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Some clarifications regarding allowable business transactions

By: admin

Question

If a merchant buys an object from somewhere for let’s say $5, then he placed it in his shop to sell, only when he sold it the selling price he listed was $15, obviously, this is not Riba (increase on borrowed money) but would this business practice be o.k. under Islamic concepts of righteousness? And really how is it different than riba with the exception that it’s not borrowed money?

Let’s take another example: A person is selling a house. He says you can pay for the house in installments without interest but he has raised the price of the house to what it would be if he were to charge interest. Is this not wrong, doesn’t it almost fall under the same category as riba or something close to that?

Basically, what I’m trying to get at is that the prohibition of riba is for the protection of society from vulture-like practices. So, aren’t my examples those that fall under the same practices?  Am I way off?

Thanks

Reply

Your first example, as I understand it, relates to cases of charging extra-ordinary profits. Charging extra-ordinary profits cannot always be termed as immoral or unethical. Nevertheless, there can indeed be circumstances where raising the profit margins can fall under the category of unethical and immoral practice. For instance, there can be certain items, which, even under normal circumstances, are sold at large profit margins; examples generally include luxury items, specialized items and certain made-to-order items. A comparatively larger profit margin in the sale of such items cannot be termed as an unethical or immoral practice. On the other hand, sometimes profit margins of items which are generally sold at cheaper rates are sold at enormous prices only because of the difficult circumstances of the buyers. Such price hikes can sometimes be considered as exploitative and can thus be placed under immoral or unethical practices and consequently may be considered as against the spirit of Islamic directives.

With regards to your second example, a rise in price effected for allowing the buyer time to make the payment for the purchase – as is generally the case in installment purchases and hire-purchase agreements – falls within the folds of Riba and should therefore be refrained from.

It should be kept in mind that as a principle given in the Qur’an, all such transactions which inherently entail an element of being contrary to generally acknowledged and recognized ethical practices and/or moral behavior are disallowed by Islam. Nevertheless, there can be instances where a particular practice may be viewed as being contrary to ethical and moral standards by some and not by others. Under such circumstances, the concerned individual’s honest opinion should play the decisive role in shaping his actions: If the individual considers a particular transaction to be against the accepted ethical and moral norms, then he should refrain from participating in such a transaction and vice versa.

UIUK team

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