Guidelines for Protecting the Rights of Both Parties in Installment Sales

Authored by Dr. Muhammad Zia-ur-Rahman Azmi (رحمه الله)

Permissibility of Installment Sales:​

Installment sales are permissible based on the generality of the verse:

"يَا أَيُّهَا الَّذِينَ آمَنُوا إِذَا تَدَايَنتُم بِدَيْنٍ إِلَىٰ أَجَلٍ مُّسَمًّى فَاكْتُبُوهُ"

(“O you who have believed, when you contract a debt for a specified term, write it down.”) [Surah Al-Baqarah: 282]
Additionally, increasing the price in return for deferred payments is permissible, as demonstrated by the hadith:

The Prophet (ﷺ) instructed Abdullah ibn Amr ibn al-As (رضي الله عنهما) to buy a camel for two deferred camels to prepare the army.
(Sunan Abi Dawood, Hadith No. 2823)

Shariah Conditions to Avoid Prohibited Contracts:​

To ensure compliance with Islamic law and protect the rights of both buyer and seller, the following guidelines must be observed:

1. Ownership and Possession:
   
   • It is not permissible to sell an item that the seller does not own or possess.
   • For example, selling an item before acquiring it from its original source is forbidden.
   • The Prophet (ﷺ) said:
     "لا تبع ما ليس عندك"
     (“Do not sell what you do not possess.”)
     (Sunan Abi Dawood, Hadith No. 3503)
2. Prohibition of Combining Loan and Sale:
   
   • It is not permissible to combine a loan and a sale in one contract.
   • The Prophet (ﷺ) said:
     "لا يحل سلف وبيع"
     (“It is not permissible to combine lending and selling.”)
     (Sunan al-Tirmidhi, Hadith No. 1234; Sunan al-Nasa’i, Hadith No. 4611)
3. Prohibition of Selling Before Possession:
   
   • The Prophet (ﷺ) forbade selling food or grains before taking full possession. He said:
     
     "من ابتاع طعاما فلا يبعه حتى يستوفيه"
     (“Whoever buys food should not sell it until he takes full possession of it.”)
     (Sahih al-Bukhari, Hadith No. 2124; Sahih Muslim, Hadith No. 1526/32)
   • Abdullah ibn Umar (رضي الله عنهما) narrated that they were prohibited from selling grains in the market before transferring them to their own homes.
     (Sunan al-Nasa’i, Hadith No. 4608)

Practical Issues in Modern Installment Sales:​

1. Selling Without Ownership:
   
   • Some sellers agree to a sale and later purchase the item to fulfill the contract. This practice is prohibited as the seller must own and possess the item before selling it.
2. Selling Immediately Without Transfer:
   
   • Reselling goods to another buyer or even to the original seller at the same location without taking possession is also prohibited.
3. Negative Consequences:
   
   • Violating these principles leads to dishonesty, undermines the Sunnah, and opens the door to corruption and exploitation in trade practices.

Conclusion:​

To ensure the rights of both parties and maintain Shariah compliance:

• The seller must own and possess the item before selling it.
• Buyers and sellers must follow the proper Islamic procedures to avoid falling into prohibited practices.
• Transactions should be conducted with integrity to prevent disputes and harmful outcomes.

—Referenced from Ibn Baz: Majmu' al-Fatawa wa al-Maqalat, Vol. 19, Pg. 15.