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Subject : Rules of Ju`alah Contract Conducted through Banks

Fatwa Number : 3726

Date : 13-09-2022

Classified : Allowance, Ration

Fatwa Type : Search Fatawaa

Question :

Some shops sell products by installments, through banks, with same price of cash to encourage people to buy from them (Shops). I have visited one of these shops and was told that this transaction is conducted through a Ju`alah contract and that the bank takes nothing from the customer. Rather, it takes a commission from the merchant. What is the ruling of Sharia on this transaction?

The Answer :

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

Taking a commission against sending a customer to buy from a certain merchant is included, according to Islamic jurisprudence, under the rules of Ju`alah contract, which is "Paying  a known commission or reward to a known or unknown party against delivering a specific task, known or unknown."

According to Islamic jurisprudence, a bank agrees with a merchant or a group of merchants to take a certain percentage against the products bought by every customer that the bank sends to them and the bank commits to pay on behalf of the customer by installments or in cash. After that, the bank deducts that amount from the salary of the customer. This transaction is also called brokerage and it is permissible if the following conditions are met:

First: The merchant doesn`t calculate the profit margin it pays to the bank from the purchases of the customer by increasing their price so as not to fall into usury/interest. This is because in this case the financier (Bank) gets its profit from the customer, not the merchant.

Second: The profit is made through the Ju`alah contract (Commission/reward) not the guarantee because, according to scholarly consensus, it isn`t permissible to receive reward against guarantee. 

Third: There is no prior agreement between the merchant and the bank to increase the price of the product to cover the bank`s amount of profit. 

Fourth: Separating the Ju`alah contract conducted between the financier and the merchant from the sale contract between the customer and the merchant to prevent falling into usury/interest since its isn`t permissible for the bank to pay the total price of the commodity, on behalf of the customer, along with deducting the commission or Ju`alah. 

In addition, this Ju`alah doesn`t go under the Sharia maxim: "Every loan that brings benefit is usury." This is whether the financier paid on behalf of the customer on the spot, then deducted that from the salary of the latter or deducted from his salary and paid on his behalf. This is since the profit margin to which the financier was entitled isn`t due to the loan (The financier lending the customer). Rather, the financier became entitled to it by the Ju`alah, whether the customer has paid on the spot or the financier did that on his behalf.

It must be mentioned here that Ju`alah is a task delivered by the bank where it sends its customers to the merchants with whom it has reached an agreement. However, if the merchant is the one that refers his customers to the bank then this isn`t considered Ju`alah and in this case it isn`t permissible for the bank to take a Ju`alah (commission) from the merchant because it has done nothing. Here, it is as if the commission is against the guarantee. According to scholarly consensus, it isn`t permissible to take a reward against guarantee.

If any of the above conditions wasn`t met, then the Ju`alah isn`t permissible and it isn`t lawful to act upon it. And Allah the Almighty knows best.



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