What is the Islamic perspective on Premium Bonds?
The answer
In the UK, a premium bond is defined as a nonmarketable government security issued by National Savings & Investments at £1 each. Periodical interest is not paid; instead the investment is entered into a draw every month to win prizes from £25 to £1 million. The bonds are repayable upon demand.[1]
Explanation
In simpler terms, a premium bond is a type of bond that you can buy as part of a UK government system in which you have the chance to win money each month for as long as you do not sell the bond.2
When analysing this transaction Islamically, effectively, the premium bond holder is advancing a loan to the bond issuers. The bond holder/lender is entitled to a surplus once the stipulated condition in the contract matures.
As a principle, a loan with a conditional increase above the principal amount is interest.3 Therefore, it is impermissible to invest in Premium Bonds.
And Allah knows best.
Mufti Faraz Adam
References
1http://www.qfinance.com/dictionary/premium-bond
2http://dictionary.cambridge.org/dictionary/business-english/premium-bond
3كُلُّ قَرْضٍ يُشْتَرَطُ فِيهِ مَنْفَعَةٌ فَهُوَ حَرَامٌ هَذَا إذَا كَانَتْ الْمَنْفَعَةُ مَشْرُوطَةً فِي الْعَقْدِ فَإِنْ لَمْ تَكُنْ مَشْرُوطَةً فَدَفَعَ أَجْوَدَ فَلَا بَأْسَ (درر الحكام في شرح مجلة الأحكام ج 3 ص 94 دار الجيل)
Based on the Hanafi school and on the question as it was asked. Another mufti may reach a different conclusion. Read the disclaimer.