Fatwa

Is this clause permissible in an investment

Question

a person invested 10k in another person’s business :

1.if there was an incorrect Shart (i.e. they agreed that a loss couldn’t occur) then the profit incurred , what should be done with it .

2.it was also agreed that whenever the person who invested wants to pull out his 10k , he can pull it out. So now can he asked for it anytime ? Can he pull it out ? Is this condition fine ?

Answer

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

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

1. A condition which stipulates that an investor cannot incur losses renders the contract invalid. It also turns the ‘investment’ into a loan. As such, the investor will not be deserving of any profits and will only be entitled to the capital put into the business. If profit is accrued, it will belong to the owner of the business, not the investor.
2. In order to issue an accurate ruling, we need to know what type of business and what type of investment agreement will be put in place. Is it a Musharakah or Mudharabah or something else? Furthermore, is there also any general understanding or a clause which gives the business a minimum time frame in which capital will be locked in?

And Allah Ta’āla Knows Best

Mufti Bilal Pandor

Concurred by
Mufti Muhammad Patel

Darul Iftaa Mahmudiyyah
Lusaka, Zambia

www.daruliftaazambia.com