it would cost you less buying outright, so to me the "Islamic" method seems like any other banking model, with just a different shade to it. I'm skeptical.
Re: Interest vs. Riba-Free Auto Loan
Wa'alikumuSalam and BarakAllahuFik bro Teggy
In the case of property purchase ... If the bank have purchased the property let's say, and I have decided to walk away, what then? For trade to be relevant the middle merchant must carry full risk of the acquisition ... Such that the consumer can walk away. However, what usually happens is that the bank and consumer first enter an agreement then the bank buys the property without consequence from the dealer/seller.
A way would be to create our own banks. Cooperative banks can be created where each member pays any amount every month ...or buy a business together that gives back gains ... Each person has an account to their name, showing what they have put in ... Create a method by which the people can select who gets to purchase the next property ... Let's say the rate of payment has to equal 15 years of instalments every month and the deposit I.e. The amount already in the account has surpassed 25% of the value of the property sought and the last condition is that there is enough in the cooperative to cover 3 times the value of the property then a purchase may begin. So effectively the co-op partners become creditors to the purchaser and all of the purchaser's finances become tied to the property.
Re: Interest vs. Riba-Free Auto Loan
A rule of thumb is ... If it is charitable then it is halal ... If it is being done to make more profit than otherwise would be the case it is most likely rib'a.
Re: Interest vs. Riba-Free Auto Loan
Wa'alikumuSalam and BarakAllahuFik bro Teggy
In the case of property purchase ... If the bank have purchased the property let's say, and I have decided to walk away, what then? For trade to be relevant the middle merchant must carry full risk of the acquisition ... Such that the consumer can walk away. However, what usually happens is that the bank and consumer first enter an agreement then the bank buys the property without consequence from the dealer/seller.
A way would be to create our own banks. Cooperative banks can be created where each member pays any amount every month ...or buy a business together that gives back gains ... Each person has an account to their name, showing what they have put in ... Create a method by which the people can select who gets to purchase the next property ... Let's say the rate of payment has to equal 15 years of instalments every month and the deposit I.e. The amount already in the account has surpassed 25% of the value of the property sought and the last condition is that there is enough in the cooperative to cover 3 times the value of the property then a purchase may begin. So effectively the co-op partners become creditors to the purchaser and all of the purchaser's finances become tied to the property.
I read almost the identical concept on islamqa the other night. Where the Mufti mentioned that in some communities a few families pool together resources to help a family in need of a house to make the purchase and they write up a contract among themselves. The one for whom the property is being purchased makes payments as you normally would, except that the community flourishes in the form of secured home owners who work hard to maintain their homes/neighborhoods, and in turn help each other. No interest is demanded, or expected, and capital is returned to the investors. What they gain out if it? Sincere neighbors, stronger community ties, and healthier communities that become organic power plants to help each other selflessly.
That really touched me. I understand the risk because people fall on hard times, and become unable to pay their usual dues, but if the willing and blessed families and/or individuals pool together and set out to create a model for the sake of only helping make renters into home owners, that would be amazing. Not to mention the amount of Ajr because they would have saved so many people of the household from becoming involved in Riba.
Re: Interest vs. Riba-Free Auto Loan
Open Payment_calculation.xls
Ctrl-F "Interest". Replace "Profit".
Save As Payment_calculation_halal.xls
Re: Interest vs. Riba-Free Auto Loan
Time based increase - i.e. that because you are going to pay me in bits over time - I am going to charge you more - is what is haram. It penalises a person based on his buying power, because of the rate in which he can buy ... It gives an unfair advantage on already richer people.
I disagree with that. I haven't come across anything in Islam which limits the ability of a merchant to set different prices for items, the only rule is that you are not allowed to cheat people.
You might argue that a merchant who charges me $1200 for an item if I pay $200 per month over 6 months vs $1000 on the spot is giving an unfair advantage to the rich. If he sells the same item for $900 to his best friend for $300 monthly over 3 months is he not giving an unfair advantage to his friend, which would be nepotism?
Re: Interest vs. Riba-Free Auto Loan
I disagree with that. I haven't come across anything in Islam which limits the ability of a merchant to set different prices for items, the only rule is that you are not allowed to cheat people.
You might argue that a merchant who charges me $1200 for an item if I pay $200 per month over 6 months vs $1000 on the spot is giving an unfair advantage to the rich. If he sells the same item for $900 to his best friend for $300 monthly over 3 months is he not giving an unfair advantage to his friend, which would be nepotism?
Peace MS
You seem to be disagreeing with something I didn't say ... you quoted me, but it seems I need to clarify what I said ...
Yes ... a trader may set any margin to his product. So long as:
1) The margin (or overall price) is clear before the parties are bound in contract.
2) The same buyer is not given a different price for the same item if bought in one go as opposed to buying it in installments.
The key in what I am saying is over the word **same ... **If I sell something to a friend for $900 or had I sold the same item for $1200 to another - the point of contract is when both parties agree to the mutual value they feel that commodity holds. So for different people this price difference can result. If however, the buyer has to pay more for the item beyond that mutually accepted value - then my understanding is that it is rib'a.
If a seller chooses to discount his commodity to a friend - and the friend is a good friend - he may choose to raise the price until he and his business seller friend agree on a mutually acceptable amount according to the mean value they give to the item - thereafter any inflation is rib'a - but not discounting - as rib'a is connected to the root word of rising and inflating ... However, the purchasing friend may still choose to give more money in honour.
Buying and Selling is contractual that should be based around "mutual accepted value" - if a buyer is paying more than the mutually arrived value of the product and the price demanded, but still under a strange obligation needs to pay more, then that contract is unfair. Rib'a is about unfair or unjust contracts - despite the parties being willing and knowledgeable in that arrangement.
Regarding favouring the rich and penalising the poor - this is a minor side-affect that I felt needed to be mentioned, may main contention is not in that area.
Re: Interest vs. Riba-Free Auto Loan
Peace MS
You seem to be disagreeing with something I didn't say ... you quoted me, but it seems I need to clarify what I said ...
Yes ... a trader may set any margin to his product. So long as:
1) The margin (or overall price) is clear before the parties are bound in contract. 2) The same buyer is not given a different price for the same item if bought in one go as opposed to buying it in installments.
I think that point 2) is where we are in disagreement. Could you please provide more evidence for the requirement that payment over installments must be at the same price as paying up front.
Re: Interest vs. Riba-Free Auto Loan
Coming back to the original post, for when a manufacturer does not offer 0% financing, I found Islamic opinions stating that leasing a car, and buying it at the end of the lease period, does not violate Shariah.
Leasing Cars from Islamic Perspective - Transactions & Contracts - counsels - OnIslam.net
Re: Interest vs. Riba-Free Auto Loan
Leasing still charges interest rates in most circumstances. At the end of Lease Term if you decide to do a buyout, unless you have the amount that would be required to purchase a car that is 3 years old, with 36,000 miles or less. That amount of money is usually something average consumer doesn’t have on-hand, and thus we come back to square one on needing a loan to buy the car at the end of an interest-based lease. Isn’t this a bigger hole?
Re: Interest vs. Riba-Free Auto Loan
‘Technically’ you can write a 100 contracts that might not violate Shariah.
At the end of the day, it is the substance of the transaction, not its legal form that would determine if it is halal or not.
Islam would ask you to change your behavior to make things shariah compliant, rather than change the ‘terms and conditions’ of the contract of a non-halal transaction to make it halal.
I’m no Islamic scholar, so cannot comment much but please beware of the Mullahs who provide ‘shariah compliant’ ways of getting away with something that in substance is same as haram.
If one’s definition of ‘riba’ is that you pay more than the value of asset because of deferred payments, then it is almost impossible to get away from it in the current financial systems that we live in. Almost all forms of transactions where you obtain use and eventual ownership of an asset on the basis of deferred payments WILL contain an element of interest regardless what you may call it.
If one’s definition of ‘riba’ is derived from exploitation of the borrower by the lender, then almost all financing options would be halal.