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Salary advances or as they are known in Arabic as “sulfa” are loans given to employees by their employers in case of a financial need or emergency. This can range from medical issues to repairs and travel.
This is a common practice in countries like Saudi Arabia, Egypt and US whereby the employer advances the paycheck to the employee before their salary date, which is then deducted from their salary monthly.
Read more about: Islamic view of debt, lending and borrowing.
Sulfa is an Arabic word which commonly refers to small and short loans or advances (Almaany). Also known as a ‘soft loan', it is an advance loan on one’s salary that is interest free.
It is also called EWA or ‘Earned Wage Access” which is an accelerated salary product to enable workers to attain their wage before its date. Nowadays there are many companies that provide this service backed by the employer.
This is different to “Salaf” which is a classical term used in Islamic Jurisprudence which means’ “That which is advanced”.
In classical texts it refers to a loan or an advance. Imam Al-Qurtabi in his tafsir mentions that there is a consensus that is recorded from the Prophet Muhammad (PBUH) that any conditional increase in a salaf (loan) is riba.’ (Al-Jāmi‘ li-Aḥkām al-Qur’ān).
Others scholars like Ibn Qudama and Ibn Munzir have also mentioned that very consensus.
An employee loan (Sulfa) is only allowed under the model of Qard (benevolent loan) without any conditions or stipulations.
This means the employee should only have to pay the original amount that was advanced to him. The council of Senior Scholars in Saudi Arabia, have also approved advance schemes on the basis that there is no increase in the amount advanced
As mentioned before, the advanced payment must be without condition or extra charge. If there is a stipulation of charge in the form of interest, then it will be impermissible and haram.
This holds true regardless of whether the interest is at a fixed percentage or is a lump sum of money.
In Islamic law, riba is gaining any benefit from a borrower, whether it be monetary or non-monetary.
This means if the employer stipulates extra work or favors in exchange for this advance loan, then it will become prohibited.
The contemporary fatwas on this issue have mentioned the same, and have also explained that it does not even need to be written to be haram, a verbal affirmation also is enough to invalidate the loan. It is mentioned in “Al-Mughni”
by Ibne Abi Musa that if one gets a loan, and then is given work which was not the type of work he did before the loan, then it is also impermissible
Read more about: Riba Explained: Why It’s Forbidden and How It Differs from Trade?
After it has been established that any benefit yielded from an advance payment or loan is haram, all that remains is the question of whether repayment through monthly deductions of salary are permissible or not.
Contemporary scholars do not see any issue with this mode of payment, as long as there is no additional charge upon the principal payment, rather this mode is encouraged as it provides flexibility and ease in loan repayment This is closer to practice, as this allows for timely payback and convenience for the lender.
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There are several types of employee loans, each with its own description and ruling:
In this advance the employer allows the employee a portion of their wages earlier than normal. This advance is then deducted from their later paycheck.
The Shariah ruling of such a loan is permissible as long as there is not any fee or interest tied to the deduction. Since it is a short term loan, it follows the rule of Qard Hasan.
These loans are generally given to employees to cover their medical or family needs in time of crisis.
These might not be tied to the salary of the employee and can be given separately. The Shariah ruling for this loan is that of Qard, which means it should be benevolent and not condition any return.
Long-Term loans are usually done through agreements with the employers and are paid over a number of months.
This includes loans for housing assistance and other substantial needs. The ruling is the same as a short term loan, it is permissible if it is interest free. Also, regardless of the duration, whether it be 20 months or 50 months, does not interfere with its permissibility.
Many companies assist their employees with loans for education and training and even at times pay all at once.
Oftentimes the employer forsakes the loan if the agreement is structured for the employee to stay for a certain amount of years after completing the training.
This is permissible since it simply requires the employee to stay for a period then make it a condition of the loan.
These loans are offered by larger companies and meant to be interest free, and subsidized for their employees.
For example, Aramco offers these facilities to their Saudi employees to buy or build homes which are deducted from their salaries on a monthly basis Such loans are government benefits rather than employee run schemes, but the ruling remains the same.
These are not commercial loans rather they are an extension of employee welfare programs. Sometimes, employees that have worked several years for the company are allowed benefits like this as a token of gratitude by their employers.
Many GCC countries like Kuwait and Qatar provide these benefits as a part of their employment program. Since these are subsidized and often interest free, they are halal and Shariah compliant.
In many countries around the world, people in workplaces, communities and societies engage in a welfare system called, “Loan clubs” or as there known as "committees" (Jama’iyyah).
This is basically a rotating savings account where individuals in a group pool money every month, and every month one person takes the pool.
This process is repeated every month until all have received. This is also similar to a credit union that doesn't have interest.
The Shariah allows for such rotating loans as they are based on the principles of mutual help basis.
The only thing that is of concern is in the case of credit unions, if there is a nominal fee, it should be for admin expenses and not for enriching the lender.
Companies can partner with banks to facilitate loans for their employees. This matter is clear, if it is an interest bearing loan, then it is impermissible.
In the case of a Islamic Bank, the underlying structure must be looked at. Banks offer financing loans on the principles of Murabaha and Ijarah, which is Shariah-Compliant.
It should also be clear, that regardless if the interest rate is benchmarked from the market or subsidized by the company (which the company pays on behalf of the employees), it is also Haram.
From an Islamic perspective, loans are meant to ease the hardships of others and create a sense of ease among the society.
The concept of Sulfa is one that is allowed in the Shariah and is a charitable instrument. It should not be though used as a means for profiting off of employees who require assistance in their needs.
The guiding principle is as follows: the advance/loan is only permissible if it is charging the principle without any added interest. If there is interest or any benefit (منفة) then it is not permissible and should be avoided.
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Disclamer:
This post is for educational purposes only, and does not constitute investment advice or a solicitation to take any financial action. It should not be relied upon when making investment or financing decisions.
