Dealer Incentive Commission (DIC) for conventional finance for vehicle dealership
Question:
Assalamu Alaykum. hope Hazrat Mufti Saheb is well. Allah grant Hazrat Mufti Ebrahim Saheb the highest stages in Jannah. Ameen. We have a family business in which we sell cars. We sell middle to high priced vehicles. We have an FNI (finance and insurance) person who assists clients in arranging finance for their vehicles. Once approved they sign a co contract for insurance and the bank pays is a DIC Commision for the dealer. If we pass on the client details to the broker and the client takes up the insurance then the broker pays us a commision. Which parts are not shariah compliant and how can we become shariah compliant in our business dealings?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We apologize for the belated response.
Your questions refer.
The issue of interest and Riba is an extremely severe matter and the Qur’an and the Hadith provides severe warnings and dire consequences for such a person who engages in interest based and usurious transactions. The capitalist system is wholly premised and based on the concept of interest and the consideration of fiat money as a medium of wealth creation as opposed to being a mere medium of exchange. Furthermore, we are also warned of assisting others in sinful activities based on the verse of the Qur’an “And do not assist one another in sin and transgression”. Hadhrat Mufti Muhammed Shafee Saheb RA, the late grant mufti of Pakistan has documented a detailed treatise on this issue in his magnum opus titled “Jawahir al-Fiqh”. (Vol.6)
With regards to your specific question, you state that your dealership has an FNI (Finance and insurance individual) who arranges co contract insurance. Furthermore you state that the bank pays your dealership a DIC (Dealer incentive commission) for referring finance deals to the bank.
- Co Contract Insurance
Insurance refers to the transfer of risk in exchange for a fixed premium. This is impermissible as per the shariah laws of business, finance and economics. Furthermore general insurance contracts are impermissible since the underlying financial construct of the insurance is impermissible.
Co-contract insurance refers to the sharing of risk cover by both parties. Essentially the policy holder would have to cover a certain agreed percentage upfront with the insurer covering the major percentage of insured risk say 80 %.
It is impermissible to engage in executing a co contract insurance transaction since that will be considered to be a direct form of aiding and assisting in sin since you are well aware of the impermissible financial arrangement. (Sabab Qareeb). Moreover the major source of income generally in insurance companies is from the risk premiums invested into impermissible activities and entities. Therefore such a brokerage (Wakalah) will be baatil and invalid due to the impermissible nature of the transaction in reference. The proceeds of such a transaction should be returned to the original issuer of such funds or further dispensed in charity without any intention of reward.
- DIC (Dealer Incentive commission)
DIC refers to dealer incentive commission in which the broker in this instance receives a fixed commission from the bank for referring such a transaction. Generally since you are referring clients to banks for conventional loans with interest, then such an arrangement will be impermissible and the proceeds thereof should be returned to the original source or dispensed off in charity. Such a transaction falls under the purview of assisting in sin and the resultant wakalah/brokerage fee is deemed impermissible due to the impermissible nature of the transaction. (Al-Hidayah, Vol.3, Pg 185, Maktabah Rahmaniyyah)
Shariah Alternatives
You have expressed your desire to ensure your financial dealings are shariah compliant and such intentions are indeed welcome and commendable. You have requested the correct procedure for the above and we advise that you consider referring such transactions to shariah compliant financial services providers. You could also potentially refer the transactions to a separate broker party entity to refer financial transactions to ensure you are not directly involved in the sin of directly engaging and referring such transactions to conventional banks for conventional financial solutions.
Moreover the underlying contractual terms of the offer to purchase in your vehicle sale and purchase agreement should be reviewed for shariah compliance as certain clauses and terms maybe impermissible such as the issue of risk management fees, etc.
You are welcome to contact us at the Darul Iftaa for further advice in order to structure a suitable shariah compliant vehicle financial procedure. Also you may download our book entitled “Your Brief Guide to Islamic Finance” for further information on the main concepts of Islamic Finance.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee,
Darul Iftaa, Durban, South Africa
DISCLAIMER: The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
(Announcement: The Darul Iftaa under the auspices of the Mufti Ebrahim Desai Foundation is managed by Mufti Ismail Desai Saheb, son of Hazrat Mufti Ebrahim Desai Saheb RA. Mufti Ismail Desai will continue his academic career by conducting an intensive one year specialist programme in Islamic Finance, Banking and economics (MA) and Iftaa training programme for Ulema and Shariah graduates. Mufti Ismail Desai Saheb will also be conducting various programmes for the public on Islamic Finance, Ishaahi Majlis and general Islamic Q&A. Alhamdulillah the Darul Iftaa currently has over 50 students from over 32 countries globally. The Darul Iftaa will be conducting programmes on Islamic Finance, Business and Economics in various cities/countries. The programme is conducted free of charge and you can request an event by contacting us directly at www.shariahbusiness.com. You can contact the Mufti Ebrahim Desai Foundation for any details on Hazrat Mufti Ebrahim Desai RA at www.muftiebrahimdesai.com. We will keep you updated on our programmes and events via our email data base and other media channels)
and Allah Ta'ala Knows Best
Mufti Ismail Desai
Darul Iftaa
Durban, South Africa
Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
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