ISLAMIC - ISLAMIC
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BUSINESS & FINANCE.

1)           MORTGAGED HOUSE

2)           BUYING HOUSE ON FIXED RATE

3)            BUYING AND SELLING ON INSTALLMENT

4)           Lotteries

5)           Stocks of componies

6)           FINANCING ISLAMIC WAY

7)           INSURANCE

8)           Unlawful earnings: effects on family

9)           WORKING AS A MIDDLEMAN

1. MORTGAGED HOUSE

Question:

3 years ago we bought a house with a mortgage with interests [riba] after we heard a fatwa. Now we finished paying it [we paid a big part of it in cash ] my questions are ;-
1- Is it Halal for us to live in this house?
2- Can we rent it?
3- Can we use it as a work place? [Business, work from home].

Answer: Praise be to Allah.  

Firstly: 

You have to repent to Allah for this interest-based loan, because interest (riba) is one of the worst of major sins. Allah says (interpretation of the meaning): 

“O you who believe! Fear Allah and give up what remains (due to you) from Riba (from now onward) if you are (really) believers. (278) And if you do not do it, then take a notice of war from Allah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)” [Al-Baqarah 2:278-279] 

Ibn Katheer (may Allah have mercy on him) said in his Tafseer (2/657): 

“This is a stern warning and a threat to those who persist in dealing in riba after having been warned. Ibn Jurayj said: Ibn ‘Abbaas said: ‘Take a notice of war’ means, be certain of war from Allah and His Messenger… and it was narrated that Ibn ‘Abbaas said: It will be said on the Day of Resurrection to the one who consumed riba: ‘Take up your weapon for war.’ Then he recited (interpretation of the meaning): 

‘And if you do not do it, then take a notice of war from Allah and His Messenger....’ [Al-Baqarah 2:279].

The Messenger of Allah (peace and blessings of Allah be upon him) cursed the one who consumes riba, the one who pays it, the one who records it and the two who witness it, and he said: “They are all the same.” (Narrated by Muslim, 1598). 

With regard to living in this house, if you have repented to Allah then there is nothing wrong with you living in it or renting it out or using it as a place of business. 

The Standing Committee was asked about a man who took out an interest-based loan and built a house: should he knock down the house, or what should he do? 

They replied: 

If the situation is as you say, then what you have done by taking out this loan in this manner is haraam because it is riba. You have to repent and seek forgiveness for that, and regret what you have done, and resolve not to do such a thing again. With regard to the house that you built, do not knock it down, rather make use of it by living in it etc, and we hope that Allah will forgive you for your careless action. 

Fataawa al-Lajnah al-Daa’imah, 13/411. 

We ask Allah to accept our repentance and to help us to do that which He loves and which pleases Him. 

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2. BUYING HOUSE ON FIXED RATE

Question:

My husband wants to buy a house with fixed rate. Is there any ribba in that kind of buying knowing that banks in USA deals with interest?

Answer:

All types of financing that involve interest and which are currently performed in traditional banks in the US are considered Haram. There are many organizations in the USA now which provide Islamic LARIBA financing for cars, homes, office equipment, leases, businesses, and other things. Among them are: MSI - Muslim Savings and Investments in Houston Texas, and American Finance House - LARIBA in Los Angeles, CA –

You can visit LaRiba's home page on the web at : www.americanfinance.com or call American Finance at the toll free number 1-888-LARIBA1. They will be glad to help you out and even to refer you to Islamic finance Institutions in other countries, and AMANA Funds operated by ISNA.

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3. BUYING AND SELLING ON INSTALLMENT

Question :

My work is about selling different products in installments. I do not have a shop; I just work through the telephone and deal with a wholesaler. 

First question: My uncle’s friend wants to buy a used mobile phone from another friend for 500 pounds, then I sell it to him in installments, I mean I pay initially then he pays the whole amount to me in installments. Is this Islamically Halal or haram?

Second question: Would it make a difference if the trader was a retailer?

Third question: Is there a specific profit specified in the Islamic law for selling in installments?  

Fourth question: There is a way of selling, retail, for example: someone asks me to buy him a mobile. This mobile is for 600. So I buy it for 600 from a retailer and sell it to the person for 620. Is this Halal or haram?.

Answer :  Praise be to Allah.

There is nothing wrong with selling by installments, whether you own a store or not, and whether the one who sells things to you sells them wholesale or retail. But it is not permissible for you to sell the goods until you take possession of them and bring them to your property.

It is not sufficient to buy them only over the phone, because of the report from Hakeem ibn Huzaam (may Allah be pleased with him) who said: I asked the Prophet (peace and blessings of Allah be upon him): O Messenger of Allah, a man comes to me and asks to buy something and I do not have that thing to sell to him, then I buy it for him from the market. He said: “Do not sell that which you do not own.”   Narrated by Abu Dawood (3503), al-Tirmidhi (1232) and al-Nasaa’i (4613) This hadeeth was classed as saheeh by al-Albaani in Saheeh al-Nasaa’i. 

And he (peace and blessings of Allah be upon him) said: “if you buy something, do not sell it until you have taken possession of it.” Narrated by Ahmad (15399) and al-Nasaa’i (4613); classed as saheeh by al-Albaani in Saheeh al-Jaami’ (342).  

Narrated from “Zayd ibn Thaabit (may Allah be pleased with him) that the Prophet (peace and blessings of Allah be upon him) forbade selling a product in the place where it was bought, until the merchants moved it to their own camp”. Al-Daaraqutni and Abu Dawood (3499) This hadeeth was classed as hasan by al-Albaani in Saheeh Abi Dawood. 

In al-Saheehayn it is narrated from Ibn ‘Abbaas (may Allah be pleased with him) that the Prophet (peace and blessings of Allah be upon him) said: “Whoever buys foodstuff, let him not sell it until he has taken possession of it.” Narrated by al-Bukhaari (2132) and Muslim (1525). (Muslim) added: Ibn ‘Abbaas said: I think that everything is like foodstuff, i. e., there is no difference between foodstuff and other goods. 

Based on this, if a customer comes to you wanting to buy a mobile phone, for example, and you buy it first, you should move it to your property, then sell it to the customer. The same applies if he wants to buy a fridge or washing machine and the like; it is essential that you take possession of it and move it from the place where you bought it. 

Sales by installments are of two types:

1 – A haraam type, which is where your role is merely that of financing without buying the product then selling it to the customer. An example of that is if the mobile phone costs 500 pounds as you say, and the customer does not have enough money to buy it, so you give him this money or you pay it on his behalf to the seller, then you take 520 pounds back, for example, from the customer, to be paid later on in instalments. This is riba which is haraam, because in fact what you are doing here is lending the customer 500 pounds in return for a repayment of 520. This is a loan which brings a benefit, so it is riba. 

2 – Where you promise the customer that you will buy the mobile phone he wants, so you buy the phone in a real sense for 500 pounds, and you take it from the seller, then you sell it to the customer for 520, by instalments. This way is permissible according to most of the scholars, because it is a permissible kind of transaction that fulfils the conditions. 

There is no reason why the customer should not go with you, then if you buy the phone and take it out of the seller’s shop, you can sell it to the customer. 

Profit Rate

There is no set profit that a dealer should make in his trade, but if the product has a price that is known in the market, it is not permissible for him to deceive the purchaser and sell it to him for more than the usual price, taking advantage of his ignorance and lack of awareness. 

And Allah knows best.

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4. Lotteries

Question:

Is it permissible for a Muslim to take part in the big lotteries which offer very high prizes, amounting to millions of dollars?

Answer:

When you look at Islamic legislation, you realize that the ways in which one person can take the money of another are very limited indeed. They include trade, employment, gifts and inheritance. Beyond this there is not any ground for a person to take someone else's money. When you consider how lotteries are operated, you find that a company or a government offers tickets and numbers for sale. What is sold in this way is neither tangible nor of any value. Because it comes with a chance to be included in the draw, people are willing to exchange these valueless tickets for a considerable amount of money.

A ticket in the Canadian or West German lotteries costs thousands of dollars. This amount of money is exchanged for an entry in the draw, which again remains of no value, unless a prize is won.

There is an important principle in Islam which states that it is not permissible to sell something which has no benefit to man. This rule applies to lottery tickets, hence it is not permissible to sell them. What is unlawful to sell is unlawful to buy. Furthermore, a lottery is a method of gambling. All gambling is forbidden in Islam. The prohibition is clearly stated in the Qur'an in the same verse which prohibits all intoxicants. The Qur'anic verse describes intoxicants and gambling as "an impurity of Satan's work." It commands all believers not to come near them and explains that through them Satan tries to create enmity and hatred among the believers.

In lotteries, this is clearly apparent. When it is announced that someone has won the jackpot, all those who have spent some of their money to buy tickets to enter the lottery are full of envy. They declare that the winner has taken their money. When you ask them how, they tell you that if it was not for the money of those who have participated in the lottery, no prize would have been offered. In addition, the company or the government which runs the lottery does not engage in it for fun, it stands to win large sums of money. What it offers in return is nothing. It is all a gimmick which takes money from a very large number of people and put it in the hands of a few. As such, lotteries are forbidden to run and forbidden to enter.

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5. Stocks of companies

Question:

Isn't safe to say that Stocks are Haram because you are taking a RISK just like in gambling? It is a like a form of gambling. The element of risk taking is always there. If stocks are halal, then could you please quote from the holy Quran, or the hadith.

Answer:

Investment in stock is an extremely different process from gambling, although it carries risk with it. Actually, not only stocks, but most types of trade, commerce, and methods of production involve risk, and this is not the criteria that makes them Halal or Haram. I have had the honor of working with a number of learned Muslim scholars and teams in this field. In fact we developed the first integrated guidelines to investing in the stock market (equities)/mutual funds. The following is a summary of the guidelines:

1. The spirit of investing according to Islamic Jurisprudence is to participate in EQUITY investing and not in debt type investing. Equity investing means owning equity in the company (companies) one invests in. Debt investing means lending money to the company using a RIBA instrument like a loan promissory note or a bond. INVESTING IN EQUITIES IS HIGHLY ENCOURAGED IN ISLAMIC JURISPRUDENCE.

2. Here is a summary of the Guidelines to investing in stocks :

2.1. It is preferred to invest in stocks in Muslim lands or which are majority owned by Muslims or which provide significant community services to Muslims and non-Muslims alike.

2.2. Investment in companies participating in Haram activities is prohibited. For example: Alcoholic Beverages ( Beer, Spirits, Stores like Vons-Safeway because they sell such things & pork..etc), Restaurants selling pork and/or alcoholic beverages, Tobacco, gambling,...etc. In the USA there are portfolios designed to be "Socially Responsible", and they satisfy many of the above but not necessarily what will come below. Also, companies involved in banking, finance, insurance, mortgage companies,..etc. are prohibited.

2.3. The companies should have a minimum percentage of debt in its capital structure as a function of its total capital. Here the percentages vary from 50% to a minimum of as low as zero percent debt (RIBA). In the beginning our Aalims started from 50% now they are at a maximum debt of 33.3% ( 1/3 ). However, they prefer this to reach as low as possible. There are equity screens which were used to satisfy this requirement. The only Mutual Fund I know about which uses this screen is "Al-Safwa" registered in the Caymans and operated by Dallah-Albaraka's Al-Tafik Funds.

2.4. The income of the company from RIBA sources (interest & others) should be minimum; not more than 5-10%. This restriction is very difficult to satisfy because it can be tricky. Also, many of us may not realize that many of famous companies have a large portion of their income in the form of RIBA (debt, interest,..etc). For example GENERAL ELECTRIC; is also a finance company; GENERAL MOTORS, ..etc.

2.5. The PURPOSE of Investing in the stock should be for real investing and not for SPECULATION. In other words; our Aaalims recommend that a Muslim investor should be a long term investor not just a "paper trader".

2.6. Using Options, futures, other derivatives and speculation instruments are not allowed by the majority of the Aalims except in some cases with Malaysian scholars. The only exception which is also not unanimously agreed to is to use options for portfolio protection. IN GENERAL: speculation, paper trading and gambling-like activities in the stock market are PROHIBITED.

3. From the above one can conclude that investing in stock mutual funds does not guarantee abiding by the guidelines mentioned. That is why one has to be careful.

There are a number of Islamically Oriented Funds.

These are : AMANA Fund operated by ISNA's NAIT,

Al-Safwa operated by Dallah in KSA (Kingdom of Saudi Arabia)

The Al-Ahli National Bank Fund, KSA ( Al-Bank Al-Ahli Al-Tujari - Operated by Vanguard Funds), and others.

PLEASE NOTE THAT THIS IS NOT AN ENDORSEMENT OR RECOMMENDATION OF ANY MUTUAL FUND OR INVESTMENT. THIS IS FOR INFORMATIONAL USE ONLY. WE STRONGLY RECOMMEND THAT YOU READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST AND THAT YOU DIVERSIFY YOUR INVESTMENTS.

If you have any additional questions please visit the following site: WWW.AMERICANFINANCE.COM, or call 1-888-LARIBA1.

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6. FINANCING ISLAMIC WAY

Question :

What is Unique about the LARIBA Model?

Answer :

American Finance House LARIBA is the Oldest Community-Owned, Riba-Free and Shari'aa Compliant Finance Company Serving the Community in the US since 1987.

The Uniqueness and Primary Differences between us, at LARIBA, and other Riba-Free Models and Riba banks are the following:

1.    We do not Rent Money. We approach each transaction as an investment (using the Lease-to-purchase Model) instead of Lending. We advise you as to whether the transaction is a good investment or it is better to rent.

2.    We never start from an interest rate to calculate your payment. Your payment is based on the market rental value of the property you are seeking to finance. The rental value is determined by mutual agreement between you and us.

3.    We work with clients in a humane and fair way (Tarahum) in times of trouble.

Our Home (Auto, Businesses and Trade) Financing (and Refinancing) Shari’aa Compliant Riba-Free Model is based on the Fatwas Given By Sheikh Qaradawi (Please Click Here to Reach The Fatwas) & His Team of Aalim (Scholars) in 1990 and Justice Sheikh Taqi Usmani fatwa and methodology (Please Click Here for Details). Following are the steps we follow at LARIBA:

1.    LARIBA agrees to form a conceptual partnership with client to buy the property together;

2.   The Partnership rents the property to whoever is interested in renting it, in this case the client out of his/her free will;

3.    LARIBA, in response to client’s expression of intent out of his/her free will, agrees to sell its share to the client over a period of time at the same amount/price LARIBA paid for it at the start WITHOUT CHARGING INTEREST.

Other Features of the Model:

1.    LARIBA does not encumber the future of your home ownership by placing its name on the Title of Your House. This way the safety of the house of your family will not be compromised and you may not be a part of a dispute in case the company, may Allah forbid, faces trouble.

2.   LARIBA financing allows clients to enjoy the tax advantages of traditional real estate financing while avoiding the Riba aspects.

3.   The repayment terms are structured to fit your cash flow needs with payback periods of up to 30 years.

4.   LARIBA can accept a down payment as low as 5%. Please note that if down payment is less than 20%, you will have to purchase Private Mortgage Insurance ("PMI") until your equity in the property reaches 20%.

5.    You can buy back our share at any time by making additional payments WITHOUT PENALTY.

6.    There is Partnership fees and NO HIDDEN fees.

LARIBA is also unique in the fact that it uses the standard legal documentation required by US Mortgage Industry Procedures and United States Standard Government Mortgage Law and we , at LARIBA, UNIQUELY supplement them with the LARIBA Agreement. This LARIBA AGREEMENT documents the process we used to calculate the payment and the rental value agreed upon. We, at LARIBA, DO NOT BELIEVE IN WHAT OTHERS DO. They replace the word “interest” with the word “rent or profit” to make the transaction appear Riba-free. We CLEARLY DECLARE IN THE LARIBA AGREEMENT THAT Riba / Interest Charging and/or Receiving is Haram. CALL LARIBA: 1-888-LARIBA-1

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7. INSURANCE

Question:

Our question is that is insurance in Islam halal or haram...such as life, health, car, house insurance, etc.? Because, it is not money that you have earned.

Answer:

Life insurance didn't exist in the past and therefore the evidence and judgment is found among contemporary Muslim scholars who have understood its terms and made their judgment in light of the Qur'an and the Hadith. Life insurance is Haram (prohibited), and this is a consensus among all Muslim scholars. There are no exception. The reason about this ruling is based on two main issues (there are other issues related to the un-Islamic ways Insurance Companies invest their money in, etc...) :

1- There is nothing called Life Insurance because every person will die and therefore, it is impossible for any person to insurance his/her life.

2- The second and stronger argument is based on the prohibition from prophet Muhammad (pbuh) to get involved in any business transaction that falls into the category of the Gharar Contracts (or the contracts with unspecified terms or maturity date). Since Life Insurance companies pay the beneficiaries at the time of a person's death date which is unknown, then, this type of contracts is Haram.

As to the other types of insurance, Muslims scholars have different opinions about it. Some of them allow it while others prohibit it. Those who prohibit it consider it as a contract of Gharar (Ignorance of the future), and therefore consider it haram based on the prohibition stated before. As to the scholars who allow it, they don't consider the insurance contract Gharar. It is actually not enough to cover this topic in a brief answer. The Insurance business is very complicated and varies from system to system, and from country to the other. Therefore, Muslims have to be very selective and careful in dealing with this issue.

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8. Unlawful earnings: effects on family

Question:

If a man makes a great deal of unlawful earnings, will that affect his wife and children? How can he escape punishment on the Day of Judgment?

Answer:

There is a basic rule in Islam which tells us that everyone is responsible for his or her own actions. No one shares the burden of another. However, if this man's wife and children (if they are adults) know of his unlawful earnings and accept them or indeed encourage him in his unlawful actions, then they share his sin. That is not because they are his wife and children, but because they know of his action and they encourage him to proceed with it. They are responsible for that encouragement. What this means in effect is that if the wife is ignorant of her husband's activities and if the children are too young to know or judge their father's practice, they are free of blame. Allah does not punish one person by inflicting suffering on another. This man is certainly responsible for what he does, but the way Allah punishes him is not by inflicting that punishment on his children or his wife. Allah is the most just of judges and He does not punish one person for another person's mistake.

Having said that, I have to point out that such a person deprives his dependents, whom Allah has entrusted to his care, of the benefits of living on lawfully earned money. What is lawful brings goodness and enhances talents and abilities. With what is forbidden comes gloom and a stifling atmosphere. To escape punishment by Allah for such a sin, the first thing this man should do is repent of his action. His repentance must be sincere and combined with a resolve not to indulge in such an activity again. Secondly, and equally important, he should return to everyone what he got from him by unlawful means. It is open to him to return these in any way which is suitable and which does not land him in trouble. If he cannot identify those who have claims against him, then he should isolate unlawful earnings and give them away as charity. He must not keep them with him.

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9. WORKING AS A MIDDLEMAN

Question :

I would like to know if Islam allows one to operate as a middleman. What is the Shari'ah concept of a middleman? It was also made known to me that one can not sell a thing unless he has bought it and brought it in his custody. Is that true?

Answer:                                                                                                                  

1. Working as a middleman may have two meanings:

A. To facilitate a transaction between two parties, this is permissible, it does not require you to be a seller or a buyer, you work only on commission basis to help bring the two parties together.

B. It may also mean buying from producers and selling to retail traders, like what wholesalers do. Here, we have two separate contracts that the middleman is part to each one of them. This is also permissible provided each contract is permissible on its own.

2. Yes, it is true that you cannot sell what you do not own, and you cannot tell what you purchase but did not yet take possession or custody of (delivery).

Kindly notice that this applies on items defined and determined on their own, such as this building, this car with body number … or this computer that I have on my desk itself.

If you sell/buy on description, it is permissible to sell what you do not own nor have possession of. The example is I sell you 10 computers of such and such specifications, it is permissible to make such a contract without having these computers in your possessions or in your ownership, provided that they can be made available by you before they are due for delivery to their purchaser.

 Excerpted, with slight modifications, from: www.islamonline.net

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