Question Summary:
EMI (Equated Monthly Instalments)

Question Detail:

Assalamualayekum

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

1. An equated monthly instalment (EMI) is a fixed payment amount made by a borrower to a lender (usually the bank) at a specified date each calendar month. Equated monthly instalments are used to pay off both interest and principal each month so that over a specified number of years, the loan is paid off in full.^[1]

In an EMI transaction, one must take a loan from the bank or a third-party corporation and must pay back the bank or third-party corporation in instalments based on interest. In principle, it is not permissible for one to take out an interest-bearing loan from a bank or third-party corporation.^[2]

Equal monthly instalments (EMI) also include the payment of the principal sum together with interest for a certain number of months. As this arrangement consists of interest payment, it would, therefore, be impermissible.^[3]

2. No cost EMI is a mode of payment that works like a credit card. This scheme allows the holder of the card to buy products through Equated Monthly Instalments, but no interest is charged.

In principle, a transaction will be permissible if completed without incurring any interest charges.

However, there may be different factors which may perhaps make No cost EMI impermissible such as late payment fees, etc.

No cost EMI will be permissible subject to the following conditions:

And Allah Ta’āla Knows Best

Abdullah Syed Sajid

Student Darul Iftaa
Houston, TX, USA

Checked and Approved by,
Mufti Ebrahim Desai.

_______

^[1] https://www.investopedia.com/terms/e/equated_monthly_installment.asp

^[2] http://www.rediff.com/getahead/2006/jul/25emi.htm

https://www.bankbazaar.com/finance-tools/emi-calculator/difference-between-pre-emi-and-full-emi-repayment-schemes-for-home-loan.html?ck=Y%2BziX71XnZjIM9ZwEflsyDYlRL7gaN4W0xhuJSr9Iq7aMYwRm2IPACTQB2XBBtGG&rc=1

  ^[3]

 يَا أَيُّهَا الَّذِينَ آَمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِنْ كُنْتُمْ مُؤْمِنِينَ . فَإِنْ لَمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِنَ اللَّهِ وَرَسُولِهِ وَإِنْ تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَالِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ (البقرة: 278-279)

O you who believe, fear Allah and give up what still remains of riba, if you are believers. But if you do not (give up), then listen to the declaration of war from Allah and His Messenger. However, if you repent, yours is your principle. Neither wrong, nor be wronged. (1/278-279)