Deferred Payment: Difference between things Purchased and Money Lent
Question:
In one of your answers I had read that a seller can charge a larger amount for a deferred payment i.e. for example the buyer agrees to pay for the thing purchased after one year. You had answered that this is halal and does not amount to usury. Does the same analogy apply to money? Suppose money is lent. Can the lender ask for a larger amount when the person who has taken the money agrees to pay after one year? Does this amount to usury and interest which is haram? Please elaborate and clarify the differences between the two instances.
Answer:
No, this ruling does not apply to cash and money. According to Shariah, money has no intrinsic utility, for it is only a medium of exchange. Each unit of money is 100% equal to another unit of the same denomination, thus it is impermissible to make profit on just money.
Profit is generated when something having intrinsic utility is sold for money or when different currencies are exchanged. Thus, according to Islam, financing is always based on illiquid assets.
Therefore, demanding and giving an extra amount on the actual amount that was given as a loan is clear interest (riba), thus unlawful. However, this rule will not apply in selling illiquid assets, for they can be sold at any price. Money cannot be sold, but these items may be sold at whatever price the seller wishes.
And Allah knows best
[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK