The Ruling on Buying on Credit and Selling the Goods to Someone Other Than the Seller (Tawarruq)

Question:
Honorable Shaykh, the evening caller, whose name is indicated by the letters Ayn, Ayn, and Seen, says: I asked a merchant for a loan of five thousand riyals, and he said to me, “I will give you the value of that in goods, and you will return it to me for seven thousand riyals.” Does this contain riba (usury or interest)? Please note that he calculates the amount in goods and buys them himself. May Allah reward you with good.

Answer:
If he has goods at the time of the transaction, he sells you goods for a deferred price that is higher than their spot price. Then you take possession of the goods, sell them to someone else, and benefit from their spot price, or when the due date arrives, you pay off the debt you owe to the first seller. This is the issue of tawarruq (a commodity sale used to obtain cash). The majority of scholars hold that it is permissible when there is a pressing need, provided two conditions are met. The first condition is that the seller must own the commodity at the time of the contract. The second condition is that you must not sell it back to him; rather, you must sell it to someone else after taking full possession of it, taking custody of it, and moving it from the seller’s location.