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Search Fatawaa


Subject : Ruling on the Finance Lease Containing a Penalty Clause

Fatwa Number : 2066

Date : 14-06-2012

Classified : Current Financial Issues

Fatwa Type : Search Fatawaa


Question :

What is the ruling of Sharia on a finance lease of a financial leasing company (See attached copy)?



The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.

Having examined the above finance lease, it was made clear that isn`t permissible from the perspective of Sharia and it is also not permissible to deal in such contract as well because it involves usury/Riba. Article (5/6) states: "A percentage of harm resulting from delay in payment of installments" while, in fact, such penalty clause is forbidden according to Sharia.

The penalty clause which dictates paying an interest in case of failure to make payment on time is a clear case of usury, which Allah and His Messenger (PBUH) have forbidden. It was the common practice of the people of pre-Islamic times (Jahiliah). At those times, a creditor would tell a debtor to either pay an interest in case the latter failed to pay debt on time or to settle the debt on the spot. The fine stipulated in the contract in case of delay in paying debt or an installment is clear usury, similar to the practice of the people of Jahiliah. Thus, texts of Sharia forbid this increase, whether it was stipulated in the contract or not. 

In addition, it isn`t  permissible to enter into a contract which contains such condition because, in principle, the latter messes up the contract and it isn`t permissible to enter into a faulty contract. This is attested to in the following verse {Which means}: " Those who swallow usury cannot rise up save as he ariseth whom the devil hath prostrated by (his) touch. That is because they say: Trade is just like usury; whereas Allah permitteth trading and forbiddeth usury. He unto whom an admonition from his Lord cometh, and (he) refraineth (in obedience thereto), he shall keep (the profits of) that which is past, and his affair (henceforth) is with Allah. As for him who returneth (to usury) - Such are rightful owners of the Fire. They will abide therein." {Al-Baqara, 275}. He the Exalted also says {What means}: " O ye who believe! Profane not Allah’s monuments nor the Sacred Month nor the offerings nor the garlands, nor those repairing to the Sacred House, seeking the grace and pleasure of their Lord. But when ye have left the sacred territory, then go hunting (if ye will). And let not your hatred of a folk who (once) stopped your going to the inviolable place of worship seduce you to transgress; but help ye one another unto righteousness and pious duty. Help not one another unto sin and transgression, but keep your duty to Allah. Lo! Allah is severe in punishment." {Al-Mai`da, 2}. 

We (Iftaa` Department) advise those in charge of the above financial leasing company to adopt a Sharia-compliant form for the above contract instead of the form given in the attached copy. And Allah the Almighty knows best.    






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