AAOIFI Shari’ah Standard No. (55) Competitions and Prizes

Statement of the Standard

1. Scope of the Standard
This standard sets out the Shari’ah rulings relating to competitions, prizes, and promotional gifts, and the Shari’ah rulings pertaining to their application or sponsorship by the Institutions.
The standard does not cover incentives offered to improve performance of Institutions’ clients and employees and directors. Nor does it cover job-related competitions and reverse auctions. It also doesn’t cover the Shari’ah rulings on Ju’alah in activities other than competitions, as this is covered by a separate standard.

2. Competitions
2/1 Definition of a competition
It is a contest between two parties or more for the purpose of determining the best amongst them.
2/2 Kinds of Competitions
A competition may be held for no compensation (reward) or for a compensation (reward) paid by all, some, or one of the competing participants or by others. A reward-based competition makes payment of the reward binding upon the party committed to paying it.
2/3 Shari’ah Rules for Competitions
2/3/1 Competitions are permissible subject to following conditions:
2/3/1/1 If the competition is in a permissible activity such as scientific, cultural and sports competitions.
2/3/1/2 If the competition does not include (nor leads to) anything prohibited by Shari’ah, such as:
a) Failure to perform a Shari’ah obligation such as prayer and fasting.
b) Instigating feuds, prejudices, and unwarranted tensions and conflicts.
c) Violating Shari’ah dress code and impermissible intermingling of men and women.
d) Inflicting damage on individuals, the society, animals, or the environment.
2/3/2 In addition to what is set out in item (2/3/1), reward-based competitions are permissible subject to the following conditions:
2/3/2/1 If the competition is clearly known and well-defined in such a way that removes any ambiguity (Jahalah) as to its timing, location, type, particulars, tools, and mode of operation.
2/3/2/2 If the reward is offered by a third party or one of the competitors (competing participants). Therefore, if the reward is offered by more than one competitor, it is not permissible.
2/3/3 Organizing and Sponsoring Competitions by the Institution:
Subject to item (2/2/2), it is permissible for the Institution to organize or sponsor competitions in compliance with the following parameters:
2/3/3/1 The expenses for the competition, including the reward, should be covered by the Institution out of its own funds (shareholders’ funds), and not from the funds of the investment accounts.
2/3/3/2 Due consideration must be paid to public interest and appropriate priorities, without indulging in extravagance.
2/3/3/3 The competition must be approved by the Institution’s Shari’ah Supervisory Board.

3. Prizes
3/1 Definition: a prize is a gift given to a natural or legal person for having accomplished a specific assignment.
3/2 Promotional prize: a prize used to promote specific goods or services or to attract investors to specific markets or commercial stores, either by way of holding a draw, points accumulation, or through gifts given upon purchases of goods or services.
3/3 Shari’ah ruling on promotional prize based on draw
3/3/1 It is permissible to conduct a draw in order to give a prize without stipulating the purchase of any goods or services.
3/3/2 The goods and services offered as prizes or stipulated to be purchased for entering into the draw must be Shari’ah compliant.
3/3/3 Subject to the following conditions, it is permissible to stipulate the purchase of certain goods or services to qualify entering into a draw,
3/3/3/1 The price of the goods and services (the purchase of which is stipulated for having the right to enter into the draw) is not increased vis-à-vis the same goods or services not conferring such a right.
3/3/3/2 The purchase of the goods or services stipulated for entering into the draw is intended irrespective of the prize. In addition, the Institution should make this known to the public when announcing the draw. If it is reasonably known that the customers will not buy such goods or services except for the purpose of winning the prize, then it is not permissible to organize a draw in this case.
3/3/3/3 The draw should offer equal chances of winning to all customers.
3/3/3/4 Organizing the prize is not meant to harm others.
3/3/3/5 It is impermissible to charge a fee for entering into the draw, either directly or indirectly, such as increasing phone call rates above the normal tariff.
3/4 Draw in case of multiple entitlements
If a prize is meant for one or a limited number of persons, and a larger number becomes entitled to it, then a draw may be resorted to in order to determine the winner(s).
3/5 Prizes offered by Institutions
3/5/1 Prizes for current accounts: it is impermissible to assign prizes exclusively to holders of current accounts. See item 2/10, Shari’ah Standard No. (19) on Loan (Qard). The same ruling applies to the current accounts, joined with the investment accounts, which represent minor percentage with lower weightage as compared to overall accounts, because it may be a stratagem to impermissible prizes on current accounts.
3/5/2 Prizes for investment accounts: it is permissible for an Institution to offer prizes to holders of investment accounts, subject to the following conditions:
3/5/2/1 The prizes are not paid out of the funds of investment accounts or the profits of investment account holders or charity accounts. However, the prizes may be paid out of the funds of shareholders.
3/5/2/2 The payment of such prizes does not lead to guaranteeing the invested capital or a part thereof, such as announcing a prize valued at SR 50,000 for every investment of SR 1 million as this will lead to a guarantee of a part of the capital, which is impermissible.
3/5/2/3 The chance to win the prize is provided to every holder of an investment account or a subcategory thereof. In case the prizes are limited in number, the winner (s) shall be determined through a draw.
3/5/3 Prizes on financing, currency exchange, and fund transfers
A prize offered on financing, currency exchange services and fund transfers and awarded based on a draw is permissible provided that no additional amount is charged on financing or services fees in return for the prize. If the prize is awarded to every customer or is based on points accumulation, then items (3/6/1) and (3/6/3) below shall apply.
3/5/4 Prizes on bank cards
It is permissible to offer prizes on holding or using ATM cards and/or credit cards,(2) subject to the following conditions:
Footnote (2) For the purposes of this standard, whatever applies to credit cards, also applies to debit cards and charge cards.
3/5/4/1 The cardholders do not incur any charges in return for their participation in the draw, either through direct payment or by debiting their respective accounts.
3/5/4/2 The fees charged on the cards during the draw period shall not exceed ordinary fees. This shall be subject to item (3/5/1).
3/5/4/3 The prizes shall not be confined exclusively to cards linked to current accounts, where the cardholder has no right to link the card to his investment account.
3/6 Promotional prizes and gifts:
3/6/1 Promotional gifts: Types and Shari’ah ruling
There are many types of promotional gifts, including:
3/6/1/1 First type: A seller offers a specified gift for one who buys a good or service.
Shari’ah ruling: This type is permissible be it in cash or in kind; and is subject to the same Shari’ah ruling regarding the increase in the object of sale.
3/6/1/2 Second type: A seller offers an unspecified gift along with a good or service.
Shari’ah ruling: It is permissible by Shari’ah, provided that the price is not increased against the gift.
3/6/1/3 Third type: A seller offers a buyer a gift, by increasing the quantity of the sold goods.
Shari’ah ruling: It is permissible by Shari’ah as it is considered a reduction in price.
3/6/2 Prizes in the form of commercial discounts: Types and Shari’ah ruling
3/6/2/1 Promotional discounts: a discount given by a seller to a buyer on the price of a good or service, or on prevailing sale prices, or prices fixed by manufacturers, in order to promote sales or to maintain the loyalty of the customers.
The following are some types of commercial discounts:
3/6/2/1/1 Bulk discount: It is offered to customers who buy large quantities of goods.
3/6/2/1/2 Seasonal discount: It is offered by a seller at certain times, such as for the purpose of stock clearance of unsold goods or of old models or to obtain liquidity. All these types of discounts are permissible by Shari’ah; as it constitutes a sale of goods or services at below market price.
3/6/2/2 Discount cards
These are the cards given by a seller to a buyer to enable him to purchase a commodity or service at a discounted rate. This type of cards may be issued by the seller himself or by an independent third party that has a commercial contract with the seller for the discount program.
Shari’ah ruling:
3/6/2/2/1 If a discount card is without any subscription fee, it is permissible as it constitutes a promise (Wa’ad) to voluntarily reduce the price (on the basis of Tabarru’), even if there is some ambiguity because ambiguity in Tabarru’ is forgiven by Shari’ah.
3/6/2/2/2 If a discount card is against a subscription fee, it may be one of the following types:
If the card issuer is a third party that charges the fee against which other entities provides the discounts, then the card is permissible, because the issuer, in this case, is deemed to be a broker.
If the card issuer is the same entity that offers discounts, it may have two scenarios:
Scenario (1): Where a discount is associated with other services or benefits that may be a consideration for the fee; then the card is permissible because the discount is incidental to the other services.
Scenario (2): Where the subscription fee of the card is exclusively for providing discounts and for no other services, then such a card is not permissible as it involves Gharar and Jahalah.
3/6/2/3 Discount coupon: It constitutes a specific amount of discount for coupon holders.
Shari’ah ruling: The ruling differs across different types of discount coupons:
First type: A free or complementary coupon; it is permissible.
Second type: A coupon issued against a fee; it is subject to the same ruling as set out in item (3/6/2/2) with respect to discount cards.
Third type: A coupon that gives its holder a specific discount along with the right to enter into a prize draw; it is subject to the same ruling as set out in item (3/3) with respect to prize draws.
3/6/3 Prizes given on points (loyalty programs)
According to such programs, points are given to customers by an entity against the purchase of goods or services, either from the same entity or its subsidiaries or affiliates, enabling them to exchange accumulated points for goods or services on a complementary basis or at a discounted rate under specific terms and conditions. Examples are loyalty programs offered by hotels, airlines, and telecommunication companies, etc.
Shari’ah ruling:If these programs are without subscription fee, it is permissible to avail of them as they are on a voluntary basis (Tabarru’). Moreover, if entering into the program is subject to a subscription fee, then it is permissible only when it enables the member to have some services or benefits that are valuable in Shari’ah. It is permissible for a member, if at the time of purchase of a good or service some points required for that purpose are lacking, that he purchases new points for cash and it is also permissible to use those purchased points, because the use of these points is deemed to be payment of a part of the price. It is incumbent on the Institution to resort to its Shari’ah Supervisory Board for ensuring the Shari’ah ruling about the terms and conditions of such a program.

4. Date of Issuance of the Standard
This Shari’ah Standard was issued on 30 Rajab 1437 A.H, corresponding to 7 May 2016 A.D.

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