Is it permissible to receive a fixed return on an investment?

754 people read this post.

Nasihah (Advice): Charity is not accepted from unfaithful dealings

Sayyiduna Ibn Umar Radhiyallahu Anhu reports that Nabi Sallallahu Alayhi Wasallam said, “Prayer without purification is not accepted, neither is Sadaqah from the profits of unfaithful dealings.” (Sunan Tirmidhi)

______________________________

Question and Answer:

I invested R100 000 of stock in my friend’s business. My friend agreed to give me a fixed return on investment of R50 000 on R100 000 after selling the stock. At the end of it, I would receive R150 000 in total. Is this correct according to Shariah?

The transaction in reference is non-Shariah-Compliant. The Shariah-Compliant alternative is to enter into a Mudaarabah partnership.

In brief, a Mudaarabah partnership entails one person giving another person capital to do business and both share the profit based on a percentage of profit share. For example, Hamzah gives R100 000 to Zaid as capital to do business and they agree on a 50% profit share.

Hamzah and Zaid cannot agree on a fixed profit share, for e.g. they cannot share a fixed amount of R50 000 profit as this will be tantamount to interest. The business could make R40 000 but Zaid will have to pay Hamzah R50,000 or the business could make R60,000 and Zaid will only have to pay Hamzah R50,000.

Therefore, in the enquired situation, it is not permissible to agree on a fixed amount of profit share i.e. R50 000 on your investment of stock in your friend’s business. The correct method would be to agree a percent of profit share, e.g. 50% must be agreed upon for the investment to be Shariah-Compliant.

And Allah Ta’ala Knows Best

Mufti Ismaeel Bassa

Confirmation:

Mufti Ebrahim Desai

(The answer hereby given is specifically based on the question asked and should be read together with the question asked. Islamic rulings on this Q&A newsletter are answered in accordance to the Hanafi Fiqh unless otherwise stated.)

Fatwa Department
Jamiatul Ulama (KZN)
Council of Muslim Theologians
223 Alpine Road, Overport

Durban, South Africa
Tel : +27 (0) 31 2077099

Email: fatwa@jamiat.org.za
Fax : +27(0) 31 2074163
Website : www.jamiat.org.za