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Is It Permissible to Enter Into Contracts Involving Three Parties Such as Credit Card Agreements?

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
http://www.daruliftaa.com/

The Legal Verdict on Prevalent Forms of Insurance

Answered by Mufti Muhammad ibn Adam

Question: The Imam at our mosque said today in his sermon that Insurance is “haram”. His explanation was that you can’t benefit / profit yourself against something that is hidden, i.e. isn’t yet known. Could you please provide some detailed information on this?

Answer: In the name of Allah, Most Compassionate, Most Merciful,

What the Imam in your local Masjid said is correct, in that Insurance is unlawful (haram) according to Shariah.

The reason why all forms of commercial insurances prevalent in modern trade are unlawful and against the principles of Shariah, is that they have either an element of interest (riba) or chancing (qimar), both of which have been explicitly and sternly forbidden by Allah Most High in the Qur’an:

“Those who swallow usury cannot rise up save as he arises whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitted trading and forbade usury. He unto whom an admonition from his Lord cometh, and (he) refrained (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returns (to usury) – Such are rightful owners of the Fire. They will abide therein.

Allah hath blighted usury and made almsgiving fruitful. Allah loveth not the impious and guilty….

And if ye do not, then be warned of war (against you) from Allah and His messenger. And if ye repent, then ye have your principal (without interest). Wrong not, and ye shall not be wronged.” [Qur’an, 2.275-279]

And, regarding chancing and gambling (qimar):

“They question thee about strong drink and chancing. Say: In both is great sin, and (some) utility for men; but the sin of them is greater than their usefulness. And they ask thee what they ought to spend. Say: that which is superfluous. Thus Allah maketh plain to you (His) revelations, that haply ye may reflect.” (Qur’an, 2.219)

And:

“O ye who believe! Strong drink and chancing and idols and divining arrows are only an infamy of Satan’s handiwork. Leave it aside in order that ye may succeed.” [Qur’an, 5.90]

The Ruling Regarding Prevalent Forms of Insurance

Insurance is chancing [= ‘relying on or inviting the risks of chance’ – Merriam-Webster’s Unlimited Dictionary] in the sense that the premiums are paid for certain, whereas the return is uncertain. You may loose all the premiums you paid or may receive in return more then what you paid. This is known as chancing. There is also interest as money is being exchanged here for money and one party pays less and receives more in return.

This is the reason why the great contemporary scholars from all over the world have declared all types of prevalent insurances unlawful (haram), unless when one is compelled to affect it by the Government.

The Islamic Fiqh Academy (Jeddah), and which consists of top recognized scholars from around the globe researched the issue in considerable depth. The meeting was attended by no less than 150 such scholars from 45 Islamic Countries, including my respected teacher Shaykh Mufti Muhammad Taqi Usmani (may Allah preserve him), and they unanimously declared all types of prevalent insurances to be unlawful.

How About Car Insurance?

However, it should be remarked here, that since third party car insurance is a mandatory legal requirement for every car-owner, one can affect this kind of insurance, as it is not possible for one to avoid it.

Is There An Alternative?

Islamic financial institutions offer a viable and Islamically-accepted alternative, which is takaful, a form of cooperative insurance. Details of this are available through such institutions.

And Allah Knows Best
Muhammad ibn Adam
Darul Iftaa
Leicester , UK