Are you worried about having a secure future? Does setting up a halal super seem impossible? Fortunately, you can find investments that comply with Islam, but are apps like Afterpay a good fit?
Before you put your money into any investment fund, make sure it’s not haram. Buy now pay later apps may be growing in value, but that doesn’t make them good investments.
Read on to learn more about these apps and why you shouldn’t rush to add them to your super.
Basics of Islamic Finance
One of the most significant financial concepts in Islam is riba, which requires a transaction to have an equal exchange. For example, if a bank provides interest to customer savings accounts, that would be riba.
Riba is haram, and you can’t benefit from any sort of lending money, so you can’t charge interest on a purchase. Banks get around this by using profit-sharing agreements instead of paying or charging interest to customers.
Similarly, a halal super lets you invest and save for the future without compromising on your beliefs.
However, it’s not as simple with buy now pay later apps. Some apps will charge interest to customers, meaning there is an unequal exchange.
The business owner doesn’t have control over these charges because it’s not their platform. But that doesn’t keep these apps from charging more money to customers who are late on payments.
Using Buy Now Pay Later Apps
Many individuals and business owners like the idea of buy now pay later apps. These apps make it easy for consumers to buy what they need or want now, even if they can’t pay it off in full.
Business owners can use that system to get more customers and increase the total of sales and the average revenue. And they don’t have to set up a system within their business to manage those payments.
The convenience of these platforms is great for both groups of people. However, it’s worth considering if instalment payment apps are halal or haram.
For Business Owners
Charging interest is haram in Islam because the transaction is no longer a fair exchange of goods or services. These apps are therefore not complying with Islam if they require customers to pay more.
However, business owners usually don’t receive the interest from late payments. As a business owner, you can use the programs, and you won’t receive more money than what you charge the customer.
In fact, you have to pay the instalment app a small fee with each transaction to use that service.
Fortunately, some buy now pay later apps don’t charge interest to customers. If they do, it’s only after a certain period in the form of a late fee.
But if you’re thinking of investing your own money into one of these platforms, reconsider your investment. Even when there’s a grace period, the app will still charge customers more if they don’t pay on time.
Consumers won’t make any money off of these programs whether they pay on time or not. However, you still need to be careful when making your purchase.
If you can’t pay off the balance by the due date, many apps will add extra charges to your account. Now, this can happen with credit cards, where some people can successfully remove those fees.
Individuals with a good credit history who have never missed payments have a better chance of this.
But buy now pay later apps don’t typically look at your regular credit history. You may not have proof that you’re good with money and making payments.
That means you could have a hard time getting rid of a late fee if it happens to you. Unless you’re positive that you won’t skip a payment or send money late, you may prefer to use a credit card.
They can be more trustworthy, especially to people in a good financial situation. And like business owners, you may not want to take on any of these apps as an investor because of their fee structure.
Is Afterpay Halal?
Afterpay is a common instalment app in Australia, and it has pretty standard policies regarding payments and interest. Customers can use the app interest-free for any purchase.
However, you have to pay off each purchase within the agreed timeframe to avoid an interest charge or late fee. Business owners will have a small transaction fee to help cover the cost of running the service.
Before you invest in halal either as a personal investment or for your business, consider that you can’t control every customer. Odds are, someone will have to pay a late fee to Afterpay at some point.
Maybe the customers who buy from your business are good with money and won’t pay extra. Over 48,000 retailers use the app for payments, and over 8.4 million customers are active on it.
While it can be hard to calculate exact numbers, the chances of the app making nothing from interest is extremely low. To keep your investments in line with Islam, it’s best to avoid this app to earn more money or increase your super.
Is Zip Pay Halal?
Like Afterpay, Zip Pay doesn’t always charge interest to customers. The app has an interest-free period that can depend on the transaction, so customers do have a chance to pay the balance off.
If you own a business, you’ll have a small transaction fee each time a customer buys something through the app. Still, your business won’t benefit from the interest that Zip Pay charges.
Still, the presence of interest does mean this app isn’t halal as an investment. Fewer businesses use it than Afterpay, but over 26,000 businesses accept it as a payment method.
Using the same estimates as with Afterpay, that means about five million customers use it. Perhaps all of those customers are smart with their finances and do pay off everything, but it’s better to be safe and assume Zip Pay does earn money from interest.
You’re better offer avoiding Zip Pay when it comes to investing your money in a super or another fund. While you might not make interest directly, the company does, and investing in them can mean you support their practices.
Is Klarna Halal?
Klarna is another popular buy now pay later app, and it has a similar structure to Afterpay and Zip Pay. If you use it as a business owner, you’ll pay a small fee for each transaction.
That allows your customers to use the app for free to spread out their payments over a few weeks. However, Klarna will start charging interest after the due date.
Because of that, it probably falls into the haram category as an investment. If you’re looking to start or grow your super, you have access to plenty of other halal investments.
You shouldn’t have to compromise on your values to save money and prepare for the future. While customers can use Klarna for free, more than 190,000 businesses use the app worldwide.
It’s safe to assume that millions of customers use the app, making the chance of zero interest payments slim to none.
How to Stay Halal
Even if you don’t invest in these apps, you may not want to use them in your business. Buy now pay later apps do charge retailers a small fee for each transaction, representing that equal exchange.
However, by paying those fees and using the app, you’re sending the message that you support the program. Each transaction your business makes is more proof that the businesses should continue.
While not using these apps can seem insignificant, using them can compromise your views. Fortunately, you can find other ways to sell or pay so that you don’t have to support programs that go against Islam.
Multiple Payment Options
No business should rely solely on buy now pay later programs. Instead, consider taking other options, such as credit cards or cash if your business is in person.
Offering different options will help businesses attract customers, and customers can pay the way they want. Even if you use a credit card for a payment, you can pay off your credit card balance and perhaps reverse interest if you have a good payment history.
Businesses and consumers should also stay up to date on buy now pay later programs. Apps can change their policies and procedures at any time, for better or worse.
Even if you find an app that is currently halal, make sure you know when they change something. Then, you can change how you run your business or make purchases.
By checking on these programs regularly, you can make changes quickly. Still, checking on updates at all is better than doing nothing.
How Will You Invest?
Buy now pay later apps have been a wonderful addition for both business owners and customers. However, their business practices aren’t always compliant with Islam.
Before you invest or otherwise use Afterpay or a similar app, consider if it’s worth it. Sometimes, your values are more important than a payment plan.
Do you want to ensure you make halal investments? Join us now to set up a super fund that doesn’t go against your beliefs.
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Specialising in community engagement and digital product growth Nebras has over 15 years’ experience in designing and delivering executable audience growth and content strategies across a range of leading industries and countries. Nebras’s strategies are always focused on return on investments, customer retention and high brand value. He also plays a key role in ensuring research services business intelligence processes and operations are conducted in accordance with all audience measurement guidelines.