Fatwa

Investment stipulating a fixed return

Question

Assalamu alaikum ww.

Is it permissible to have such a deal where in e.g. person 1 gives person 2 k50000 who is doing business. He uses it and every month person 2 is given k4000 so long as the k50000 is still with person 2.

Answer

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

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

An Islamic investment by definition refers to a transaction wherein the financier has the potential to gain profit or lose all or part of his capital, based on factual performance of the business. Profit is defined as the actual surplus that remains after deducting any and all pending liabilities and expenses of the business.

In the enquired situation, stipulating a fixed monthly ‘return’ is akin to interest as this amount is not dependent on the actual performance of the business, rather, it is an amount in addition to the initially provided ‘loan’. This means that whether the business does well or suffers a loss, K4000 shall become due monthly to the ‘financier’. This is interest.

The financier may alternatively explore partnership with an agreed percentage of profit sharing or Mudharabah where capital is from one person and the work is from the other. In both cases, profit sharing percentages can be mutually agreed upon.

Furthermore, should a financier (in either partnership) stipulate that he shall have drawings of k4000 (for example) from the business which shall then be retrospectively adjusted at the end of the financial year when distributing profits (or loss), then this is permissible.

And Allah Ta’āla Knows Best

Mufti Bilal Pandor

Concurred by
Mufti Muhammad Patel

Darul Iftaa Mahmudiyyah
Lusaka, Zambia

www.daruliftaazambia.com