Fatwa: # 44380
Category: Business Matters
Country:
Date: 30th June 2020

Title

Musharakah contract agreement in the West - Will this be permissible?

Question

 

Dear Shaykh,
Assalamu Alykum
I have 3 questions pertaining to financial transactions
1. What if the company has debt and taken out loans. What is the ruling on investing in those companies?

2. In regards to the insurance that companies take out some of which is state-mandated by the government and some is the choice of the company. How does that affect my investment now potentially being an equity owner in the company? Can you please let me know in regards to these two points that will affect my investment and now I being an equity holder/part owner in the company invested?

3. In regards to Musharakah contract, if it is done in the west, 'without' the term itself and agreed returns based on profit are provided, is that allowed?
Regards.

 

Answer

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

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

In commercial dealings, the terms and conditions are considered and not the words and terminologies.

If all the conditions of a valid Musharaka contract are found, then the contract will be regarded as a Musharaka contract. It is not a condition that the actual term “Musharaka” and related terminologies be used.[1]

The basic concept of Musharaka is:

  • Musharakah is a partnership wherein two or more partners contribute investment capital to the partnership. The partners are referred to as Shareek.
  • The proportion of profit to be distributed between partners must be agreed upon at the time of affecting the contract. If no such proportion has been determined, the contract is not valid in Shariah.
  • The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners, or any rate of profit tied up with his investment.
  • All losses will be based on capital contribution.

The above is the basic principles and conditions of a Musharaka contract. Over and above this there are many other conditions required for the contract to be Shariah compliant.

For more details on Musharaka also see our sample contract of a Musharaka agreement. It is available at the following link:  https://daruliftaa.net/contracts/

And Allah Ta’āla Knows Best

Ahmad Patel

Student Darul Iftaa

South Africa

Checked and Approved by,
Mufti Ebrahim Desai.

 


[1]

An Introduction To Islamic Finance-Mufti Muhammad Taqi Usmani(27-91)

 

DISCLAIMER - AskImam.org questions
AskImam.org answers issues pertaining to Shar'ah. Thereafter, these questions and answers are placed for public view on www.askimam.org for educational purposes. However, many of these answers are unique to a particular scenario and cannot be taken as a basis to establish a ruling in another situation or another environment. Askimam.org bears no responsibility with regards to these questions being used out of their intended context.
  • The Shar's ruling herein given is based specifically on the question posed and should be read in conjunction with the question.
  • AskImam.org bears no responsibility to any party who may or may not act on this answer and is being hereby exempted from loss or damage howsoever caused.
  • This answer may not be used as evidence in any Court of Law without prior written consent of AskImam.org.
  • Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
The Messenger of Allah said, "When Allah wishes good for someone, He bestows upon him the understanding of Deen."
[Al-Bukhari and Muslim]