Ruling on selling on credit with an increase in the price

Question:
What is the ruling on selling a bag of sugar or the like for one hundred and fifty riyals on credit, when it is worth one hundred riyals in cash?

Answer: Praise be to Allah alone, and blessings and peace be upon the one after whom there is no prophet, and upon his family and his Companions. As for what follows:
I was asked about: the ruling on selling a bag of sugar or the like for one hundred and fifty riyals on credit, when it is worth one hundred riyals in cash?
The answer to that is that there is nothing wrong with this transaction; because selling for cash is not the same as selling on credit. The Muslims have always practiced this kind of transaction, and it is as if there is a consensus among them on its permissibility. Some scholars deviated and prohibited the increase due to the delay, thinking it to be riba. This is a view with no basis, and it is not riba in any way; because when the merchant sells the goods on credit, he agrees to the delay for the benefit of the increase, and the buyer agrees to the increase for the sake of the time limit and his inability to pay the price in cash. So both parties benefit from this transaction.
It is established from the Prophet (peace and blessings be upon him) what indicates the permissibility of this; for he (peace and blessings be upon him) ordered Abdullah ibn Amr ibn al-As (may Allah be pleased with them both) to equip an army, so he would buy one camel for two camels on credit. Then this transaction falls under the general meaning of the saying of Allah the Exalted: the verse [al-Baqarah: 282].
This transaction is one of the permissible loans, falling under the aforementioned verse, and it is of the same kind as the transaction of salam; for the seller in salam sells from his liability grains or other things in which salam is valid for a present price, less than the price at which the item sold in salam is sold at the time of salam; because the item sold in salam is deferred and the price is immediate. It is the opposite of the question asked, and it is permissible by consensus. It is like selling on credit in meaning, and the need for it is pressing, like the need for salam. The increase in salam is like the increase in selling on credit; the cause in both is the delay in delivering the item sold in the issue of salam, and the delay in delivering the price in the issue of selling on credit. But if the buyer’s intention for the bag of sugar or the like is to sell it and benefit from its price, and his intention is not to benefit from the item itself, then this transaction is called the issue of (tawarruq), and some of the common people call it (al-wa'dah).
The scholars differed on its permissibility in two views:
The first is that it is prohibited or disliked; because the intention behind it is to buy dirhams with dirhams, and the item sold is merely a medium that is not intended.
The second view of the scholars is the permissibility of this transaction due to the pressing need for it; because not everyone who has a pressing need for cash finds someone to lend to them without riba; because it falls under the general meaning of His saying the Exalted: [al-Baqarah: 275], and His saying the Exalted: [al-Baqarah: 282], and because the original ruling in the Shari'ah is the permissibility of all transactions, except for what evidence has established as prohibited. We do not know of any legal evidence that prohibits this transaction.
As for the reasoning of those who prohibit or dislike it, based on the fact that the intention behind it is cash, that is not a reason for its prohibition or dislike; because the intention of merchants in transactions is generally to obtain more money with less money, and the items sold are the medium for that. Such a contract is only prohibited if the selling and buying are from one person—as in the issue of 'inah; for that is a ruse to obtain riba. The form of that is: a person buys an item from another for a price in debt, then sells it to him for a lower price in cash. This is prohibited by the Shari'ah; because of the ruse to obtain riba. This issue is called (the issue of 'inah), and there are reports from Aisha and Ibn Umar (may Allah be pleased with them both) indicating its prohibition.
As for the issue of tawarruq—which some people call (al-wa'dah)—it is another transaction, not of the same kind as the issue of 'inah; because the buyer in it buys the item from one person on credit, and sells it to another in cash due to his need for cash, and there is no ruse to obtain riba in that; because the buyer is not the seller.
But many people in this transaction do not act according to what the Shari'ah requires in this transaction; some sell what they do not own and then buy the item afterwards and deliver it to the buyer, and some, when they buy it, sell it while it is still in the seller’s place, before taking possession of it in the legal sense. Both of these are not permissible; because it is established from the Prophet (peace and blessings be upon him) that he said to Hakim ibn Hizam: , and he (peace and blessings be upon him) said: , and he (peace and blessings be upon him) said: .
And Ibn Umar (may Allah be pleased with him) said: .
And it is also established from him (peace and blessings be upon him): .
From these hadiths and what comes in their meaning, it becomes clear to the seeker of truth that it is not permissible for a Muslim to sell an item that is not in his ownership and then go and buy it. Rather, it is obligatory to delay selling it until he buys it and takes it into his possession. It also becomes clear that what many people do—selling items while they are in the seller’s place before transferring them to the buyer’s ownership or to the market—is a matter that is not permissible; because of its contradiction of the Sunnah of the Messenger (peace and blessings be upon him) and because of the manipulation of transactions and not adhering to the pure Shari'ah. In that lies corruption and evils and dire consequences that only Allah knows. We ask Allah for success for us and all Muslims to adhere to His Shari'ah and to beware of what contradicts it.
As for the increase that makes the transaction one of the riba transactions: it is that which is given to the creditor after the term has expired; to allow the debtor time and grant him a delay. This is the increase that the people of the pre-Islamic age of ignorance used to do, and they would say to the debtor their famous saying: either you pay or you increase. Islam prohibited that, and Allah revealed in it His saying the Exalted: [al-Baqarah: 280].
The scholars agreed on the prohibition of this increase, and on the prohibition of every transaction by which this increase is made lawful, such as if the creditor says to the debtor: buy from me an item—sugar or otherwise—on credit, then sell it for cash and pay me my original debt. If this transaction is a clear ruse to make lawful the riba increase practiced by the people of the pre-Islamic age of ignorance, but by a different path than theirs.
So it is obligatory to leave it and beware of it, and to grant the insolvent debtor time until Allah makes it easy for him to pay, just as it is obligatory for the insolvent debtor to fear Allah and work the possible, permissible means to obtain what he pays with to clear his debt and absolve his liability from the rights of the creditors.
And if he is lax in that, and does not strive in the means of paying what he owes, he is unjust to the people of right, and does not fulfill the trust. He is in the ruling of the wealthy person who delays payment. It is authentic from the Messenger of Allah (peace and blessings be upon him) that he said: , and he (peace and blessings be upon him) said: , and Allah is the One to be asked for help.
And among the riba transactions—also—is what some banks and some merchants do; the increase in the loan; either absolutely, or a known amount every year.
The first is like lending him a thousand, on the condition that he returns a thousand and one hundred, or housing him in his house or shop, or lending him his car or animal for a known period, or similar increases.
As for the second: it is that he makes for him a known profit every year or every month, in exchange for his use of the money that the lender gave him—whether he gave it in the name of a loan or in the name of a trust. For whenever he receives it in the name of a trust to dispose of it, it is a guaranteed loan, and it is not permissible to pay its owner any of the profit, except that he and the bank or merchant agree to use that money in the form of a mudarabah, with a known undivided share of the profit for one of them and the rest for the other. This contract is also called (qirad), and it is permissible by consensus; because they have shared in the profit and loss, and the basic money in this contract is in the ruling of a trust in the hand of the worker. If it is lost without aggression or negligence, he does not guarantee it, and he has no right to his work except the known undivided share of the profit agreed upon in the contract.
And with this, the legal transaction and the riba transaction become clear. And Allah is the One in charge of success, and blessings and peace be upon our Prophet Muhammad, and his family and his Companions.
The General President of the Departments of Research
Scientific, Ifta, Da'wah, and Guidance
Abdul Aziz ibn Abdullah ibn Baz