Understanding Riba in Instalment Payments: Distinguishing Between Cost Increments and Prohibited Practices #
Original Question: The cost price of instalment payment is usually higher than a lump-sum payment. Doesn’t the increment in cost price between lump-sum and instalment payment count as riba?
There are essentially four types of riba that are prohibited.
Namely, (i) riba al-fadl, (ii) riba al-nasi’ah, (iii) riba al-qard, and (iv) riba al-jahiliyyah.
The first two are related to sale contracts, and the last two are related to loan contracts.
For cost price increment in instalment payment, it does not count as riba al-fadl nor riba al-nasiah if the transaction is not between ribawi commodities.
However, if the transaction is between ribawi commodities, spot exchange between two items must be observed.
The Prophet ï·º said: “(the exchange of) gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salts for salts, (should be against) equal for equal amount and (payment should be made) hand in hand. If (the item of the same) genus differs, then sell as you wish if the payment is made hand to hand.”
