Q. I received your
answer to the question on the consumer credit shceme for which I thank
you. I have, as a humble student, reservations on the correctness of your
conclusion. I would be obliged if you would urgently respond to the following
:
1. It is correct that on the basis of written documentation the
relationship between the company and the customer is shown as one of the
lender and borrower. The amount of the loan which is inserted by the marchant
on the "Acceptance note" (Form2), designated as the "invoice
amount" is the price of the goods. If, for example, a customer purchases
goods for R100,00 then the amount of the loan purportedly advanced by
the company to him is reflected as R100,00 which is paid in 6 monthly
installments togather with interest theron at the present rate of 9.5%.
In fact, the amount lent is not the price of the goods (R100,00) but the
price less the agreed discount of 20% to the merchant (R80,00). If the
transaction between the Company and the customer was one of pure loan,
then the principal amount of the loan should equal the act- ual payment
by the company to the merchant and not the price of the goods. On your
view, the difference between the price of the goods and the actual amount
paid to the merchant (R100,00 less R80,00) must be ascribed to additional
inte- rest but this does not accord with the terms of the written documentation
on which your opinion is based. Furthermore, in some cases, the customer
as "the borrower" is required to pay a deposit of 30% to the
company upon conclusion of the transaction and this payment also is contrary
to the essence of a pure loan transaction. Hence, your stat- ement that
"the Company pays to the merchant the price owed by the customer
/ consumer" is not strictly correct because what is paid is the price
less the agreed discount (presently 18%).
2. On the assumption that the transaction between the company and the
customer is a loan, that transaction is separate from the sale between
the merchant and the customer. On your view, the merchant has sold goods
to the customer at the marked selling price. The sale viewed separately
is valid according to Shari'ah and the principle does not appear to apply
here. The fact that as agent the merchant is obliged to pay interest in
case of default in accounting to the company does not affect the customer,
(non-Muslim), just as the payment of interest by the (non-Muslim) customer
to the company does not affect the merchant. In South Africa, in any event,
a debtor who fails to pay a debt timeously is automatically by law under
the prescribed rate of interest Act, 1975 obliged to pay interest thereon
at a rate prescribed by the minister in the official gazette from time
to time.
3. As regards the agreement between the company and the merchant,
you are of the view that agreement amounts to a "complex relationship
which is totally against the parameters of the Shariah". The provision
relating to payment of interest in case of late payment operates as deterrent.
In the absence of such a provision, some merchants would deliberately
use the company's money in their own business as working capital for periods
of time to the financial prejudice of the company. In any event, the company
will agree to delete that provision (clause 4) in the case of Muslim merchants,
but the pro- visions of the prescribed rate of interest Act, 1975 would
in any event apply by operation of law.
Consideration should also be given to the question as to whether that
provision (clause 4) is void in itself and therefore severable from the
rest of the contract because it does not appear to be contrary to the
essence of the contract as to render the whole contract void. Consideration
should be given to the real nature of the transactions concerned without
placing undue emphasis on the lit- eral wording of the documents. On this
view, the transactions are analogous to Murabaha on the basis set out
in the initial question, although not satisfying all the requirements
of Murabaha. Such as possession. If, in the light of the foregoing, then
please give us your suggestions as to how to validate the transactions
concerned according to Shariah. The majority of black people in South
Africa, being the underprivileged, purchase their goods in installments
over 6 months.
The over whleming majority of Muslim merchants do not have the financial
resources to sell goods on credit over 6 months. The effect of your opinion
would be that Muslim business, which funds the religious and educational
institutions of the community, would be even further weakened, and Muslims
would continue to be dominated by white conglomerates. In an endeavor
to avoid interest, some Muslims merchants have agreed to grant the company
a bigger discount (eg from 18% to 25%), so that the company in turn has
agreed not to charge the customer any interest.
6. Your statement that American Express does not charge interest
in its cards is incorrect. All companies throughout the world charge interest
to cardholders in case of late payment. Hnece, applying the interest principle
which appears to be the basis of your FATWA, most transaction would be
rendered null and void causing great hardship to Muslims living particularly
in non-Muslim countries.
(M. S. Omar, Durban, South Africa)
A. After receiving your objections on my opinion about the customer
Credit Card scheme which appeared in Albalagh (Rajab 1412/Feb, 1992),
I reviewed the matter and studied the scheme and the relevent documents
once again giving due consideration to the points raised by you. But,
I am sorry to say, I could not agree with your contentions.
You basic argument is that the transactioninvolved in the Consumer Credit
Card is analogous to the agreement of Murabaha: You say that although
the words used in the documents are different, but we should treat the
transaction as a Murabaha sale, because :
"Consideration is given to the substance of the transaction and not
its form"
It is true that the intention is more important in a contract than the
words used to express it, but the intention should be clearly established
either by the context of the agreement or through other external sources,
Do you really think that the Company (CCC) intends to purchase the commodity
from the merchant and then sell it to the Customer? Is there any ind-
ication to prove that the CCC wants to effect a purchase and sale? I think
there cannot be two opinions in that the CCC does not intend to purchase
or sell any commodity. If it is assumed that the CCC intends to purchase
the commodity and sell it to the customer, it will logically mean that
the CCC will be liable to the warranties attached to the commodity. If
the customer finds a defect in the commodity, he should lay his claim
against the CCC. But neither of these consequences can be said to have
emerged out of the transaction under discussion. The CCC never accepts
itself to be the seller of the com- modity nor does it accept any one
of the liabilities consequent to the contract of sale. Rather it is expressly
provided in clause 4 of the agreement of CCC with the customer that CCC
shall not be liable to any such claim.
Although this nature of the transaction is quite evident, yet, to be more
certain, one can ask the CCC whether they intend to purchase the commodity
and sell the same to the customer through the Merchant as their agent.
I am sure they will ans- wer in negative.
The correct position therefore, is that:
(i) The words used in the agreement clearly purport to effect a
transaction of interest-bearing loan.
(ii) There is no slightest indication, neither in the agreement
nor anywhere else, that the CCC intends to effect a transac- tion of sale.
(iii) The CCC clearly denies that any sale has been efected by
it.
How can we, in these circumstences, insert the concept of sale in the
transaction or inject an idea which is totally foreign to their actual
intention. The principle of
does not mean to impose an arbitrary construction or interpretation of
a contract irrespective of the expression used and the objective intended.
what the principle actually means is that the literal meaning of the words
used in a contract may be dispensed with where there is a clear indication
through other sources that the real intention of the parties is different
from what their expression apparently purports. But before applying this
principle, one should establish the real intention of the parties concerned
through an evidence which is more forceful than the words used in the
agreement. It is obvious that no such evidence exists here.
You have laid much emphasis on the discount the CCC charges from the Merchant.
You insist that this discount indicates that the CCC has purchased the
commodity from the Merchant on a discounted rate, then has sold it to
the customer for its full price on which the CCC charges interest. But,
I am afraid, this is not the intention of the parties. The discount is
not charged by the CCC because the CCC has purchased the commodity. Rather
this discount may be interpreted in two different ways :
(a) This is a discount analogous to the discount normally charged
by a bank while accepting a bill of exchange.However, it is an extra-ordinary
situation where the CCC charges interest from two different persons for
the same amount of money and the same period of time, because it charges
discount from the Merchant and at the same time it charges interest from
the customer.
(b) There may be another interpretation of this discount. It is
possible that it is similar to the commission normally char- ged by the
brokers from the Merchants. This brokerage may be justified on the ground
that the facility provided by the CCC to card-holders attracts them to
those merchants only who accept such cards. In this way the CCC works
for inc- reasing the number of customers dealing with the Merchant, and
thus claims a discount / commission from him.
In my humble view, no other interpretation can be ascribed to this discount,
and I am sure that no court would interpret it to mean that the CCC has
purchased the commodity on a discounted rate.
There is another reason for not treating this transaction a Murabaha.
The agreements clearly prove that they are not restri- cted to the purchase
of goods only. They are used for the services rendered by the Merchants
as well. How can a Mura- baha work in the case of services?
Now, there are three parties involved in this transaction :
(i) The CCC (the company who issues the card)
(ii) The Customer (the person who holds the card)
(iii) The Merchant (who accepts the card and sells the goods and services
to the customer)
As for the relationship between the CCC and the customer, it is clearly
a relationship of borrowing on the basis of interest. Hence, it is not
allowed for a Muslim to become a party to this relationship.
But the case of the third party i.e. the Merchant is different. When a
Merchant accepts this card, it means that he has accepted the hawalah
(transfer) of the debt of his customer which the customer has owed to
him by virtu of the sale conclu- ded between them. The price of the goods
will now be paid to him by the CCC. There is no violence of any principle
of Shariah so far. The discount allowed by him to the CCC can also be
treated as a commission to the broker, as explained earlier. Therefore,
the discount can also be justified on this ground, just as it has been
justified in the case of ordinary credit cards issued by the American
Express etc.
But the problem arises when the merchant agrees to become an agent of
the CCC for the collection of all the amounts owed by the customer to
the CCC, including the amount of interest. It is established in Shariah
that agency in a transaction of interest is also not allowed. This is
the sole reason, in my humble opi- nion, for which it does not seem permissible
for a Muslim merchant to sign this agreement with the CCC. However, if
the Muslim Merchants can avoid the element of agency through a special
arrangement with the CCC, it seems to be lawful for them to accept such
cards, and to sell the commodities to such card-holders, because the Merchant
is not a party to the agreement between the card-holder and the CCC.
You have also asked as to what measures can be adopted in order to bring
this transaction within the parameters of Shariah. Coming to this question
I would suggest two alternatives:
Firstly the contract can be modified so as to make it a clear Murabaha
transaction with all its implications. This will require redical changes
in all the forms and agreements, but, at the same time it will validate
the whole transaction and the Muslim will be at liberty to issue such
cards, to use them and to accept them. However, it seems difficult that
the CCC will accept the implications of Murabaha.
Secondly, the element of agency for the collection of the dues
from the customer may be eliminated from the agreement signed by the by
the Merchant. It may, however, be provided in the agreement that the Customer
either pays his dues directly to the CCC, in which case the Merchant will
not be involved in the payment, or he deposits the amount with the Merchant
where from the CCC will arrange to collect it. In this case the Merchant
will act as a trustee for the Customer, and not as an agent of the CCC.
Another alternative may be that the Merchant sells the goods to the Customer
at a higher rate which may be equal to the amount he has to pay to the
CCC over a period of six months. But it should be a fixed amount finally
settled at the time of sale and should not be increased later on. Then
the CCC may also claim a brokerage commission from the Merchant on the
increased price at a higher rate. In this case the CCC advances a loan
to the customer which is free or interest, and a Muslim Merchant can work
as an agent for the CCC to collect the amount of loan.
I think that if the CCC is not agreeable to the first alternatives, this
method can be adopted as a last resort. But before applying this method
other Ulama should also be consulted because I am not fully confident
about it.
Before concluding this discussion, I would like to clarify another point
you have raised in the last paragraph of your question. You say,
"Your statement that American Express does not charge interest on
its cards in incorrect. All companies throughout the world charge interest
to card-holders in case of late payment..." Actually, I was aware
that the Credit Card Companies do charge interest in the case of late
payment, but the major diffe- rence between normal Credit-Cards (like
American Express etc.) and the Consumer Credit Card (under question) is
that the former ones do not charge any interest for the initial period
which extends in some cases to three or four months. It is only in case
of default after the prescribed period that they charge a penalty interest.
Therefore, their basic transaction per se does not have an element of
interest.
The penalty interest is an additional condition imposed by them which
does not render the whole the whole trnsaction invalid. Therefore, if
a Muslim subscribes to such credit cards with a clear intention that he
will always pay the bills of the company promptly and he has good reason
to believe that he will never become a defaulter, and will never have
to pay interest, it will be permissible for him to use such Cards. The
case of consumers credit card is totally different. Here every card-holder
is bound to pay interest from the very begi- nning. He has to pay interest
for each and every day. So, the whole transaction is based on interest.
It was this major diff- erence for which I had distingguished the case
of normal-credit cards from the consumer credit card under discussion.
This will clarify another misconception also. It was not the clause of
penalty-interest that formed the basis of my opinion. In fact, the nature
of the transaction is such that it cannot be distinguished from an interest-bearing
loan, and I have already elaborated the basic reasons for its impermissibility
for each one of the three parties.
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