Question Summary:
Partnership and Extended Warranties

Question Detail:

Assalaamu Alaikum
1. We have a business which requires large amounts of cash from time to time, there are other businesses who prefer giving us the cash instead of banking the cash due to high fees charged by the banks. Is it permissable for us to charge a fee for taking the cash.
2. Is it permissable for a motor car dealership to use the profits made from the sale of extended warranties on used vehicles, the sale of the warranty is included in the sale of the vehicle.
Jazakallah

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
1. Charging an excess for the credit received by the investors you refer to falls under the purview of interest hence prohibited. However if the fee charged is justifiably in correlation with the administrative services provided by your business in handling the cash, then that will be permissible.
 
We advise you to instead partner with the investors under a sweat partnership (Mudarabah). In simple terms, the Mudarib (sweat partner) provides the labour while the Rabbul Mal (capital provider) provides the capital upfront for the business. The Mudarib and Rabbul Mal decided on the profit ratio, tenure of investment and investment upfront and before contract execution. You and the investors will profit from the business under this mode of business partnership.
 
You may contact the Darul Iftaa who will advise you further on how to structure the deal with the investors.
 
Tel: 0027 31 207 5772
Mobile: 0027 71 683 8921
Email: admin@daruliftaa.net
 
2. If the sale of extended warranties is included within the sale of the vehicle, then that will be permissible since the cost of the warranty will be deferred to the actual payment of the vehicle and the warranty considered an added benefit. Therefore the profits accrued from the sale of warranties included in the sale of the vehicles is permissible.
 
And Allah Ta’āla Knows Best
Ismail Desai,
Darul Iftaa