Partnerships

Investment Scheme

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Q: I would like to know if the following would be shariah compliant: There is an investment in which everyone pays money for their share, but there are 2 groups: an A and a B group. A group takes profit as long as it is 60cents or less and group B gets money only if profit exceed 60cents up to 20 cents. So B gets no profit if 60 cents or less is made and over the 60 cents group B takes profit until 120 cents. If it exceeds 120 they will calculate something.

A:
The investment scheme that you described is not compliant with Shariah. Hence, it is not permissible. In a partnership it is necessary that all investors receive a dividend from the profits on a percentage basis in proportion to their investment. By paying out some shareholders under certain conditions and excluding others, this requisite is violated. Furthermore, profit sharing must be based on percentage. It is not permissible to fix an amount in cash terms as profit. It is only correct when each shareholder is promised a percentage of the total nett profits. For this reason, too, the investment scheme in question will not be permissible.

Perhaps if you explain why and for what purpose did the partners agree to such an unusual form of distribution, we might be able to suggest an alternative that will be Shar'ee compliant. What did they wish to achieve though a dispensation of this nature?

Mufti Siraj Desai
Port Elizabeth

Profit, Loss and Shares

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Q: I am in partnership with another person in a business. Last year we made a loss of R20,000. This year we showed a profit of R20,000. My partner says that he wants his share of the R20,000. According to accounting policy the loss last year cancels the profit, thus none of us get a share. Please explain the Islamic ruling.
A: The Islamic ruling is the same. The amount invested in the business is the capital. The capital will be recuperated first. (Ahsanul fataawa v 6 p 398)

Moulana Naziem Moosagie
Checked and approved by: Mufti Siraj Desai