Various Q & A on Business
Questions from the Shari’ah Compliant Business Campaign
Q: Gazetted government tariffes which is fixed charges, i.e. minimum; a) Can one give discounts? b) If yes in Shari’ah, is a criminal act according to law? c) Can one give kick backs in the form of paying for the clients car instalments or Umrah and Hajj trip?
A: In principle, it is necessary to follow those laws of the country that are not un-Islamic. There is scope in the Shari’ah for government tariffs. According to the Shari’ah, it is incorrect to go against government gazzetted tariffs. Therefore, the answers to your queries are:
1. It is not permissible to give discounts beyond minimum government gazetted tariffs;
2. If giving kick backs is against the law, then it is not permissible to do so;
Q: 1) Trade-in vehicles – 2 vehicles for 1 = riba? 1 vehicle + money for other vehicle…, 2) Selling for commission basis – goods not in one’s possession, 3) Selling goods on consignment?
A: 1) It is permissible to trade in two vehicles in exchange of one vehicle. The extra vehicle will not be interest. Similarly, if one trades his vehicle and money for another vehicle, that too will not be interest.
2) It is permissible to be an agent and receive commission for that. An agent simply takes an order. He does not sell the item.
Q: One member of a family defrauded us and left the country. His family undertook to settle on his behalf. Unfortunately, only those that threatened the family have got paid. What recourse do we have, e.g. pressurising by legal / SARS, other authorities, etc. Also how does the Shari’ah view the deception / lies of this family?
A: The undertaking of paying the debt is a promise which is morally binding on the family.
The family should do whatever is possible within their means in fulfilling the debts of the family member. In principle, the family is not responsible. It is incorrect for creditors to apply undue force on the family in extracting monies due to them.
Q: In terms of offsetting interest/bank charges, is it permissible to have an arrangement with the bank that if you keep a minimum of, e.g. R8000, they don’t pay you interest not do they charge any bank charges in lieu of services?
A: It is permissible to make such an arrangement with the Bank.
Q: How often should we remove interest from the Bank. If a person keeps the interest for a longer period with the hope of offsetting a larger amount of Bank charges, is this Jaaiz?
A: One should dispose of the interest in the bank as soon as possible. It is incorrect to leave the interest in the bank with the intention of it increasing and to offset bank charges.
Q: Interest received from so-called Shari’ah compliant unit trusts: when the dividend advices are sent to clients, a note is attached stating that a certain percentage of the income is from impure sources. Muslim clients are advised to dispose of this amount. The dividends are usually reinvested and not paid to clients. How does not dispose of the interest in this case? It is possible to offset the interest received from unit trust income against the administration fees charged by the fund managers?
A: Ideally, the client should dispose of the interest. However, if the administration does not pay the interest in lieu of administration charges to the client, then that is permissible.
Q: Termination of my water/light accounts: The deposit owing to me was R620.00. The department sent me a cheque 2 months later for R635.00 stating that R15 was interest. Can I pay the R15 from my pocket and deposit the entire amount into my account?
A: The cheque will have to be deposited and then R15 be taken out separately.
Q: Is credit guarantee permissible. That is the debtor is secured by a company who takes the risk of prompt payments for a predetermined fee.
A: The credit guarantee company becomes Kafeel (surety/guarantor) of the debt. That is the client enters into an agreement with the credit guarantee company that in the event of him not paying his debt, the company will be responsible for payment. The credit company then charges the client a fee for taking on the risk. Should the client not pay the amount, the company will pay the supplier and recover the money from the client.
According to Shariah, it is permissible to have a Kafeel (guarantor). However, the Kafeel cannot charge the client an excess fee for taking this risk.
Q: Can one pay personal income tax and business tax (not vat) with interest?
A: According to Shariah, it necessary to dispose of interest to the poor and needy without the intention of reward. As Muslims living in a non Muslim country, we are bound by the rules of the country unless they are not unIslamic. It is necessary to pay tax to the government therefore it is not permissible to use interest money to pay any taxes.
Q: A person comes into my shop and wants to cash a cheque. Can I
• tell him I will only do it if he is buying goods from my shop
• specify an amount/percentage for which he must buy
• charge an admin fee
A: According to Shariah, it is permissible for you to cash a cheque and stipulate a minimum amount for which the customer must buy before you cash the cheque. You may also charge him administration fees that you have incurred in clearing the cheque etc.
Q: What is the rule regarding Voyager miles. Every time you fly with SAA, you are credited with voyager miles which you may use for a free flight in future depending on miles accumulated. What if I accumulated voyager miles by using my credit card?
A: Voyager miles are credited to a person from the side of the airline. This is done voluntarily on their side. The voyager miles are permissible. However, if one uses a credit card to purchase the voyager miles, one must take into consideration that he does not get into interest bearing transactions.
Q: Is it permissible to engage in a fixed interest transaction over the period of the loan – where one is fully aware of the initial price and final price?
A: Interest is an act forbidden by Allah. Allah states, ‘Those who devour usury will not stand except as stands one whom the Shaytaan by his touch has driven to madness. That is because they say, Trade is like usury. Allah has permitted trade and forbidden usury. Those who after receiving direction from the Lord, desist thou shall be pardoned for what has passed. Their case is for Allah (to judge). But those who repent are companions of the fire, they will abide therein (forever).’ (Baqarah 275)
There are numerous Ahaadith discussing interest and the punishment for being involved with interest. Allah has forbidden the usage of interest and has informed us of the harms of using interest. To be involved in an interest bearing transaction is not permissible, even if it is a fixed interest. Even though one knows the initial price and the final price after adding the fixed interest, the knowledge of a crime does not justify perpetration of the crime.
However, one can implement another scheme which is according to the Shari’ah where one will be saved from interest. Interest dealings are very serious matters in the ligh of the Shari’ah.
Q: Most Ulama have given the ruling that it is permissible for Muslims to own or run car dealerships or autolots. Please explain this in the light of the following: The car dealer or salesman is fully instrumental in guiding the customer to apply for finance from the banks. Even the application forms for finance are completely filled out by them and the customer just signs at the end. Financing banks are physically present in most large car dealerships (Muslim owned) and the customer is physically taken to the finance house office. The finance house gives the car dealer a kickback for referring customers to them. The higher the interest rate the customer is convinced to pay by the salesman, the greater the kickback. Kindly explain.
A: It was always the function of the research Ulama to find solutions to problems facing the Ummah. Alhamdulillah, as an alternative to interest based car financing scheme which is certified by the Darul Ifta. Car dealers and salesmen will have no problem by introducing their clients to Wesbank’s Islamic Car Finance.
Q: Is it permissible to ask a director who is leaving the business (professional services firm) to sign a restraint of trade agreement so that he does not approach clients of the firm?
A: It is not permissible to ask a director leaving trhe business to sign a restraint of trade agreement.
Q: When selling a house, the standard purchase and sale agreements used by estate agents has a ‘Mora interest’ clause which specifies the interest the purchaser will have to pay to the seller if he delays or breaches conditions of the agreement. As a seller, if this clause is removed since it is interest and will render the agreement Haraam, what can be done or included in the agreement as a recourse if the purchaser breaches conditions of the agreement?
A: Instead of having a ‘Mora interest’ clause, one can offer to sell the house at a price higher than the original price agreed with the provision that if the ‘such an amount’ [referring to the original price] is paid within 5 years, the extra will be discounted, e.g. Mr X wants to buy a house from MrZ. The house is valued at R100,000, Mr Z is worried that Mr X will not pay him R100,000 in 5 years, what he can do is inflate the price to R200,000, that I am selling this house for R200,000. If R100,000 is paid within 5 years, I will give a discount of R100,000
Q: Client cheque refers to drawer. The bank charges me R70 for default transaction. Can I claim the money back from client?
A: The R70 loss sustained by you was solely as a result of the actions of the Drawer. You are entitled to claim back the R70 from the Drawer to make good the loss.
Q: Client owes me money, e.g. R1000. My profit is +-R300. He only pays after having had to phone him for 3 months at approximate price of R250. All profit gone into cost recover. Can I claim cost from client?
A: All direct costs incurred by one to retrieve monies owed may be claimed from the debtor.
Q: Can we give interest money to our maids, employees, etc. for their funerals, school fees, etc. to political parties, politicians, local councillors, police men, etc. They see it as a favour and return the favour in some other way.
A: It is not permissible to derive any benefit from interest monies. Interest monies should be returned to the person one had received it from. If this is not possible, then it is necessary that this money be distributed amongst the poor and needy (those that do not possess the Nisaab of Zakaat) whether Muslim or non-Muslim. (Shaami vol.5 pg.169; HM Saeed)
Q: I owe a merchant money, e.g. R1000 due after 60 days. I happen to have this money now. Can I negotiate a discount of e.g. 5% for cash payment before due date but after completion of transaction?
A: If your supplier voluntarily grants you a cash discount, then it is permissible.
Q: Medical Aid / Hospital plan – please advise of Mufti Saheb’s opinion.
A: All conventional medical aid/hospital plan are not permissible due to the inherent elements of interest and gambling. However, the Darul Ifta is currently in discussion with a group of medical aid brokers in an attempt to tailor make a medical aid that is Shari’ah Compliant.
Q: Can you offset interest from the same bank but different accounts, e.g. from Savings to Personal account?
A: Interest has been prohibited in the holy Qur’aan. A Muslim should never actively earn or attempt to earn interest. If interest comes into one’s possession as a consequence of other transactions, he should return it to the person he had received it from. This is because it was not received in lieu of any item sold or service provided. Similarly, the interest that one is charged by a bank is not legitimate. Therefore, one may set off interest earned against interest incurred with the same bank. There is a two-fold benefit in this. Firstly, the interest received would be returned to its actual owner (bank) thereby purifying one’s wealth, secondly, one would be saved from paying interest which was not a legitimate debt.
To the contrary, bank charges are a legitimate charge in lieu of a service provided by the bank. Therefore, one may not set off interest earned against bank charges albeit with the same bank. One may set-off interest earned against interest incurred with the same account even though it may be from different accounts.
Q: Please comment on options trading?
A: Options trading means to have a right to purchase an item within a specified time period. If you wish within that time frame you may purchase the item or not. For offering this right or option the seller charges a fee apart from the price of the actual item. According to Shariah, it is not permissible to purchase this right or option. It is merely a right of purchase that you are securing which is not tangible and therefore impermissible.
However, if the amount is billed into the purchased item then it will be permissible to buy that item at a higher price. For example you give me the right to purchase a car at a price within one month. You charge me 100 Rands for this option. This is not permissible. However if the costs 1000 Rands and you state that I give you the option for one month to purchase at this price but the amount would be 1100 instead of 1000. This deal would be permissible as the entire 1100 is given in lieu of the car and not of the option.
Q: The wholesaler says to his supplier I will only buy from you if you pay me a fee in advance monthly. This is called listing fees. Is this permissible?
A: The listing fees are in lieu of no apparent tangible item. It is merely purchasing a Haqq (right) to stock goods of a certain company. It is not permissible to pay or charge such fees. If the customer wants to stock the goods he/she may negotiate a discounted price with the supplier for the goods and not charge the listing fees.
Q: Is it permissible to have an insurance policy to take care of Death Duty?
A: It is not permissible to deliberately incur interest.
Interest is explicitly prohibited in the Qur’aan. Therefore, it will not be permissible to sign up an insurance policy to take care of the death duty.
Q: Muraabaha allows to inflate the price of a commodity in case of credit sale. What is the difference in this and mortgage? What about fixed mortgage where the % inflated is fixed from before hand. How do we say that this % is only in lieu of time and not in lieu of the house, car, etc.
A: The fundamental difference between Muraabaha and interest loans is: in Muraabaha, you are paying for the item directly and the time indirectly. Whereas in interest loans, you pay for both the item and the time directly.
In Muraabaha, if, for example, a house costs R1million, a customer wishes to purchase it but does not have the cash. The deal is concluded on a credit sale for R1.1million to be paid within five years. If the customer pays up the entire amount within two years, he is not entitled to any discount on the price. Similarly, if he defaults after 5 years he only finishes paying after 7 years, he will still be charged R1.1million for the house. Not more than that. No interest or penalties will be added to the amount.
Whereas in mortgage, if a credit sale was concluded for R1.1million to be paid over 5 years. If the customer pays out within 2 years, he is entitled to a discount on the amount and if he defaults payment after 5 years he will be charged more than the R1.1million they settled on.
From the above, it is understood that in mortgages the extra amount is being paid diretly for time. Therefore, Ribaa and Haraam.