FATWA AGAINST PRIZE BONDS

Wednesday, February 25, 2009

Fatwa No. :	87979
Fatwa Title :	Prize-bond system in Pakistan
Fatwa Date :	28 Rabee' Al-Aakhir 1425 / 17-06-2004
Question
The Pakistani Government issues prize bonds of Rs.10, Rs.100, Rs.500 and Rs.750/ denomination each. It is up to an individual whether he purchases these bonds of Rs.10, 000/- or Rs.100, 000/-. It is like a currency bill which can be cashed at any bank. The Government promises to return the money at the demand and it is written on the bill. Every quarter the Government draws the numbers of the winning bills and then a prize is announced like Rs.50, 000/- or Rs.100, 000/- on that particular number which can be claimed by the owner of that bill. The amount may be obtained at presenting the bill at the State Bank of Pakistan. The prize bond's value remains the same. As I have mentioned above it is like a currency bill but usually is cashed at local banks. After the draw the other bills do not loose their value and are kept by the owner to wait for another draw and even if it never gets the prize the actual value remains the same. Usually people purchase these prize bonds against their savings and when the bond's number comes in the draw then they are happy to get the prize. Some ullema's say that this mode of business is unislamic.
Fatwa
Praise be to Allah, the Lord of the Worlds; and may His blessings and peace be upon our Prophet Muhammad and upon all his Family and Companions. It is not permissible to buy these prize-bonds as they include interest and gambling at the same time. The amount that is paid for purchasing bonds is nothing but a loan because no person is giving this amount for business in order to risk making some profit or loss. Thus the prize bonds are in reality a loan with interest. Instead of the government or bank giving interest to every prize-bond holder, the interest accumulate and then a draw is conducted whereby some of the prize-bond holders win and others lose; this is the reality of gambling. Doctor Ali Saluss says regarding this: "It may be possible that a person with a small loan win thousands of pounds, whereas other person's heavy loans do not get anything. So the first person took his share of interest and the share of a large number of people, whereas the share of the second person is taken by others. Each time, involved people who watch or follow this draw; become happy because of what they had won, or sad for what they had lost, and so on, waiting for another prize-bond draw. Is this not gambling?!" Please refer to the following fatwa… Allah knows best.

DEFENCE SAVINGS CERTIFICATES

The Government of Pakistan introduced Defence Savings Certificate scheme in the year 1966. The scheme has specifically been designed to meet the future requirements of the depositors. This is the only scheme having 10 years' maturity with built in feature of automatic reinvestment after the maturity. These certificates are available in the denominations of Rs.500, Rs.1000, Rs.5,000, Rs.10,000, Rs.50,000, Rs.100,000, Rs.500,000 and Rs.1,000,000/=.

Who Can Invest .

These certificates can be purchased by a single adult, a minor, two adults in their joint names with the options of payable to the holders jointly (Joint-A ) or payable to either (Joint-B). An adult can also purchase these certificates on behalf of a single minor, two minors jointly or himself/herself and a minor jointly. In addition to above individual investors, the following institutions are also allowed to invest in the scheme:

1. Registered Charities (Non-profit bodies).

2. Public Sector Enterprises excluding Banks.

3. Private Educational & Health Institutions.

4. Employees Old Age Benefit Institutions (EOBIs).

5. Private Corporate Sector registered with the SECP excluding Banks.

6. Non-Bank Financial Institutions (NBFIs) excluding Insurance Companies.

How To Purchase.

These certificates can be purchased from any National Savings Centre (NSC), Pakistan Post Offices (PPO), Scheduled Bank branches and State Bank of Pakistan (SBP) by filling in a prescribed form called SC-1, which is available at all the above offices of issue free of cost. A copy of the National Identity Card or in case of a foreign national, a copy of the Passport is required to be attached with the application form. To download application form in editable Adobe Acrobat format, please click here.

Mode of Deposit.

These certificates can be purchased by depositing cash at the issuing office or by presenting a cheque. The certificates shall immediately be issued on receipt of cash. However, in case of deposit through cheque the certificates shall be issued from the date of realization of the cheque after receipt of the clearance advice.

What Is The Investment Limit.

The minimum investment limit is Rs.500/-, however, there is no maximum limit of investment in this scheme.

What About Redemption.

These certificates are encashable at par any time after one month from the date of purchase. However, no profit is payable if encashment is made before completion of one year.

What is the return.

In this scheme the profit is paid on maturity or encashment for completed years. Every Rs.100,000/- will become Rs.108,000/-, Rs.118,000/-, Rs.129,000/-, Rs.142,000/-, Rs.158,000/-, Rs.177,000/-, Rs.201,000/-, Rs.230,000/-, Rs.265,000/- and Rs.315,000/- on completion of 1, 2, 3, 4, 5, 6, 7, 8, 9 and 10 years, respectively. These rates are effective from 24th June, 2008. The average compound rate of return on maturity presently works to 12.15% p.a. For any other time period rates table is also available on website.

Tax & Zakat Status.

At present, the profit earned is exempt from withholding tax, if the total investment in the scheme by the investor(s) does not exceed Rs.150,000/-. However, withholding tax @ 10% is deductible at source on the profit(s) earned if the total investment exceeds Rs.150,000/- by the investor(s). The Zakat is collected at source as per rules.