Islam and the Quran

Fixed-profit Partnerships

Question: I have invested my money in a business where the owner says that I will receive a fixed amount of profit because he will buy a certain amount of product from my money and sell it on a pre-determined price to the buyer. Is it allowed for me to take the fixed cut?

In Islamic jurisprudence, the partnership of a capital owner and a laborer is called “mudarabah.”

Mudarabah is a form of business in which one party brings capital and other personal expertise and effort. The percentage of profit shares is determined by mutual agreement. In case of loss, the owner of the capital loses money, and the entrepreneur/business manager loses his time and effort.

While investing in a business, it is first essential to know whether doing that business is allowed by God and whether it includes any interest. We presume that you know what the traded product is and that it is not forbidden to buy or sell such as, alcoholic drinks, drugs, etc.

When it comes to agreements with a fixed amount of profit warranty, it is subject to interest and NOT permissible. Tradesmen cannot guarantee the amount of their profit. They cannot even always know whether they will make a profit or not.

A rightful and permissible ‘mudarabah’ agreement signed upon mutual agreement includes the following:

– In which business areas -even for how long and trading which product- the capital will be used.

– The shares of profit in percentage.

– The fact that, in case of loss, the capital owner will bear the financial loss, and the entrepreneur/business manager will have lost his labor.

– The entrepreneur/business manager will restitute the loss caused by his intention, fault or negligence.

The profit you would obtain through such a mutual agreement will be halal (permissible).

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