I asked my partner to agree a percentage of profit and loss to be shouldered by both of us in any event. He refused this and said that this is extremely difficult for him, as he would have to do complicated accounts which he hates.
My personal feeling is that he did not want me to know about certain matters within his trade, such as his real profits and so on. In short, he assured me that the trade will bring profit and that it would be much easier for him to give me 10% return on my capital every year.
I told him that I fear that this a form of usury (riba), but he insisted that it wasn't. He explained that the capital would gain much more in profit, but agreeing this percentage would relieve him of carrying out complicated accounts. What is the ruling of Shari’ah on this matter?
For me, I wouldn't mind settling for 10% even if the actual profit was more, as 10% is much better than keeping the money locked away somewhere. However, I will make my partner make an oath that if profits were less than 10% or that there was an actual loss; he should tell me, so that I do not take a penny more than the actual percentage of profits.
Please let me know if my actions agree with Islamic Shari`ah and if not, how can I invest my money in a manner which agrees with the Shari`ah?
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
1- It is not your obligation to make your partner make an oath regarding the actual profits and losses.
2- The permissible guaranteed percentage is that which is related to profits and is agreed upon among the partners.
In responding to this question, the European Council for Fatwa and Research (ECFR), states:
We commend your good intention in refraining from usury in all its forms. However, the agreement described is unlawful, as the precise percentage was not mentioned when the agreement commenced.
Therefore, this matter must be corrected by stating a clear percentage in the agreement between yourself and your partner. If this is unattainable, then you must not renew the contract after it expires.
In addition, it is not your obligation to make your partner make an oath regarding the actual profits and losses. It would be sufficient to ask him to inform you when a loss occurs.
The percentage we are referring to is of the profits and not the capital. The 10% that your partner decided to give you is unlawful and is indeed regarded as usury because it is related to the capital.
The permissible guaranteed percentage is that which is related to profits and is agreed upon amongt the partners, for instance if they agree that the businessman will have 25% and the investor 75% of the profits, or that both will have 50% of the profits, and so on.
In this case, the partners have full freedom to agree the percentage amongt themselves.
Almighty Allah knows best.
Source: EFCR Mobile App