Answered by Mufti Muhammad ibn Adam al-Kawthari
Question: I have been told that it is prohibited to have contracts that involve three parties. Examples are insurance and credit cards. So for instance, when you purchase something with a credit card it involves the buyer, the seller and the credit card company. Is this a valid opinion among any contemporary scholars?
Answer: In the Name of Allah, Most Gracious, Most Merciful
In the name of Allah, Most Compassionate, Most Merciful,
It is incorrect to assume that all contracts involving three parties are invalid and prohibited; rather, the permissibility or impermissibility of a contract depends on the actual terms and conditions upon which it is based.
According to the majority of the contemporary scholars (fuqaha), the usage of credit-cards is permitted provided the card-holder is sure he has the ability and will actually pay off the debt to the card-issuing company before any interest becomes due.
The relationship between the card-holder and the card-issuing company, from a juristic (fiqhi) point of view, has many ingredients. The relationship has an element of brokerage/agency (wakala), guarantying payment (kafala) and lending money (iqradh). The company undertakes and guarantees payment on behalf of the card-holder; hence this would form the relationship of Kafala. There is also a promise from the card-issuing company to give the card-holder a loan, and when the card-holder actually uses the card, the relationship of agency (wakala) and actual giving of loan comes into play. The company pays the seller on behalf of the card-holder; hence the company would be considered an agent on behalf of the card-holder, and also forwarding a loan to him.
All these three relationships (i.e. agency, guarantying payment, and giving of a loan) are permitted in Shariah, as mentioned in detail in the books of Fiqh. Thus, there is nothing that would make this contract unlawful.
As for the relationship between the card-holder and the seller of goods is concerned, contemporary scholars state that the relationship here would be that of the debtor passing on the responsibility of payment of his debt to a third party, known in Islamic jurisprudence as Hawala. Here, the card-holder passes the responsibility of paying for the goods to the card-issuing company. This transferring of responsibility comes into existence when the card-holder signs on the receipt of purchase. Hence, the seller would be obliged to take payment from the one to whom the buyer passed on the responsibility. This contract of Hawala is also permitted and discussed in detail in the various books of Fiqh.
Lastly, the relationship between the card-issuing company and the seller has been a matter of debate between the contemporary scholars. Some scholars had reservations on the usage of credit-cards due to the uncertainty of this relationship. However, as Shaykh Taqi Usmani and others have explained, this relationship is also one of agency, in that the issuing company acts on behalf of the seller also. The company has to do a lot of work for the benefit of the seller; hence it charges the seller commission for the service provided. Thus, the card-issuing company would be considered a broker and the amount charged by the company is like a commission charged for brokerage services. There is nothing wrong with this relationship also, neither is it unlawful for the company to charge the seller a commission in return of the service provided.
In conclusion, using a credit-card is permitted. The various relationships between the various parties are all Islamically legitimate, hence having more than two parties involved will not make its usage unlawful.
And Allah knows best
Muhammad ibn Adam al-Kawthari
Darul Iftaa, Leicester, UK