Fatwa of the Supreme Council for Islamic Banking Regulation on Early Settlement Rewards

Fatwa of the Supreme Council for Islamic Banking Regulation regarding the Reward in Case of Early Settlement of Finances

For the Supreme Council for Islamic Banking Regulation operating in the State of Kuwait.

The jurists have discussed this ruling under the principle "Discount and Accelerate" (Waiver and Early Settlement). The jurists differed regarding its validity, arriving at two main opinions:

The First Opinion: This is the view of the majority of jurists who affirm its validity: It states in "Tuhfat al-Fuqara Sharh Tuhfat al-Fuqara / Al-Bunni, 4/14": "It is valid to receive one thousand dirhams for one dinar deferred, or one thousand deferred for one hundred cash, or one thousand in settlement for one hundred delay; there is no harm in this. Because he has the right to waive (discount) and accelerate, so it is a valid exchange and not usury; there is no harm in deferring it, and he has the right to receive a deferred amount without usury." Imam Malik (Al-Muwatta, 171/9) stated: "It is not late - regarding the debt - except that he has a right to him as long as he gives him what remains of the time; there is no harm in this. Because it is discount and acceleration, so when the term arrives, there is no harm in it." It states in "Raudat al-Nazhir / Al-Tuwaijiri, 431/3": "It is valid to receive one thousand deferred for one hundred cash. And it is valid to receive one thousand cash for one hundred deferred; this is not usury in any way, but rather it is a mutual settlement of two sides: One is that the one hundred becomes due. The second is that the debtor throws (waives) his term. The first is common, so he gives one hundred. The second: and the creditor does not know, so he has the right to compensation from the debtor in the term." And it states in "Al-Furu', Ibn Muflih, 264/4": "It is valid to receive from the deferred debt by taking it now, and this is as follows:

1. It was narrated from Abu Bakr al-Siddiq (may Allah be pleased with him) that the Messenger of Allah (peace and blessings be upon him) said: 'Discount and accelerate.' (Narrated by Al-Bukhari, and he said it is a sound chain of narration. Al-Tirmidhi 362/2).
2. It was narrated in "Sahih Al-Hakim, 28/6" that Abu Bakr (may Allah be pleased with him) said: 'I will give you more and you will pay me earlier.'
3. He said: The matter of 'discount and accelerate' is a matter of consensus among the scholars, and it does not contradict the principle of trade and its foundation. Rather, the validity of trade and the interests of communication justify waiving part of the debt and agreeing on the term. The scholars and jurists agree that the first party waives part of the term, and the second party gives his right. This is consensus among the scholars, not a contradiction to the principle of trade and its foundation, but rather it is part of the wisdom of trade and the agreement of the scholars and jurists that the first waives part of the term, and the second gives his right."

The Second Opinion: This is the view of many scholars who affirm it, including Umar ibn al-Khattab (may Allah be pleased with him), Uthman ibn Affan, Ali ibn Abi Talib, and others. It was also narrated from Imam Ahmad, Abu Hanifa, Al-Shafi'i, and others. It states in "Hashiyat Ibn Abidin, 160/5", "Al-Ikhtiyarat Al-Fiqhiyya li Ibn Taymiyyah, 280/4", "I'lam al-Muwaqqi'in, 359/3": "The reward from the deferred debt is permissible for early settlement, whether it is from the debtor or the creditor, and it does not contradict the principle of trade if there is a prior agreement on consensus." (From "Majallat Majma' al-Fiqh al-Islami", 218/2/7). This is the view of the Shariah Board, Dar Al-Ifta Al-Jordaniyyah, Fatwa No. 3331, dated 2017/11/2: "Early settlement of part of the deferred debt against early payment is permissible and common in Islamic contracts if there is a prior agreement on consensus." And the Shariah Board of the Jordanian Ifta' Department stated: "This matter is permissible as long as it is not considered usury, and there is a difference of opinion among the scholars. The correct view from what has been stated is that 'discount and acceleration' is permissible, and it was narrated from Imam Ahmad and others including Abu Hanifa, Al-Shafi'i, and Malik." (From "Fath al-Mu'in", 168/13). It states in "Ighathat al-Lahfan / Ibn Taymiyyah, 13/2": "This is the correct view because it reduces usury in the term and the debt, and that is harm to the debtor, and it increases the benefit of its owner by accelerating it. Therefore, he has the right to benefit from reducing harm, unlike usury on him. If his harm is not as much as the debt and his benefit is greater than the debt, this is permissible from usury in form and meaning." And in "I'lam al-Muwaqqi'in / Ibn Taymiyyah, 359/3": "Because this reduces usury. Usury reduces in one of the two parts against the term, and this reduces the debtor's obligation by giving part of it in exchange for the remaining term. It is not a contradiction, nor is it usury, and there is no difference of opinion among the scholars. If usury reduces in one part, it benefits him once and does not contradict nor is it usury. If usury reduces in both parts, it benefits him twice and does not contradict nor is it usury. The scholars who consider it usury have equated it with usury, and those who consider it not usury have stated: Either you reduce or you do not reduce. And Ibn Taymiyyah stated: Accelerate for me and forgive me a hundred. Which of the two is better? So there is no contradiction, nor consensus, nor clear proof." It states in "Mughni al-Muhtaj, 233/2": "It is valid to receive from eight cash for five deferred by giving from five and keeping five cash." And in "Al-Mawahib al-Laduniyyah, 234/18": "Abu Bakr and Abu Ayyub acted with one thousand, and his son acted with five hundred. If he pays five hundred, it is valid for him to give one thousand. And if it is five hundred, this is permissible as long as he does not pay from the remainder. It was narrated that Malik and the majority of scholars permitted 'discount and accelerate', that he accelerates part of his deferred debt by giving him less than his debt." (From "Bada'i al-Sana'i / Ibn Rushd, 525/4").

The jurists have discussed the "Discount and Accelerate" matter as follows:

1. Abu Bakr (may Allah be pleased with him) said: "O Messenger of Allah, I have a debt to pay and I am unable to pay it in full." The Messenger of Allah (peace and blessings be upon him) said: "Discount and accelerate." (Narrated by Al-Bukhari, and he said it is a sound chain of narration. Al-Tirmidhi 362/2).
2. It was narrated in "Sahih Al-Hakim, 28/6" that Abu Bakr (may Allah be pleased with him) said: "I will give you more and you will pay me earlier."
3. He said: The matter of "discount and accelerate" is a matter of consensus among the scholars, and it does not contradict the principle of trade and its foundation. Rather, the validity of trade and the interests of communication justify waiving part of the debt and agreeing on the term. The scholars and jurists agree that the first party waives part of the term, and the second party gives his right. This is consensus among the scholars, not a contradiction to the principle of trade and its foundation, but rather it is part of the wisdom of trade and the agreement of the scholars and jurists that the first waives part of the term, and the second gives his right." (From "Sahih Al-Umar", 657/1): "The Messenger of Allah (peace and blessings be upon him) said: 'O Umar, I will give you more and you will pay me earlier.' He pointed with his hand that he would give him more, so Umar gave him his wealth and took it back. In another narration (Sahih Al-Umar, 657/1): 'The Messenger of Allah (peace and blessings be upon him) said: O Umar, I will give you more.' He pointed to him. Abu Bakr said: 'You did well.' He said: 'I will give you more.' He said: 'Then do so.'"

The Supreme Council for Islamic Banking Regulation has preferred the opinion of the majority of jurists regarding waiving part of the deferred debt in exchange for early settlement, whether it is a set-off by a debtor's debtor or a direct debtor, based on the evidence cited by those who held this view. The Council has clarified that in case of early settlement of finances, the Council issues a fatwa permitting:

• The reward or discount in early settlement.
• Or the return of finances to the due date in full.
• Or that the financial reward does not exceed 1.5% of the financing cost, as stated in "Hashiyat Ibn Abidin, 160/5" that if: "The debtor's debt becomes due or he dies, and his heir pays from the remainder... it does not exceed part of the debt due to the debtor." It is permissible for him to give part of the deferred debt as a term, and he clarified that Malik and others explained it by reducing part of the deferred debt. The Council's fatwa is based on the principle that "the best ruling is that which is most beneficial to the public," as stated in "Al-Adab al-Mufrad (58) from Majallat Al-Ahkam al-Amaliyyah": "The ruling on the public interest is that which is most beneficial to the people." And as stated by Al-Shafi'i (Al-Umm, 164/4): "The public interest of the ruler is from his wealth." It states in "Qawa'id al-Ahkam fi Masalih al-Anam, Al-Abd al-Ghani al-Maqdisi, 89/2": "It is more appropriate to give precedence to the best for the people, and it does not contradict one of them on the basis of the most beneficial for the people. Unless he is prevented, and they do not contradict in precedence due to his right, such as: He has two thousand dirhams, or a large amount of wealth. And if this is in the rights of the public; it is more appropriate to give precedence in the general rights of the people, as the scholars do from the public interests; because fulfilling the general public interest is more complete and greater than fulfilling the specific public interest. And giving precedence is a gift or payment of benefit, and it does not contradict the general public interest. Therefore, the general public interest is that which benefits the people from the early settlement of finances, as long as it is not considered usury. And if it is a general public interest that unites its benefits, the scholar gives precedence to it, and the council from its means accepts it as long as he executes it and benefits from it. And giving precedence to it does not contradict the principle of trade and its foundation, unless he is prevented." The general public interest is that which benefits the people from early settlement of finances, as long as it is not considered usury. And if it is a general public interest that unites its benefits, the scholar gives precedence to it, and the council from its means accepts it as long as he executes it and benefits from it. And giving precedence to it does not contradict the principle of trade and its foundation, unless he is prevented.

Final Ruling: The Supreme Council for Islamic Banking Regulation (Kuwait) rules that the reward or discount in case of early settlement of finances is permissible, whether it is a fixed amount, a percentage not exceeding 1.5% of the financing cost, or a reduction in the principal. It may be agreed upon before or after the due date, and it aligns with the principle of "most beneficial to the public" (أصلح للأمة) and prevents harm. This fatwa is issued in accordance with Islamic finance principles and the consensus of jurists.