Is this riba?

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

As-salamu alaykum wa-rahmatullahi wa-barakatuh.

Brother in Islam,

Your concern to keep your business free of interest is commendable, and you have described the transaction with the honesty that allows a clear answer.

We will describe what actually takes place. The customer needs $6,500 in cash. He hands you his jewellery and receives $6,500. He then owes you $7,500 payable over three months for jewellery you sell to him, and the same jewellery returns to him when he has paid. Whatever names are given to the two steps, the substance is that he received $6,500 today and returns $7,500 later, and the jewellery served only as the vehicle. The customer's intention, which you say is clear from the beginning, confirms that neither party wanted a sale. He wanted cash, and you wanted a return on that cash.

In principle, the Shariah looks at the substance of a transaction and not at its form. A pair of sales arranged so that the goods return to their original owner and the only real effect is money now for more money later is the buy back arrangement that the jurists condemned. It is not permissible in the Hanafi school, and it is treated as a device to reach interest through the form of a sale.

Accordingly, regarding your first question, the transaction is not permissible, and the $1,000 is in substance an increase on a loan, even though the two contracts are individually complete and no late fee is charged. Regarding your second question, there are two lawful ways to deal with a customer in this position. The first is an outright loan with collateral. You lend him the $6,500 he needs, hold the jewellery as security, and return it to him when he repays exactly what he borrowed, with no increase of any kind. You earn nothing from this, but it is an act of great reward. The second is a genuine sale to a third party. Having bought the jewellery from him for $6,500, you sell it to a third person, who is not the customer and not acting for him, for $7,500. That third person then becomes the full owner and is free to keep the jewellery, to sell it to your customer, or to sell it to anyone else, at whatever price they agree, and the customer is free to buy it from him or to leave it. What makes this lawful is that the sale to the third person carries no condition or prior arrangement that the jewellery will go back to the customer, and the third person bears the ownership and the risk in the meantime.

Regarding your third question, the sale of gold or silver jewellery for Canadian dollars is an exchange of gold for money, and it is governed by the rules of currency exchange (Sarf). Those rules require that both sides of the exchange be delivered in the same sitting. The jewellery must be handed over and the full price must be paid before the parties separate. Deferral of the price is not permitted in this exchange, so a layaway arrangement, in which the customer pays over time while you retain the jewellery, is not permissible for gold and silver jewellery, even though the price is fixed and no increase is charged. A customer who cannot pay the full price at once should be told to return when he can, Layaway remains permissible for goods other than gold and silver, such as watches or items of other metals, where a fixed deferred price is allowed.

Regarding your fourth question, the $1,000 earned in the past transactions of this kind is not clean profit. You should give it in charity to the poor without the intention of reward, and seek forgiveness from Allah. The sales themselves are not required to be unwound.

Allah knows best

Mufti Mirza-Zain Baig