Franchise and Credit Transactions

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Q: In terms of a franchise agreement there are certain things a franchisee can and certain things they cant do. A person intends to open a franchise a with a major franchisor but he has observed a few aspects as it stands might not be permissible. There are 3 areas of concern and guidance is sought in order to ensure permissibility.

ASPECT NO. 1 – CREDIT CARDS.
Under normal circumstances  a Muslim trader will not conclude a sale with a customer wanting to pay using their credit card and wanting to pay using the budget facility. Using the budget facility makes the customer liable for interest immediately.it is not permissible for any Muslim to be a party to any interest bearing transaction. However,regarding the franchise business the franchisee has no choice in this matter because the franchisor wants the franchisee to accept all forms of payment including a customer wanting to pay using their credit cards and using the budget facility. What is the correct ruling this aspect and what alternatives can the franchisee recommend to the franchisor in this regard?


ASPECT NO. 2 – “RCS” CARDS.
Accepting of “RCS” cards.RCS cards to the best of my understanding works like a credit card using the budget facility. A customer who makes a purchase using their “RCS” card becomes liable for interest on value of their purchase. The accepting of such cards is part of the policy of the franchisor nationally. What can a prospective Muslim franchisee do in this regard?


ASPECT NO. 3 – CREDIT FACILITY
It  is a national policy of the franchisor  to provide  credit to any customer that applies and qualifies for such credit. The credit facility is provided by “EDCON” a third party. However,this facility entails the customer paying interest but i am not sure whether the interest will go to the franchisor and credit provider or just the credit provider.Nonetheless,what would be the best thing to do in this regard as well?


A:
When a retailer receives payment via credit card, it means that the cedit card provider (CCP), which is either a Bank or the RCS company, has undertaken to pay for the purchases of the customer, in whose name the credit card has been issued. Hence the deal is between the Bank/credit card company and the retailer. In that deal there is no interest given or taken because the CCP pays out the retailer the exact price charged for the customer's purchases.

When the credit card is charged using the budget facility, that is a deal between the customer and the CCP, and though the customer will pay interest, but such payment will only be made at some stage later. Therefore, precisely at the time the customer swipes his or her card, there is no interest payment nor is there such an agreement between the retailer and the CCP. Furthermore, though the customer will pay interest, such agreement and contract is not in anyway facilitated or witnessed by the trader. Based on this, it will be permissible for a Muslim trader to allow payment of his goods via a credit card. The hadith of Our Believer Rasool (Sallallahu alayhi wasallam) curses the giver and taker of usury, as well as the witnesses to the giving and taking of usury. In this case, as is clear, the retailer is not a witness to either, nor is he a facilitator, because at the end the credit card holder  has the option to settle his debt with the CCP immediately and thus avoid the interest. His paying of interest to the Bank or RSC is entirely optional and by own choice.

However, since there is an INDIRECT link to a credit deal that may end in the payment of interest, it will be makrooh (discouraged) to allow budget payments via credit card. But we cannot brand this as totally haraam. It will, therefore, be permissible for the franchisee to accept credit card payments, straight or budget.

And Allah Ta'ala knows best.

As regards the Edcon credit facility, I believe that interest paid goes not to the franchiser but to the company that provides such credit, because the franchisee is paid out in full for all sales made to the customer. However, the Muslim trader should try his best not to encourage or make customers aware of such a facility, for this is clearly an interest based transaction to which the Trader willl be a witness. Documents that are signed in this process clearly state the amount of interest charged. In short, the franchisee should try to discourage clients from using this facility, and if possible, not use it at all. If due to franchise regulations, the trader is forced to draw up documents of this nature, he should have a non-Muslim staff member to do the necessary paper-work, so that the transaction is not witnessed by a Muslim.

And Allah Ta'ala knows best

Mufti Siraj Desai