The Shari'ah Guidelines for Installment Sales
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Question: From 'Abd al-'Aziz ibn 'Abd Allah ibn Baz, to the honorable brother, His Excellency the Editor-in-Chief of the newspaper (Al-Jazirah), may Allah guide him.
Peace be upon you, and Allah’s mercy and blessings, and after that:
I refer to your letter, number (none), dated 21/2/1412 AH, in which you stated that Al-Jazirah newspaper intends to publish a special supplement on the phenomenon of installment sales in our local markets, which has been increasing in our commercial life. You wish to know the Shari'ah ruling on this phenomenon through the questions you have raised, which we list in order along with their answers:
What are the guidelines –in your opinion, Your Eminence– that protect the rights of both parties in an installment sale, and thereby the rights, order, and safety of society?
Answer: Selling on a known term is permissible; due to the generality of the saying of Allah the Exalted:[Al-Baqarah 2:282]... the verse [al-Baqarah:282]. An increase in the price in exchange for the term is not prohibited, as it is established from the Prophet (peace and blessings be upon him) what indicates the permissibility of that. Indeed, he (peace and blessings be upon him) ordered 'Abd Allah 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 a term.
It is necessary to know what the Shari'ah requires in this transaction; so that the two parties do not fall into forbidden contracts. For some sell what they do not own, then buy the goods afterwards and deliver them 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 Shari'ah manner.
Both matters are not permissible; due to what is established from the Prophet (peace and blessings be upon him) that he said to Hakim ibn Hizam:Sunan Ibn Majah 2187Hasan (Darussalam).
And he (peace and blessings be upon him) said:. And he (peace and blessings be upon him) said: Sahih Muslim 1526c. And Ibn 'Umar (may Allah be pleased with them both) said: .
And it is also established from him (peace and blessings be upon him):Sunan al-Bayhaqi 5:270.
From these hadiths and what came with their meaning, it becomes clear to the seeker of truth that it is not permissible for a Muslim to sell a good that is not in his ownership, 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 goods while they are in the seller's place before transferring them to the buyer's possession, is a matter that is not permissible; due to its contradiction of the Sunnah of the Messenger (peace and blessings be upon him), and due to the manipulation of transactions and not adhering to the pure Shari'ah in them. In that lies corruption and evils, and dire consequences that are innumerable.
Peace be upon you, and Allah’s mercy and blessings, and after that:
I refer to your letter, number (none), dated 21/2/1412 AH, in which you stated that Al-Jazirah newspaper intends to publish a special supplement on the phenomenon of installment sales in our local markets, which has been increasing in our commercial life. You wish to know the Shari'ah ruling on this phenomenon through the questions you have raised, which we list in order along with their answers:
What are the guidelines –in your opinion, Your Eminence– that protect the rights of both parties in an installment sale, and thereby the rights, order, and safety of society?
Answer: Selling on a known term is permissible; due to the generality of the saying of Allah the Exalted:
O you who have believed, when you contract a debt for a specified term, write it down.
يَا أَيُّهَا الَّذِينَ آمَنُواْ إِذَا تَدَايَنتُم بِدَيْنٍ إِلَى أَجَلٍ مُّسَمًّى فَاكْتُبُوهُIt is necessary to know what the Shari'ah requires in this transaction; so that the two parties do not fall into forbidden contracts. For some sell what they do not own, then buy the goods afterwards and deliver them 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 Shari'ah manner.
Both matters are not permissible; due to what is established from the Prophet (peace and blessings be upon him) that he said to Hakim ibn Hizam:
Do not sell what is not with you.
لا تبع ما ليس عندكAnd he (peace and blessings be upon him) said:
It is not lawful to combine a loan with a sale, nor to sell what you do not have
لا يحل سلف وبيع، ولا بيع ما ليس عندكHe who bought foodgrain should not sell it until he had taken full possession of it
من اشترى طعامًا فلا يبعه حتى يستوفيهWe used to buy food by estimate, and the Messenger of Allah (peace and blessings be upon him) would send someone to us to forbid us from selling it until we moved it to our homes
كنا نشتري الطعام جزافًا، فيبعث إلينا رسول الله ﷺ من ينهانا أن نبيعه حتى ننقله إلى رحالناAnd it is also established from him (peace and blessings be upon him):
That he prohibited selling the good where it is bought, until the merchants take it to their dwellings
أنه نهى أن تباع السلعة حيث تبتاع، حتى يحوزها التجار إلى رحالهمFrom these hadiths and what came with their meaning, it becomes clear to the seeker of truth that it is not permissible for a Muslim to sell a good that is not in his ownership, 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 goods while they are in the seller's place before transferring them to the buyer's possession, is a matter that is not permissible; due to its contradiction of the Sunnah of the Messenger (peace and blessings be upon him), and due to the manipulation of transactions and not adhering to the pure Shari'ah in them. In that lies corruption and evils, and dire consequences that are innumerable.
Source
binbaz.org.sa
The Arabic text is copied verbatim from the original source, without any edits.