Consumer credit from the Islamic viewpoint

In this paper, the author describes - against the background of the general principles of trade in Islam, which are based on the value patterns deeply ingrained in the Islamic faith - the rules regulating consumer credit and debt financing in an Islamic economy. In the exposition of the Islamic viewpoint on these issues, guidelines adopted by Malaysian economists and financial institutions are used as a basis. The author explains which forms of trade and credit are regarded as usurious in nature and hence prohibited. Charging interest on loans is not permissible, but there are several forms of deferred contracts of exchange which can be used in order to enable consumers to make purchases on credit. The most common of these forms are described in some detail. They have in common that consumers have absolute ownership over the object of trade during the period in which they pay their instalments. An inability-to-pay clause, taking into account that a consumer may not always be in a position to fulfil the obligation to pay because of unavoidable or pressing circumstances, is always part of these credit forms. Some proposed solutions to the problems of alleviating the impact of inflation on credit transactions are also briefly described. In the final section, it is pointed out that even within the Islamic ambit, there can exist a multiplicity of approaches to issues such as consumer credit, depending on the various priorities set in a particular Islamic country. Furthermore, in a country such as Malaysia, although much conversion to an Islamic approach has taken place, Islamic and conventional systems exist side by side, and the future will show which of the systems is the more receptive to public needs.