us to repay him with the higher quality
camel and said, “The best of you
are those who settle their debts in the
best manner” (Bukhari).
Practical applications: As mentioned
above, loans cannot have any strings
attached. If a person were to lend
money to another but stipulate that
the money must be used on a service
provided by him/her, this would not
be permissible as it is an extra benefit
along with the repayment of a loan.
A common example of this is using
leverage on forex trading. Forex brokers
lend money to clients but only
allow the clients to use that money on
trades brokered by them and charge
a fee for those transactions. Such a
form of lending would constitute as
interest in Islam.
Principle #2: Any markup in price for
the sale of a commodity is permissible
even if the markup is due to the
payment being deferred.
Scenario: Ahmad is selling his BMW
5 series for $60,000. Mohammad is
interested in buying the car but cannot
afford to pay all at once. Ahmad
offers to allow Mohammad to pay in
installments but would then want the
price to be $ 70,000.
Ruling: Permissible
Explanation: Islam does not put
any cap on how much profit can be
earned in a transaction. Islam does,
however, stipulate of how the profit
can be earned. In Islamic finance, a
basic principle is that money cannot
be earned through lending money.
There should be actual economic
activity involving risk to earn a profit.
In this scenario, the profit earned is
through the sale of a commodity. A
person may choose to set a higher
price for a commodity for any reason
they wish including due to deferred
payment. Thus, in this scenario instead
of earning profit from lending,
profit is earned from the actual sale of
a commodity. It should be noted that
the exact markup must be fixed at the
time of sale and cannot fluctuate after
the sale has taken place.
Proof: Ibn ‘Abbas k mentioned,
“There is no issue for a seller to say
that the price of a commodity is a
stipulated amount if paid upfront and
different if paid over a period of time.
However, the buyer and seller should
both agree (on the final price) before
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