1. Introduction:

Buy Now, Pay Later (BNPL) has rapidly emerged as a popular alternative financing method globally, particularly in Saudi Arabia and the Arab region. This innovative solution offers consumers short-term financing for retail purchases, typically without direct additional costs or interest for the customer, providing immediate purchasing power. Despite its convenience, BNPL’s Sharia compliance is a significant area of debate. This report examines BNPL’s operations, Sharia characterization, Islamic legal rulings, and challenges, aiming to understand its alignment with Islamic finance principles. BNPL exemplifies Islamic finance’s ongoing effort to adopt modern innovations while adhering to principles like the prohibition of riba (interest).

2. How BNPL Works: Features and Operational Mechanism

BNPL is a form of short-term consumption financing, allowing consumers to acquire goods or services without incurring a term cost or interest. It facilitates deferred payment for various purchases like clothing and electronics. The most prevalent BNPL model, particularly in the Kingdom of Saudi Arabia (KSA) and other GCC countries, involves a three-party structure: the customer, the merchant (seller), and the BNPL provider. The transaction process unfolds in a sequential manner:

1. Purchase Initiation: The customer selects an item from a participating physical or online store that accepts the BNPL provider as a payment option.
2. Payment Selection: At checkout, the customer chooses the BNPL option and selects a preferred installment plan.
3. Transaction Processing: The BNPL provider verifies the customer’s eligibility and approves the purchase.
4. Settlement with Merchant: Upon approval, the BNPL provider pays the merchant the full purchase price upfront.
5. Customer Payment: The customer then repays the BNPL provider in installments according to the chosen plan. (Tabby, 2025)

Within this framework, each party assumes distinct roles and derives specific benefits:

• Customer: The customer acts as the buyer of the goods and subsequently, a borrower from the BNPL provider. Their primary benefit is obtaining goods or services without immediate full payment and, crucially, without additional charges or interest on the deferred amount. Some providers even offer cashback for timely payments.
• Merchant (Seller): The merchant is the seller of the goods. They benefit from increased sales volume, enhanced customer purchasing power, and immediate receipt of the full purchase price from the BNPL provider, which translates into increased profits.
• BNPL Provider: The BNPL provider plays a multifaceted role. It acts as a lender to the customer, paying the purchase cost on their behalf and then collecting the exact same amount in installments, without any increases. Simultaneously, it functions as a marketing intermediary for the merchant, earning a commission or discount from the merchant for promoting their products and facilitating sales. Importantly, the BNPL provider does not take ownership of the goods; ownership transfers directly from the merchant to the buyer. The BNPL provider also serves as an agent (Wakalah) for the customer in making the payment to the store.

The absence of additional costs or interest for the customer and the BNPL provider’s profit from a merchant commission are crucial for Sharia compliance, avoiding riba (interest) on loans. This decouples the profit from the loan, aligning with Islamic finance principles that permit earning from services or trade, not loans. Unlike traditional installment sales, BNPL typically involves no extra charges for the customer, uses a three-party structure, and offers greater payment flexibility, including various payment methods.

Table 1: BNPL Transaction Flow and Party Roles

Party	Primary Role	Key Action/Relationship	Primary Benefit
Customer	Buyer / Borrower	Selects item, repays installments to BNPL provider	Obtains goods without upfront payment; no additional charges; cashback offers
Merchant	Seller / Marketing Client	Sells goods, receives upfront payment from BNPL provider	Increased sales/customer base; upfront payment; expanded purchasing power
BNPL Provider	Lender / Marketer / Agent	Pays merchant, collects installments from customer, markets	Commission from merchant (discount on purchase price); marketing remuneration

Source: Author’s own compilation

3. The Sharia Lens: Characterizing BNPL

Sharia characterization of BNPL is crucial. The relationships are:

• BNPL Provider and Customer: A lender-borrower (Qard) relationship, where the provider loans the purchase cost and collects the exact same amount in installments, avoiding riba.
• BNPL Provider and Merchant: A permissible marketing contract (Ijarah ‘ala ‘amal or Ju’ala), where the provider earns a commission/discount from the merchant for facilitating sales and bearing credit risk. (AAOIFI SS 15, clause: 2,3)
• Merchant and Customer: A straightforward seller-buyer relationship, with ownership transferring directly to the customer.
• BNPL Provider as Agent: Acts as an agent (Wakalah) for the customer in payment, which is permissible.

It is emphasized that in a Sharia-compliant model, the BNPL provider’s remuneration must come from the merchant as a discount for promoting their products, not as a direct fee or commission from the customer, as the latter would increase the purchase cost and potentially violate the prohibition of riba.

Addressing Objections

Some researchers have characterized the BNPL model as a “sale of debt” (Bay’ al-Dayn), drawing parallels to the impermissible practice of discounting bills of exchange. This characterization suggests that the seller sells the customer’s debt to the BNPL provider, thereby transferring credit risk, and thus inferring impermissibility.

However, robust counter-arguments refute this characterization:

1. Since the BNPL provider pays the seller before the customer becomes indebted to the merchant, it is not possible for the merchant to sell the customer’s debt to the BNPL provider—because no such debt exists at that point.
2. A direct lending relationship exists between the BNPL provider and customer, separate from the seller.
3. The merchant’s discount to the BNPL provider is variable, unlike fixed interest rates in debt discounting.
4. Contemporary scholarly consensus (Ijtihad) views the remuneration as a permissible marketing commission, similar to credit card merchant fees, supported by OIC Fiqh Academy resolutions (OIC Fiqh Academy Resolution No. 108, 2/12 and AAOIFI SS 61, clause: 5/1/1).

Addressing the “Riba through Combined Contracts” Objection

Another concern raised is that the commission charged by the BNPL provider, when associated with the loan, could be seen as riba, effectively a loan with remuneration, which is unanimously prohibited.

This objection is countered by a detailed understanding of Sharia principles concerning contract combinations:

1. Combining Contracts: Prohibition applies only if a transaction involves inherent prohibited elements (e.g., riba, gharar), not merely sequential permissible contracts. The Hadith “It is not lawful to lend and sell” applies when the borrower pays remuneration, which is not the case in BNPL as customers pay no additional charges.
2. Contractual Terms: Sharia focuses on explicit contractual terms, not external intentions. Permissible distinct purchase and sale contracts are allowed even if the same party participates, provided they are separate transactions by mutual consent. (Al Muzaini, 2024)
3. Multiple Separated Contracts: Modern commerce often involves parallel, distinct contracts. If a single contract form is impermissible, the solution is multiple separated, permissible contracts, as exemplified by the Prophet’s guidance to Bilal to separate transactions to avoid prohibition. (Sahih al Bukhari, 2201)
4. Contemporary Business Practices: Contemporary Ijtihad allows structuring multiple distinct contracts for financial and hedging products (e.g., Murabaha, Tawarruq, parallel Salam), where each contract’s subject matter remains distinct, allowing permissible outcomes even if a direct combination would be prohibited. AAOIFI Sharia Standard No. 61 permits banks to charge merchant fees for card acceptance without additional charges to the cardholder.

These arguments highlight Sharia jurisprudence’s meticulousness in distinguishing permissible marketing commissions from prohibited loan remuneration, emphasizing structural integrity and the principle of separating contracts. This relies on contemporary collective Ijtihad to adapt classical principles to modern financial models, ensuring compliance while facilitating legitimate commerce, supported by bodies like the OIC Fiqh Academy and AAOIFI.

4. The Prevailing Sharia Ruling and Conditions for Compliance

Since the Buy Now, Pay Later (BNPL) operating process–mentioned above– does not involve any Shariah-prohibited elements, it may be considered Shariah-compliant. This aligns with the established juristic principle that “the original ruling concerning things is permissibility unless there is evidence indicating prohibition” (al-Ashbah wa al-Nazaʾir, 1984).

Al Muzaini (2024) states, the prevailing view is that BNPL operations are permissible, largely due to similarities with sanctioned installment sales. The foundation for this permissibility is drawn from foundational Islamic texts:

• Quranic Guidance: The Holy Quran provides a clear basis in Surah al Baqarah (2:282): “O you who believe! When you contract a debt for a fixed period, write it down”. This verse is widely interpreted as explicitly allowing for deferred payment sales and credit transactions.
• Prophetic Tradition (Sunnah): Imam al Qurtubi (1964) stated, “Some of our scholars have used this ayah as evidence for the permissibility of deferring repayment in loans, as stated by imam Malik”. Further support comes from narrations from the Prophet Muhammad (peace be upon him). Ibn Abbas reportedly affirmed the permissibility of deferred payment sales by reciting the aforementioned Quranic verse. (Ibn Kathir, 1999) Additionally, narrations from Aisha and Anas rd. in Sahih Al-Bukhari (2068-2069) detail instances where the Prophet himself engaged in credit purchases, such as buying food grains from a Jew on credit and mortgaging his armor. These examples from the Sunnah reinforce the allowance of installment sales and, by extension, models like BNPL that share similar deferred payment characteristics.

This article contends that the BNPL structure more closely resembles a spot sale with credit provided by the BNPL provider, rather than an installment sale. As explained above in section 2 & 3, the merchant receives the full payment on the spot from the BNPL provider. Therefore, the transaction between the buyer and the merchant is not an installment sale in the classical sense, but rather a spot sale. And the contractual relation between buyer and BNPL provider is credit facility, where the buyer (debtor) repays the BNPL provider in installments.

For Sharia compliance, several conditions are essential:

1. Compliance of Each Contract: Every contract (customer, merchant, BNPL provider) must adhere to Sharia standards, ensuring no prohibited elements arise from their interaction.
2. Strict Avoidance of Riba (Interest): All forms of riba must be avoided; customers must not be charged any additional amount beyond the original purchase price.
3. Transaction of Sharia-Compliant Goods: Only permissible goods and services should be transacted through BNPL. Financing the purchase of prohibited items (e.g., alcohol, pork, gambling-related services) is strictly forbidden. and Sharia board consultation is required for doubt.
4. Specific Rules for Certain Assets: Gold, silver, or currency exchange require immediate delivery/payment to avoid riba al-fadl or riba al-nasa’. Sharia board consultation is needed for ambiguity.

Permissibility is contingent on meticulous adherence to these principles, requiring BNPL providers to demonstrate rigorous operational structures that consistently avoid riba, ensure permissible goods, and maintain distinct, compliant contracts.

5. Navigating the Nuances: Late Payment Fees and Charitable Donations

A critical area of Sharia analysis for BNPL involves the treatment of late payments, specifically concerning penalty fees and the concept of charitable donations as a remedy.

Strict Prohibition on Late Payment Penalties (Riba)

Sharia strictly prohibits charging any additional amount for delayed debt repayment, as it constitutes riba (usury), regardless of purpose or stipulation. This is supported by scholarly consensus and resolutions from Fiqh academies, including the OIC Fiqh Academy (Resolution No. 109, 3/12), which explicitly forbids penalty clauses for delayed debt or installment payments. An exception allows obligating delinquent customers to pay litigation costs for debt collection. Therefore, if a BNPL operating model involves charging customers late payment penalties, it would not be permissible and such a BNPL arrangement would not be Shariah-compliant.

Charitable Donations as a Late Payment Remedy

Channeling late payment penalties to charity has differing scholarly opinions:

1. Permissible View: Allows stipulating a charitable donation in case of default, provided the creditor receives no benefit. Supported by scholars like Mufti Taqi Usmani, Dr. Wahba Az Zuhaili, AAOIFI Sharia Standard No. 3, and Saudi Arabia’s Finance Companies Control Law (Article 35/a).
2. Prohibition View: Maintains that obligating defaulters to make charitable donations is impermissible, even without direct creditor benefit, due to potential resemblance to a penalty or indirect benefit. Supported by the Permanent Committee for Fatwa in Saudi Arabia and scholars like Dr. Ahmed Fahmi.

This debate highlights the challenge of incentivizing timely repayment and managing default costs without riba, balancing deterrence with social good or maintaining strict riba avoidance. (Al Muzaini, 2024)

6. Towards a Sharia-Compliant Future: Alternatives and Risk Mitigation

To ensure the long-term viability and Sharia compliance of BNPL services, exploring alternative models and implementing robust risk management measures is essential.

Proposed Sharia-Compliant Alternatives to Traditional BNPL Models

The primary alternative is Murabaha to Purchase Order (MPO). Here, the BNPL provider purchases goods from the seller, assumes ownership and risk, then resells them to the customer at a markup to cover potential credit losses, aligning with the Sharia principle that “profit accrues from bearing risk.” This shifts the model from loan-based to trade-based. (Al Muzaini, 2024)

Other Credit Hedging and Risk Management Measures

BNPL institutions can use credit hedging measures to mitigate losses within a Sharia-compliant framework:

• Credit Analysis & Due Diligence: Assessing customer creditworthiness (KYC), including credit history and other liabilities.
• Guarantees & Collateral: Obtaining third-party guarantees or collateral for default recovery.
• Payment Solutions & Communication: Offering flexible payment options and clear communication to encourage timely repayment.
• Accelerated Installments: Stipulating immediate due dates for subsequent installments upon one default (exceptional, Sharia-consistent in KSA).
• Early Settlement Incentives: Reducing debt for early repayment.
• Guarantors: Requiring a guarantor.
• Credit Bureaus & Blacklisting: Reporting procrastinating customers to credit bureaus (e.g., SIMAH) as a deterrent.
• Legal Action: Filing lawsuits for immediate payment from defaulters.

These strategies demonstrate Islamic finance’s ethical approach to risk management, emphasizing due diligence, responsible lending, and Sharia-compliant debt recovery, contributing to a stable and just financial ecosystem.

3. Conclusion: The Evolving Landscape of Islamic Finance and BNPL

BNPL offers convenient, interest-free immediate purchasing power. The prevailing scholarly view deems BNPL permissible if structured correctly, primarily by avoiding direct interest to the customer and deriving profit from permissible sources like merchant marketing commissions. Sharia analysis emphasizes strict adherence to conditions: absolute riba prohibition, exclusive transaction of Sharia-compliant goods, and distinct, compliant contracts. Ongoing Ijtihad is crucial for adapting Islamic finance principles to innovations like BNPL, ensuring modern products serve needs without compromising religious tenets.

Beyond permissibility, BNPL’s Sharia analysis highlights consumer protection and responsible lending. Regulatory interventions, like SAMA’s limits and credit assessments, align with Islamic finance’s goals of preventing harm and promoting financial well-being. Islamic finance manages risks through robust, Sharia-compliant strategies, ensuring stability and justice. BNPL exemplifies Islamic finance’s dynamic capacity to innovate, offering sustainable and responsible alternatives globally while upholding core ethical and legal principles.

References

Accounting and Auditing Organization for Islamic Financial Institutions. (2017). Shari’ah standards. Manama, Bahrain: AAOIFI.

Al Qurtubi (d. 671), Al Jamee li Ahkam al Quran, Dar al kutub al Misriah. 1964.

Al Bukhari (d. 261), Sahih al Bukhari, Mussassah al Risalah. 2018

Al suyuti (d. 911) Ashban al Najair, Dar al Kutub al Ilmiah, 1984.

Ibn Kathir (d. 774), Tafsir Ibn Kathir, Dar at Tawibah. 1999.

International Islamic Fiqh Academy, Organization of Islamic Cooperation. (2021). Resolutions and recommendations of the International Islamic Fiqh Academy: English translation of the Arabic issue (2nd issue, 1985–2019, Resolutions 1–238, Sessions 2–24).

Shaikh Dr. Khalid Al Muzaini, (2024) Piecing Together the Sharia Compliance of BNPL, Shariah Review Bureau.

Tabby, (2025) Terms and conditions, retrieved from Terms and conditions

Unsecured Credit Cards on 28 September 2000, OIC Fiqh Academy Resolution No. 108 (2/12)