Another Fatwa concerning the Issue of At-Tawarruq

Question :

A man seeks a loan from another man for the sum of 10,000 riyals on the condition that he will pay it back after a year from the date of the agreement, plus an extra of 2,000 riyals. The deal was worked out as follows:

The creditor purchased an item that is of 10,000 riyals and sold it to the debtor for 12,000 riyals under the condition that he would pay it off completely after a year from the date of the agreement. Then, the second person sold it to the owner of the store (the original seller) for 9,800 riyals. This is while knowing that the creditor took possession of the product initially and then agreed with the debtor on paying the previous sum of money (12,000 riyals).

Is this method that the creditor used with the debtor correct? Is the method used by the debtor with the owner of the store correct? Is this matter called At-Tawarruq or is it a trick from the deceptive ways of practicing Riba? May Allâh protect you and us from its evil, please give us a Fatwa (ruling), and may Allâh reward with the best of rewards.

Answer:

This issue is called At-Tawarruq according to the people of knowledge, and it is that the man sells an item to someone else who then owns it and takes possession of it for a known price to be paid at a fixed later date. Then the buyer takes it and does some business with it after possessing it. The usual situation is that this is done due to his (the buyers) need of cash. This sale in this manner is Islamically permissible according to the most correct view of the scholars, and it is included in Allâh's Statement:
"Allâh has allowed sale (business) and forbidden the Riba (interest or usury)."

And it is also included in His Saying:
"O you who believe, when you contract a debt for a fixed period, write it down."

The creditor may not sell to the person who wants to buy a product that the merchants have and he has not bought it (yet) and he does not possess it. That is invalid due to the statement of the Prophet:
"It is not permissible to make a condition of a loan along with a sale, or to sell what is not in your possession."

And he said to Hakeem bin Hizam:
"Do not sell what you do not have."

Selling is only permissible in this issue - I mean the issue of At- Tawarruq under the condition that the property is present with the seller and in his possession. Then, it is not permissible for the buyer to sell it while he is still with the creditor until he (the buyer) takes possession of it under his ownership or he takes it to his store. He also may not sell it to the creditor for a lower price, because that is taking a tricky means of practicing Riba. His selling the product to the creditor for a lower price that he bought it for from him is not correct, and this type of sale is called the sale of Al-'Eenah and it is from the sales transactions of Riba. And Allâh is the Giver of success.