Date : 01-04-2018

Question :

We are a charitable organization that encourages people to use solar water heating systems through establishing a fund that gives loans to that end. This goes as follows: A provider of solar water heating systems is selected through a tender, an installing order is issued by the organization and the customer is required to pay the price of that commodity to the organization in installments where he pays the agreed upon amount in addition to a specific sum, as margin of profit in favor of the organization. What is the ruling of Sharia on this?

The Answer :

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

Regarding the functions of charitable organizations, it is imperative to differentiate between giving loans and selling and buying transactions that aim to make profit. In fact, it isn`t permissible for charitable organizations to receive any profit against given loans because that is considered forbidden Riba (Usury/interest). As for selling and buying transactions that aim to make profit, they are permissible, and this is called Murabaha {Resale with a stated profit }. This type of transaction has certain rules and conditions that must be adhered to. The most important of these is: The organization must possess and hold the commodity then sell it to the customer. Moreover, there is no harm in promising the customer to purchase that commodity for him, provided that this isn`t a sale contract since it is imperative that the company possesses the solar water heating systems and hold them, if it wanted to sell them through Murabaha. As for installing the systems, this is framed as fair wage.

Therefore, it is permissible for the organization to reach an understanding with the customer to include that service in the Murabaha contract itself, then it authorizes the provider to do that.

In conclusion, the validity of selling and installing the solar water heating systems depends on possessing and holding them by the charitable organization-even for a few minutes-before selling them to the customers, in addition to agreeing on the profit percentage and the installment wage. And Allah knows best.