Monday, November 20, 2017 - 1 Rabi' al-Awwal 1439
Home » Fatwas » Financial Transactions » Investments

Profit Sharing and Specifying Investment Rate

I invest my money with an entrepreneur.

Questions

-What are the legal characteristics of a contract in which the investor provides the money and receives a return but takes no further part in the project?

-How can the investor guarantee that the entrepreneurs conform to the terms and conditions of the contract?

Answer


Mudarabah [En. Profit sharing] is legal in Islamic law

- This type of contract is called mudarabah in Islamic law. There is no objection if the agreement between the investor and his partners states that he must provide the capital and his partners manage the project and that each receives a percentage of the net profit.

- It is impermissible to specify a certain sum or a percentage on the capital as the investor's profit.

Before entering into a contract an investor must choose a good partner and business and consult experts and specialists in the field. After concluding the contract, he must monitor the business, and consult experts and specialists [on technicalities of the trade].

Allah the Majestic says: God will find a way out for those who are mindful of Him. And will provide for them from an unexpected source [65: 2-3].

 
Related links
» Is it permissible to purchase investment certificates to finance the New Suez Canal Project?