Early Payment Discount and Interest

Can discounts granted for early payment of a debt be regarded as interest? Could you elaborate on this?

Majority of scholars, compared discounts granted for early payment of the debt to the additions to the debt for late payment, and thus regarded this practice same as interest. On the other hand, such comparison can be made between interest and commercial activities, too. In cases like these, it is imperative to focus on differences, not similarities.

The related part in Abdulaziz Bayindir’s book “Commerce and Interest” is as follows:

“Ibn Qayyim Al-Jawziyya considers such discounts permissible. According to him, “discounts granted for early payment of the debt is direct opposite of interest. Because, interest means increasing the debt for prolonging the time period while this practice is decreasing the debt for shortening the time period. Both parties benefit from this practice.  

The people consider this practice forbidden, compared it to the interest. On the other hand one should clearly see the difference between statements: “either pay on time or increase the debt” and “pay earlier and I will grant you a ring”. No evidence (nas), consensus (ijma) or credible analogy (qiyas) exists that prohibit such practice.

Ibn Qayyim states that, this is Ibn Abbas’ opinion, one of two hadiths reported from Ahmed. B. Hanbal confirms this, which is reported from Ibn Abu Musa and one other person and finally says his teacher Ibn Taymiyya had preferred this opinion.  (Ibn Qayyim Al-Jawziyya, Ilam AlMuwaqqeen, t: 3, p. 371).”

What Ibn Qayyim says is correct. No verse or hadith exists that prohibits discounts. The interest mentioned in verses and hadiths means additions to the debt. Allah commanded the following:

“And whatever you give for interest to increase within the wealth of people will not increase in the sight of Allah.” (Ar-Rum / The Romans 30:39)

“Believers! Beware of Allah and give up what remains of interest, if you are the true believers.” (Al-Baqara / The Cow 2:278)

The messenger of Allah told the following:

“…and don’t increase something of it upon something, and do not sell for ready money something to be given later. (Otherwise you’ll take interest)” (Muslim, The Book of Musaqat, 1584)

In cases like this, the main principle is to focus on not similarities but differences. Men and women are similar in a lot of respects too, but it is the differences between them make us call them men and women. Interest is the addition to the debt while discount decreases from the debt. Since one cannot call a decrease interest, it would be wrong to place discounts into the scope of interest.

For details please refer to Abdulaziz Bayindir, “Commerce and Interest” Suleymaniye Vakfi Yayinlari, Istanbul, 2007

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Date: May 27, 2014