Question :
Is hire purchase [i.e. paying for a product through installments, and at a higher eventual price] permitted?
Fatwa in Brief: This is an underhand way of
charging interest, [and act] which God has declared
forbidden (haram).
Shaykh al-‘Uthaymin, Fatwa Al-Mu‘asira, pp 47-52
Response:
The increase in price in hire purchase is permitted,
providing nothing in the contract explicitly stipulates
that there is interest to be paid.
Commentary:
Paying a higher price in higher purchase is permitted
according to Islamic law, and according to the four
[Sunni Imams, on the condition that it does not resemble
anything that is prohibited [i.e. riba and/or
gambling].
In order for a hire purchase to be permitted it must
fulfill certain important conditions. To begin, both
parties must agree upon an appointed price and an
appropriate method of payment, as well as a total
eventual price. [If these conditions are met] The sale
of hire purchase is permitted according to the verse:
“God permitteth trade [bi‘ya] and forbiddeth usury (riba). (Q. 2:275)
In this instance, the word “trade” (biy‘a)
includes both the condition [of the sale] and the time
[in which something must be paid for]. The same meaning
is found in another verse:
“Except it be a trade among by mutual consent”.
(Q. 4:29)
While the verse:
“O ye who believe! When you contract a debt for a
fixed term, record it in writing”. (Q. 2:282)
[i]s proof that hire purchase is permitted in Islam.
Similarly, in a hadith attributed to ‘Abd Allah
ibn ‘Amr, the Messenger of God (upon him be peace) told
‘Abd Allah to prepare an army, until no camel was left
unused. As part of the process, the Prophet ordered him
to take all camels from the Muslims’ sources of charity;
and, for every camel that was taken, he [the Prophet]
promised that it would be replaced by two [camels].
Some scholars believe that it is never permitted to
raise a price depending on the passing of time [it takes
to repay this]. In their view, any increase is to be
considered [as the charging of] riba [interest],
which is forbidden. Abu Bakr al-Jisaas al-Hanafi and
others among the pious predecessors (al-Salaf)
hold this opinion. Yet, the best opinion is that of the
majority: that [under certain conditions], it is
permitted.
And God knows best.
In its sixth conference at Jeddah in Saudi Arabia, The
Islamic Council of Jurists ruled on the subject of hire
purchase as follows: “after an agreed upon period of
time has elapsed, it is permitted to raise the price
that must be paid so that it becomes higher than the
current price. It is also permitted to mention the cash
price and the price of hire purchase”.
And God knows best.
Dr. Anas Abu Shadi