Cashback: Islamic Ruling on Rebates and Discounts

Syed Bukhari

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Is Cashback Halal or Haram in Islam?

Is Cashback Halal or Haram in Islam – In the world of modern finance, cashback offers have become increasingly popular among consumers. These offers provide customers with a portion of their purchase price back, either immediately or through a later credit to their account. As Muslims, it’s important to examine the Islamic ruling on the permissibility of these cashback incentives, particularly in the context of credit and debit card transactions.

Understanding Cashbacks

Cashback is a form of rebate or discount provided by merchants, retailers, or financial institutions to their customers. When a customer makes a purchase, they may receive a percentage of the purchase price back, either as a direct refund or as a credit towards future transactions.

Cashback offers can come in various forms, such as:

1. Retailer Cashbacks: 

When a customer purchases goods or services from a retailer, the retailer may offer a certain percentage of the purchase price as a cashback incentive.

2. Credit Card Cashbacks: 

Credit card issuers may provide cashback rewards to their cardholders for making purchases using the credit card. This is a common feature of many credit card loyalty programs.

3. Debit Card Cashbacks: 

Some debit card providers also offer cashback rewards to their customers for using the debit card for purchases.

4. Online Cashback Portals: 

Certain websites and apps act as intermediaries, offering cashback to customers who make purchases through their platforms.

The key question is whether these cashback offers are considered permissible (halal) or impermissible (haram) under Islamic law.

Is Cashback Halal or Haram in Islam?

Shariah Compliance ConsiderationsCashback Halal or Haram

To determine the Shariah compliance of cashback offers, we need to examine the underlying principles and guidelines of Islamic finance.

Interest-Based Transactions

One of the fundamental principles in Islamic finance is the prohibition of riba, which refers to interest-based transactions. This includes the prohibition of lending money with the expectation of receiving an additional amount in return, as this is considered a form of exploitative interest.

In the context of credit card cashback, the issue arises because credit card transactions typically involve an interest-bearing loan, which is considered haram under Shariah law. Therefore, any rewards or benefits received from using a credit card may be viewed as tainted by the underlying interest-based relationship.

Gift vs. Loan

Shariah scholars have discussed the permissibility of receiving a lesser amount in return for a loan, as this can be considered a form of kindness and generosity rather than an interest-based transaction. The key distinction is whether the reduction in the repayment amount is a voluntary gift from the lender or a pre-determined condition of the loan.

If the reduction in the repayment amount is a voluntary gift from the lender, it is generally considered permissible. However, if the reduction is a pre-determined condition of the loan, it may be viewed as a form of interest and, therefore, impermissible.

Permissible and Impermissible Cashbacks

Based on the Shariah principles and the scholarly discussions, we can differentiate between permissible and impermissible forms of cashback:

1. Permissible Cashbacks:

   – Cashback from retailers or merchants, where the reduction in the purchase price is a voluntary offer from the seller and not a pre-determined condition of the transaction.

   – Cashbacks from debit card providers, as debit card transactions do not involve interest-bearing loans.

   – Cashbacks from online cashback portals, as long as the underlying transactions and the portal’s activities are Shariah-compliant.

2. Impermissible Cashbacks:

   – Cashback from credit card providers, as credit card transactions typically involve interest-bearing loans, which are considered haram under Islamic law.

Scholarly Opinions on Cashbacks

Various Islamic scholars have addressed the issue of cashback, providing guidance on its permissibility.

Shaykh Mufti Taqi Usmani’s View

Prominent Islamic scholar Shaykh Mufti Taqi Usmani has stated that if the credit card is Islamically acceptable (i.e., does not involve interest or other prohibited elements), then there is nothing wrong with benefiting from cashback offers. He considers the cashback a form of gift or reward from the card issuer, which is permissible as long as the underlying card is Shariah-compliant.

Shaykh Abu ‘Umar ad-Dabyaan’s View

Shaykh Abu ‘Umar ad-Dabyaan, another respected Islamic scholar, has discussed the issue of stipulating that less be paid back on a loan. He noted that the more correct view is that it is permissible, as it is a benefit that is solely for the borrower and a form of kindness, which is not prohibited.

Rulings from Islamic Finance Institutions

Various Islamic finance institutions have also addressed the issue of cashback. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has stated that it is permissible to accept promotional gifts, such as pens, calendars, and books, that are not given exclusively to bank account holders but are distributed more broadly for promotional purposes.

However, the AAOIFI has also cautioned against gifts or discounts that are given only to bank account holders, as this could be considered a form of prohibited interest-based loan.

Debit Card Cashback

The ruling on cashback received through debit card transactions is more straightforward. Since debit card transactions do not involve interest-bearing loans, the cashback or rewards received are generally considered permissible under Shariah law.

As long as the debit card issuer and the underlying transactions are Shariah-compliant, the cashback can be viewed as a legitimate reward or gift from the card issuer to the customer, similar to the case of retailer cashback offers.

Credit Card Cashback

The case of credit card cashback is more complex, as credit card transactions typically involve interest-bearing loans, which are considered haram in Islam. Therefore, any rewards or benefits received from using a credit card, including cashback, may be tainted by the underlying interest-based relationship.

Islamic scholars have generally advised against using credit cards, as the interest-based nature of the transactions renders them impermissible. Consequently, any cashback or rewards received from credit card usage would also be considered haram.

Cashback from Online Portals/ Wallets

Some online portals and websites offer cashback to customers for making purchases through their platforms. In these cases, the legality of the cashback depends on the nature of the underlying transactions and the overall Shariah compliance of the portal’s activities.

If the online portal is facilitating Shariah-compliant transactions and is not involved in any haram activities, such as gambling or the sale of prohibited goods, then the cashback received from using the portal would be considered permissible.

However, if the portal is involved in or facilitating any prohibited activities, the cashback would be considered tainted and, therefore, impermissible.

Caution and Prudence

While some scholars have provided a more lenient view on certain cashback offers, it is important to note that there are also some scholars who take a more conservative stance and advise against accepting any form of cashback, regardless of the underlying transaction.

This more cautious approach stems from the principle of erring on the side of caution when it comes to matters related to Shariah compliance. By avoiding any potential gray areas or doubtful situations, Muslims can ensure that their financial dealings are in line with the teachings of Islam.

FAQs

Q: Is it allowed to have a credit card in Islam?

A: No, having a credit card is generally not allowed in Islam because it involves interest payments and other unlawful activities.

Q: Where does cashback come from?

A: Cashback usually comes from the retailer or credit/debit card issuer as a reward or incentive for the customer’s purchases.

Q: Is cashback haram?

A: The permissibility of cashback depends on the source and the underlying nature of the transaction. Cashback from Shariah-compliant sources, such as retailers or debit card issuers, is generally considered halal. However, cashback received through credit card transactions is typically considered haram due to the interest-based nature of credit cards.

Q: Is cashback permissible in Islam?

A: Cashback can be permissible in Islam, but it depends on the specific circumstances. Cashback from Shariah-compliant sources, where the reduction in the purchase price is a voluntary offer and not a pre-determined condition, is generally considered permissible. Cashback from credit card transactions, on the other hand, is typically viewed as impermissible due to the underlying interest-based relationship.

Conclusion

In the world of modern finance, cashback offers have become a common feature, providing customers with a way to save money on their purchases. However, from an Islamic perspective, the permissibility of these cashback incentives depends on the nature of the underlying transactions and the overall Shariah compliance of the entities involved.

Cashback from Shariah-compliant sources, such as retailers or debit card issuers, is generally considered permissible, as it is viewed as a form of gift or reward. On the other hand, cashback received through credit card transactions is typically considered haram due to the interest-based nature of credit cards.

It is important for Muslims to exercise caution and diligence when considering cashback offers, ensuring that the source and the underlying activities are in line with the principles of Islamic finance. By doing so, they can engage in financial transactions that are not only economically beneficial but also spiritually and ethically sound.