Is a Fixed-Fee Cash Advance Considered Riba?

Answered by Shaykh Muhammad Carr

Question

I sell card machines to businesses and could also sell a cash advance product.

A customer can borrow up to 80% of their average monthly turnover. So, if a business has a monthly turnover of £10,000, it can borrow up to £8,000.

The funding company charges a fixed fee. For instance, if the customer borrows £8,000, the company may require a total repayment of £10,000. The repayments are then made by deducting 5% of the business’s daily card takings until the full £10,000 has been repaid.

The total amount payable is fixed from the outset and does not change during the term of the agreement. It is not linked to interest rates or the Bank of England base rate.

Would this arrangement be considered interest (riba)? If not, is it permissible under Islamic law?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

May Allah reward you for ensuring that your income is shari’a-compliant.

It is not permissible for you to sell the above-mentioned cash advance product. Facilitating or assisting in an impermissible transaction is itself impermissible. Allah says, ‘And aid not one another in sin and transgression’. [Quran, 5:2]

Charging a fixed amount in exchange for lending money constitutes interest (riba) and is, therefore, impermissible. Interest is any stipulated positive return on the principal amount of a loan. The ruling is that interest is prohibited, whether the return is fixed or variable. [See Khatib, Mughni]

Whether the repayment amount is linked to prevailing interest rates or to the Bank of England base rate has no bearing on the underlying arrangement.

We appreciate your concern in seeking to ensure that your livelihood is lawful.

Whoever leaves something for the sake of Allah, Allah will replace it with something better. Allah is the best of providers for those who seek it through lawful means.

And with Allah alone is our success.

[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.