Fatwa: # 41607
Category: Business Matters
Country: India
Date: 13th February 2019

Title

Charging interest due to law but deducting it at the end

Question

Assalamualaikum. 

I read in multiple fatwas of yours that its permissible to buy any product at no cost Emi. 

But a peculiar scenario has arisen in India. No bank is allowed to lend at no cost emi on sale of retail products as per RBI (central bank) guidelines.

So the banks which previously didn't mention interest in no cost Emi transactions are now mentioning interest in the calculations. But they are reducing an amount equal to interest as discount. In effect, interest component is mentioned just to comply with guidelines and banks aren't charging actual interest.

For example: if a product is priced at Rs 12,000/-,then 6 month no cost Emi means rs 2000 per month.

But Becuase of above guideline, the bank mentions Interest as under :

Suppose if the above was a normal interest based Emi and not a no cost Emi, then interest in total for the above transaction would be rs 500 at 13% p.a.

The bank calculates even in case of no cost Emi as under :

Product price 12000

Discount :500

 

Net price : 11500

Interest : 500 (to be spread over six months period and charged each month while paying emi) 

Meaning, a amount equal to interest is treated as discount upfront. 

Is this arrangement that the bank does, makes no cost Emi permissible for us. 

 

Note :the price of the product is same for no cost Emi transactions and cash transactions. Further, there is no processing fee for no cost Emi transactions. 

Answer

In the Name of Allaah, the Most Gracious, the Most Merciful.

As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

Brother in Islaam,

The question is not clear. Explain to us the exact sequence of events. Who exactly does the retail and does the bank come in the equation? Also, if the customer was to delay in payment, what will be the consequences? You may revert to us at admin@daruliftaa.net.

 

And Allaah Ta’aala Knows Best.

Muajul I. Chowdhury

Student, Darul Iftaa

Astoria, New York, USA

 

Checked and Approved by,

Mufti Ebrahim Desai.

 

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