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Returns of investments are from profits, not capital

Fatwaa ID: 648

Question:
السلام علیکم ورحمة الله وبركاته.

Hope Mufti Saheb is well.

Maaf to trouble Mufti Saheb.

I am requesting an answer regarding the following questions on behalf of a friend. I’m writing the question exactly how it was posed to me…

  1. Amr came to me & told me that if you invest 100k with our company, we will give you a set 10% return from your whole amount every month.

Is this type of transaction permissible?

The reason of the question is that I was told that this type of transaction is not permissible & it is like interest because it’s as though you’re “lending” Amr money & he will end up paying you back more than what was lent to him.

However I disagreed with the person on this basis that I did not “lend” my money to Amr rather, I “invested” it with him in his company on a condition of a set 10% return.

  1. Also will it be permissible to stipulate a set amount as a return in terms of… A. Percentage or B. An actual amount, Examples…

A. I will invest 100k in your company on condition that you give me 10% return every month or …
B. I invest 100k in your company on condition that you give me 10k return every month.

Kindly advise regarding the above.

جزاك الله خيراً وأحسن الجزاء.
Allâh تعالیٰ reward Mufti Saheb abundantly.

Answer:
In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

In principle, when entering into an investment or business with someone, the profit split must be an agreed percentage of the profits of the business. It may not be a percentage of the investment/capital itself. Likewise, the return may not be a set amount of money. Profits depend on the wellness of the business. At times, there may not even be any profits, in which case the investor will not receive anything. Accordingly, the answers to your queries are as follows:

  1. The above will not be permissible. You may mutually agree to receive 10% of the total profit instead.

2a. 10% of the profit is permissible. 10% of the capital will not be permissible.

2b. This will not be permissible.

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York
https://askthemufti.us/

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين

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