Q : Is Factoring permissible in islam? Will the buyer’s transaction be affected if the seller is doing factoring? (with or without the buyer’s knowledge)
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Question
Is Factoring permissible in islam? Will the buyer’s transaction be affected if the seller is doing factoring? (with or without the buyer’s knowledge)
Answer
In the name of Allāh, Most Gracious, Most Merciful
Assalāmu ῾alaykum wa Rahmatullāhi Wabarakātuh
Factoring is a financial transaction whereby a business sells its Accounts receivable (i.e. invoices) to a third party (called a factor) at a discount in exchange for immediate money with which to finance continued business. (Wikipedia)
This concept of factoring is not permissible in Islam. The surplus amount received over and above what the debt was purchased for, is Ribā (interest).
(Jadeed Fiqhi Masāil, Vol.1, Pg.424, Naeemiyyah)
(Ahsanul Fatāwā, Vol.7, Pg.175, HM Saeed)
The buyer’s transaction will not be affected if the seller/supplier does factoring. The transaction between the buyer and seller is independent from the transaction between the seller and the factor.
And Allāh Ta῾āla Knows Best
Wassalāmu ῾alaykum
Ml. Rayhaan Docrat,
Student Dārul Iftā
Checked
and Approved by:
Mufti Ebrahim Desai
Dārul Iftā, Madrasah In῾āmiyyah
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