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Can I get a percentage profit on a loan?

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Question

السلام عليكم I have a friend who is in to watch and jewellery trading business . He needs some capital for his business and asked me for funding . He is assuring me a return of 4 percent per month. Is it permissible for me to accept it or should I ask him for a percentage of the profit ? Please clarify

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

It is not permissible for you to offer a capital loan to your friend and receive a repayment of the loan with a percentage profit every month. The excess payment will be Riba (Interest) which is prohibited

A Sharī῾ah Compliant alternative is through the:

  1. Mudārabah Contract
  2. Musharakah Contract

MUDARABAH

  • One partner provides the capital and the other provides his labour,
  • Both parties mutually agree to share the profits,
  • If there is a loss, it will be consumed from the capital.

MUSHARAKAH

  • The capital contribution is from all the partners,
  • The profits will be divided according to a mutually agreed percentage,
  • If there is a loss, it will be pro-rata to the capital contribution.

And Allah Ta’āla Knows Best

Huzaifah Deedat

Student Darul Iftaa
Lusaka, Zambia 

Checked and Approved by,
Mufti Ebrahim Desai.

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