Bai’ Mu’ajjal

Bai' Mu'ajjal is a deferred payment sale contract in which the parties agree to payment of the price at a time in future.

A deferred payment sale contract is valid if the date of payment is set unambiguously. That means, the date can set with reference to a specific date (e.g., December 24) or a specific period (e.g., six months from the date of delivery of goods or services, or as otherwise agreed upon between the parties). However, the date of payment cannot be set with reference to a future event when the exact date of the occurrence of that event is either unknown or uncertain. If there is ambiguity in the date of payment, the sale is considered void.

Deferred Price Could Be More Than Spot Price

The deferred price could be set higher than the spot price – there is no restriction on that – as long as the price is set at the time of purchase. The price cannot be changed once the sale contract has been concluded. Even if the purchaser settles the account at a time earlier than that stipulated in the contract, the amount of payment must equal that agreed upon, and not be lower in consideration of earlier payment.

Dealing with Default

In an interest-based system, the seller would impose penalties (interest) on the buyer in case of a late payment. Such would not be permissible under Islam. However, the scholars agree that the seller may impose penalties for late payment in the form of mandatory charity (e.g., in the event of late payment, the buyer would pay $X per day to a specified charitable organization).

This must act solely as an incentive for the buyer to settle the account in a timely fashion. The seller must not benefit from the penalties paid by the buyer.

Other Penalties

If the sale is concluded with payment in installments, it is permissible for the seller to stipulate in the contract that if the buyer fails to make a payment, the whole amount will come due immediately.

It is also permissible for the seller to demand a security, either as a mortgage or a lien. The seller may also demand a promissory note or a bill of exchange.

Source: Usmani, Chapter 6