(a) the seller’s discounting of promissory notes covering the deferred instalments with banks;
(b) bringing forward payment of the debt in return for writing off part of it, the issue known as “da‘ wa-ta‘ajjal” (“reduce and pay early”);
(c) the effect of death on the maturity of deferred instalments.

Resolution of the International Islamic Fiqh Academy on Installment Sales: Resolution No. 64

In the name of Allah, the Most Compassionate, the Most Merciful.
All praise is due to Allah, Lord of the Worlds. May blessings and peace be upon our master Muhammad, the Seal of the Prophets, and upon his family and Companions.

The Council of the International Islamic Fiqh Academy, convened during its seventh session in Jeddah, Kingdom of Saudi Arabia, from 7 to 12 Dhu al-Qa‘dah 1412 AH (9–14 May 1992 CE), after examining the papers submitted to the Academy on the topic of “installment sales” and listening to the discussions held on it, resolved the following:

1 – Installment sales are permissible according to the Sharia, even when the deferred price exceeds the cash price.

2 – Commercial papers—cheques, promissory notes, and bills of exchange—are legitimate means of documenting a debt in writing.

3 – Discounting such commercial papers is impermissible under the Sharia, because it amounts to riba al-nasi’ah, which is prohibited.

4 – A reduction of the deferred debt in exchange for early payment—whether proposed by the creditor or the debtor—known as da‘ wa-ta‘ajjal (“drop part of the debt and pay sooner”) is permissible under the Sharia and does not fall under the forbidden riba, provided that it is not based on a prior agreement and as long as the arrangement remains strictly between the creditor and the debtor. If a third party becomes involved, it is no longer permissible, for it then takes the ruling of discounting commercial papers.