Ruling of Purchasing by credit, Selling by cash
Ustadz, I’d like to ask about the ruling of purchasing house or land, and what is the ruling if we bought a house and paid half of its price (the rest is still unpaid and without taking bank loan), then we resell it with a higher price than its initial price, and we gain some profits from the selling of that not-yet-paid-off house.. Is it considered as usury? Thank you very much. Wassalam.
From: M Ali Sadikin
Wa ‘alaikumus salam wa rahmatullah
In the name of Allah, peace and prayer of Allah be upon His messenger, amma ba’du,
Such scheme of transaction asked by the questioner is called “bai’ tawarruq” in jurisprudence terminology, which means purchasing a thing by loan, and before it is paid off, it is sold back.
There are two kinds of transactions for the case of purchasing a thing by credit and reselling it before it is paid off.
Firstly, bai’ inah [بيع العينة].
According to definition by some scholars, bai’ inah means,
أن يبيع سلعة بثمن معلوم إلى أجل، ثم يشتريها من المشتري بأقل ليبقى الكثير في ذمته
Selling a thing by credit with certain installment, then purchase it back in cash with a lower price, whereas the rest of the installments (the debt) still belong to the buyer. (See: Subulus Salam, 2/57).
Look at an Illustration of a case below:
Mr. Paijo sold an iPhone with the price of IDR 10,000,000, – to Bejo by credit. After Bejo received the goods, Paijo immediately bought it back from him with the price of IDR 8,000,000,-.
The consequences of this transaction are:
1.The iPhone is still belong to Paijo
2.Bejo goes home with IDR 8,000,000,- cash with him
3.Bejo has to pay the IDR 10,000,000,- by installments to Paijo for his credit purchasing previously
Such transaction is termed bai’ inah, made from the word “ainul mal” (the original wealth), in which the ainu mal al bai’ (the original wealth of the seller) is returned to himself, and is not transferred to the buyer. In the illustration above, the iPhone is still belong to the seller, Paijo. (See: Subulus Salam, 2/57).
Some said that bai’ inah comes from the word i’anah, meaning “help.”
Secondly, bai’ tawarruq [بيع التورق]
The definition of bai’ tawarruq is as explained by the Majma’ al-Fiqh al-Islami, an institution of jurisprudential study under the Rabithah.
شراء سلعة في حوزة البائع وملكه بثمن مؤجل ، ثم يبيع المشتري بنقد لغير البائع للحصول على النقد –الورق
Purchasing a thing by credit from a seller, then the buyer resells it back in cash to other than the first seller, to obtain cash money. (See; the magazine of al Majma’, 15th edition, verdict no. 5, 11th of Rajab, 1419 H).
As a case illustration:
Bejo bought a car with the price of IDR 80,000,000,- from Paijo by credit. The installments were due for 1 year, and the advanced cash was IDR 5,000,000,-. After a week of using, Bejo sold the car to Dalijo by cash with the price of IDR 75,000,000,-.
The consequences of this transaction are:
1.The car belongs to Dalijo.
2.Bejo gets cash money of IDR 75,000,000,-.
3.Bejo still has debt to Paijo of IDR 80,000,000,-.
Such scheme of transaction is termed tawarruq, taken from the word al-wariq [الورق], which means money. Because the main aim of this transaction is to obtain cash money. (See: Tahdzib Sunan Abi Daud, 5/108).
Study of The Ruling
Firstly, the ‘inah transaction.
Majority of the scholars – from the school of hanafi, maliki, and hanbali – affirmed that the transaction of ‘inah as depicted above is prohibited.
Among indications indication this prohibition is a hadith from Ibn Umar -may Allah be pleased with them both-, that the Messenger of Allah -peace and prayer of Allah be upon him- said,
إِذَا تَبَايَعْتُمْ بِالْعِينَةِ وَأَخَذْتُمْ أَذْنَابَ الْبَقَرِ وَرَضِيتُمْ بِالزَّرْعِ وَتَرَكْتُمْ الْجِهَادَ سَلَّطَ اللَّهُ عَلَيْكُمْ ذُلًّا لَا يَنْزِعُهُ حَتَّى تَرْجِعُوا إِلَى دِينِكُمْ
“If you are committing the transaction of ‘inah, taking the ox’s tails and pleased with the farming, and abandoning jihad, then Allah will wrack upon you disgracefulness. Allah will not lift it from you until you return to your religion.” (Narrated by Abu Daud no. 3462 and classed as valid hadith by al-Albani).
Beside this hadith, the reason for prohibiting ‘inah transaction with the above scheme is because in essence, such scheme is a usury transaction, and the traded thing is just a camouflage.
From the illustration we know that the real transaction was not Paijo selling the iPhone to Bejo, but Paijo lending money of IDR 8,000,000,- to Bejo and he is obliged to return it in installments of IDR 10,000,000,- to Paijo.
Secondly, the tawarruq transaction
The scholars have different opinions regarding the transaction of tawarruq.
Some scholars said that transaction of tawarruq with the scheme as we’ve mentioned above is prohibited. This is one of the opinion narrated from Imam Ahmad, and the stance chosen by Sheikh al Islam Ibn Taimiyya and his student, Ibn al Qoyyim.
They argued that bai’ tawarruq is included as bai’ mudthar (forced transaction). Because the seller need money, thus he sells his possession cheaply, whereas in a hadith it is said that,
نهى رسول الله – صلى الله عليه وسلم – عن بيع المضطر، وبيع الغرر، وبيع الثمرة قبل أن تدرك
The Messenger of Allah -peace and prayer of Allah be upon him- forbade the mudthar transaction (transaction by a forced man), gharar transaction (vague transaction), and selling fruits before its properness is known. ” (narrated by Abu Daud no. 731).
However, this hadith is a weak one as explained by al-Albani, thus it is unfit to be supporting indication.
Whereas majority of the scholars stated that the tawarruq transaction is alright (allowed). Because the original ruling of transaction is allowed as long as it contains no forbidden element. Allah decreed,
وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا
“Allah has made buying and selling lawful, and interest unlawful.” (QS. Al-Baqarah/The Cow: 275)
And in tawarruq there’s no element of usury, unlike the ‘inah transaction which basically is debt plus some additions on its due time. And that is the meaning of usury.
Among the scholars who issued fatwa that allows tawarruq transaction are those who sat in Majma’ al-Fiqh al-Islami, an jurisprudential institution under the Rabithah Alam Islami, in its verdict during its 15th congregation, on the month of Rajab, 1419 H.
Imam Ibn Baz also issued similar fatwa. He said, ,
التورق معاملة معروفة عند أهل العلم ، فيها خلاف بين أهل العلم ، والصواب أنه لا بأس بها
Tawarruq is a well-known transaction among the scholars. There are different opinions among them (regarding its status, -ed) and the true stance is that it is allowed. (See: http://www.binbaz.org.sa/mat/12917).
And there are scholars who – as explained by Dr. Muhammad at-Thayar – stipulated some requirements for the tawarruq transaction to be allowed.
- – The buyer needs money, thus he needs to sell the thing which he bought by credit and hasn’t been paid off. If he isn’t in the need, then it is not allowed to do such transaction.
- – It is not possible for the buyer to obtain money through another legal ways. If it is still possible for him to obtain it, then it is not allowed to do such transaction.
- – The handing over of the bought thing must be already done, and it is already being moved to the buyer’s place. Because the Prophet – peace and prayer of Allah be upon him- forbade us to sell things that we just buy, until we move it to our (buyer’s) place.
The end. And Allah knows best.
Answered by: Ustadz Ammi Nur Baits
Article of www.syaria.com
Description: selling, hadith on buying on credit