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Are cashback rewards halal?

By Dr Hanudin Amin

PRICE discount or merely a discount is a traditional way used by businesses in attracting a consumers’ purchase. By definition, it is a price reduction for goods or services and normally it is described in the percentage form. One can see the discount culture mainly during the festive seasons and sales before the open of the new schools’ session.

Today, however, many businesses have been so creative when promoting their products, goods or services. One of the interesting innovations that captured my mind-eyes is cashback rewards, which are commonly found in both online and offline outlets. You may find cashback transactions at Watson, Shell and Picotec to mention but a few if you live in Labuan [Loved-One], East Malaysia.

Dr Hanudin Amin. SNT File Pix

Besides, goods and services that are subject to cashback rewards are petrol, dining, entertainment, groceries and shopping, to mention but a few. The question is, do they halal? Are there any conditions making cashback rewards halal?

Generally, cashback rewards are defined as a marketing approach to make consumers buy more using their credit cards, debit cards or mobile payment or some say e-wallet. When we are mentioning about the latter it can be referred to the apps which are embedded in mobile phones/smartphones that enable financial transactions notably receiving payment or making payment. Quite popular among millennials.

When we look at this issue closely, cashback rewards are nothing but a marketing trick that can make consumers aim for making more purchases out of incentives earned in return. The incentives, however, have a Shariah implication. To be specific, if cashback rewards are based on the loan, then they are not permitted but if they are from the sale, then they are allowed, where Shariah principles are brought into play.

To recall, the prohibition of riba and the permissibility of sale are best described by this Hadith: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt –like for like, equal for equal and hand to hand; if the commodities differ, then you may sell as you wish, provided that the exchange is hand to hand” (Muslim & Tirmidhi).

There are six conditions for allowing cashback rewards among Muslims but are not confined to:

CONDITION #1 – The underlying transaction is the sale and not that of a loan. In an Islamic economy, the religion only allows a benevolent loan that is termed as “Qardhul Hassan”, in which the borrower returns the principal only to the creditor without any extra. The borrower can give extra out of discretion but it is not promised or pre-determined at the beginning of a transaction. If an e-wallet is transacted to obtain goods via the payment of the goods’ price, then it is permissible and the same case is applied to Islamic credit and debits cards like in the case of Bank Islam Malaysia Berhad and Kuwait Finance House, respectively.

CONDITION #2 – The transactions involving cashback are nothing but halal goods and services. Anything that is not halal is forbidden and any cashback rewards related are viewed prohibited. In this write-up, halal transactions are defined as goods and services that are permitted in Islam in which buyers and sellers consider only goods and services permitted in the religion of Islam without considering non-halal transactions like expenses for entertainments body and soul, bear and other illicit things, which are considered offences and condemned by the Almighty. One should aware that non-halal goods and services are not confined to liquor, gambling, pork, horse racing but also the unethical horizon of human conducts like prostitutions. Halal goods and services are permissible in the religion of Islam and for that, they are safe and not harmful to their body, soul and thought. If the cash rewards cover these, then the taking of the benefits earned are permissible.

As such, they are admissible when a Muslim buys only lawful and permissible goods and services. In Islam, the religion and the consumption are inseparable and for that, a moral code of conduct is brought into play. Even if you are non-Muslim by religion, cashback rewards are permissible when you are buying halal goods. A Muslim earned haram cashback rewards if spends unethically and unIslamic.

CONDITION #3 – The given cashback rewards are based on Islamic banking products, any incentives like cashback 1% and travel reward points are redeemed by patronising bank products that are permissible, and therefore it would be permitted. In other words, the rewards are given out of the origin of transactions and can be taken by laymen when it is halal. This assertion is confined to Islamic and debit cards and so do e-wallet if it is operationalised using Shariah principles (i.e. the prohibitions of riba, gharar and maysir etc).

CONDITION #4 – The existence of these facilities are helped to improve one’s financial management. This means that one employs Islamic credit cards when he is out of money to pay goods and services under deliberations. The use is based on need rather than a desire in which the latter halts ‘Islamic’ spending and consumption. The same case goes to Islamic debit card and e-wallet, whereby the purchase of any goods and services are based on actual need and no that of a show-off. As such, cashback rewards are allowable.

CONDITION #5 – There is no hidden agenda when the service providers provide cashback rewards and all terms and conditions are explained in more detail to allow a better flow of knowledge and information about the legality of cashback rewards. Such rewards are not intended to promote acute indebtedness (e.g. Islamic credit cards) but a facility to reduce hardship for improved convenience of transactions.

CONDITION #6 – The given of cashback rewards should apply to all layers of individuals provided that they are qualified to have access to the facility. For instance, all e-wallet holders are entitled to get rewards and no discrimination is agreed.

Likewise, there are some issues are of related to cashback rewards. I detail the following but are not confined to:

ISSUE #1 – There is an avowal in that a cashback is termed as riba when the actual seller is not involved in mainly in the case of e-wallet. For instance, one can pay any KFC goods using e-wallet but the cashback rewards are not given by the KFC but the e-wallet. If the occurrence is to promote cashless transaction, therefore it is permitted where the importance of maslahah is exceeding than individuals’ interest. If the rewards serve as a trap to allow companies to impose a charge subsequently when consumers treat them as a habit, therefore it is not permissible.

ISSUE #2 – There is a perception in that cashback rewards for Islamic financial institutions and their conventional counterparts are the same given the forms of cashback rewards like percentage of rewards, bonus points and other mechanisms are alike. Should we call Islamic cashback rewards for halal transactions to differentiate themselves from conventional cashback rewards? A question to ponder.

ISSUE # 3 – If cashback rewards are given to the same consumers regardless of whether they buy or not goods or services, then this sort of idea is known as riba transactions. But if it is given only when they buy goods or services, then it is permissible out of gift or incentive, where kindness comes into play. The problem only occurs if the given rewards are earned by the customers who are not performing a purchase. Otherwise, it is legitimate.

Taken as a set, if e-wallet, Islamic credit and debit cards are Islamically transacted using Shariah principles to uphold the significance of Shariah compliance, then there is nothing wrong benefiting from cashback rewards and for that improving payment systems’ efficacy among Muslims. Should these facilities are not Islamically transacted, I would say the cashback rewards are impermissible out of laxity of Shariah principles.

*The author is an Associate Professor at the Labuan Faculty of International Finance, Universiti Malaysia Sabah, Labuan International Campus. He has a PhD from the International Islamic University Malaysia (IIUM) in Islamic Banking and Finance (PG310163). He can be contacted at [email protected]