If you’re shopping for a car and trying to avoid interest-bearing debt it’s likely that advertisements claiming 0% APR (Annual Percentage Rate) car financing have caught your attention.
Naturally, the savvy Muslim consumer should ask: is there a catch to this and is it truly Halal?
If you’re in this position you’re in luck because I’m about to answer these two questions for you so keep reading…
When using options to hedge risk i.e. transfer a certain risk from the bearer of this risk to another party more able to assume this risk, this creates value.
However, when options are used to speculate on price, both conditions of Maisir are met and therefore it is prohibited in Islam (haram).
In this episode of Practical Islamic Finance, I define what Riba in Islam is using the literal Arabic meaning of the word, the Quran and Tradition of the prophet Muhammad peace be upon him. After watching this video you should have a clear understanding of Islam’s view on Debt and Interest and be able to tell whether the product you are considering involves riba or not.
Maysir comes from the Arabic word “yisir” meaning ease. It is called this because it is associated with attempts to easily acquire wealth through games of chance.(1)
Identifying Maysir is not as easy as some make it out to be.
There are four elements that need to be taken into account when identifying Maysir:
S: The stakes
P: The probability for loss
A: Tendency to cause addiction
V: The value added to society
Islamic banks that use this product claim it’s not interest because the amount that Adam owes is fixed and does not increase if he is delinquent on payments. Therefore, we are simply looking at a standard sale wherein a trader buys an item for one price and sells it for an increased price.
Put differently, the argument for Murabaha is:
Does Islam allow someone to buy a car for $10,000 and sell it for $12,000? Yes.
Does Islam allow someone to make a purchase on a deferred payment basis? Yes.
From 1 and 2, neither the bank nor Adam has done anything wrong and Murabaha is permissible in Islam.
Not so fast.
