Finance Contract Riba Red-Flag Review Checklist

Finance agreements can use unfamiliar labels while still creating economic obligations that need careful review. This checklist helps a South African household or business organise the facts before asking a qualified Islamic finance scholar and, where needed, an attorney to assess a contract.

Educational information only: This is not a Shariah ruling, legal opinion, credit recommendation or product endorsement. Contract wording and actual cash flows must be reviewed by appropriately qualified professionals.

1. Identify the legal contract

Record the agreement name, version, date, parties and governing law. Attach every schedule, quotation and product disclosure. Marketing labels alone do not establish how the arrangement works.

2. Map the parties and roles

List the provider, funder, seller, purchaser, agent, guarantor and any intermediary. Note who owns an asset at each stage and who bears the related obligations.

3. Separate principal, price and asset value

Capture the cash advanced, purchase price, selling price, deposit, residual amount and asset value separately. A reviewer should be able to trace each number to a signed document.

4. Test how the price changes over time

Write down every formula that changes an amount because of time, delay, repricing or an external benchmark. Record calculation examples rather than relying on product descriptions.

5. Check for compounding

Look for unpaid amounts being added to a balance on which further charges are calculated. Capture the trigger, frequency, calculation base and any cap for professional review.

6. Review late-payment terms

Identify default charges, collection costs and late-payment amounts. Record who receives them, whether they are retained or directed elsewhere, and how the contract evidences that treatment.

7. Reconcile fees to services

List initiation, monthly, administration, valuation, insurance, legal and settlement fees. Ask what service each fee pays for and whether it changes with time or outstanding balance.

8. Examine default consequences

Document acceleration, repossession, enforcement, penalty, cross-default and legal-cost clauses. Note notice periods, cure rights and the sequence the provider says it will follow.

9. Review early settlement

Request a worked settlement example. Record rebates, notice charges, break costs and discretionary reductions. Compare the example with the written clause before relying on it.

10. Trace refinancing and restructuring

Establish whether a variation replaces the original obligation or merely extends it. Capture new fees, capitalised amounts and changed security so a reviewer can see the full economic effect.

11. Record guarantees and security

List suretyships, guarantees, cessions, bonds and pledged assets. Identify whose property is exposed and whether enforcement could extend beyond the financed asset.

12. Follow the actual cash flows

Prepare a dated flow showing who pays whom, why, and under which clause. Include deposits, disbursements, instalments, fees, insurance and settlement payments.

13. Collect Shariah evidence

Request the product’s current Shariah certificate, governance process and contact route for questions. Record scope, date and product version; a generic institutional certificate may not answer a contract-specific question.

14. Verify regulatory context

Check relevant providers through the National Credit Regulator and the Financial Sector Conduct Authority. Registration does not itself answer a Shariah question, but it helps confirm identity and regulatory status.

15. Keep a review and action register

• Clause or issue and page reference

• Amount, formula or practical effect

• Evidence still required

• Assigned legal or Shariah reviewer

• Decision, action owner and review date

Useful official starting points include the National Credit Regulator registrant search, the FSCA regulated-entity information and the National Credit Act. Use the current contract and official records when completing the checklist.

The practical outcome is a traceable file that separates facts from assumptions and gives qualified reviewers the evidence needed to assess possible Riba concerns.