Profit or Interest

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The Quran-al-Kareem clearly declares: “And Allah Ta’ala has made trade lawful and has forbidden interest.” The prohibition of interest is so severe that all the parties connected to the transaction are sinful. Rasulullah (Sallallahu Alaihi Wasallam) is reported to have said: “Allah Ta’ala has cursed the one who takes interest, the one who gives it, the witness to the transaction and the scribe (who recorded it). All are equal in the sin (Mishkaat). It is thus clear that one must totally shun interest in every form.

 

Nevertheless, at times either due to lack of knowledge or lack of concern such “investments” are made which apparently are lawful and earn legitimate “profits.” Yet in reality these “profits” are nothing but interest. Consuming such “profits” which are in reality interest, draw the punishments that have been mentioned in the Hadith for consuming interest.

FIXED RETURN

Among the common unlawful investments is the investment in a running business for a fixed return. For example, Zaid has a thriving business. His friend, Ahmad, wishes to invest R10 000,00 in Zaid’s business. The agreement is that Zaid will pay Ahmad 20% on the R10 000,00 which amounts to             R2 000,00 annually. While they agree to share the profits in the above manner, they also agree to share the losses. For instance if the

business was destroyed, Ahmad would lose his investment and he will have no claim over Zaid. In many cases it is also agreed that if the partnership is dissolved, Ahmad will take back his investment of R10 000.00 and Zaid will retain the business.

This agreement is not valid. The amount of R2 000.00 which Ahmad is paid is simply interest, and thus Haraam.

ACTUAL PROFITS

The basic principle in an investment of this nature is that one shares a percentage of actual profits or losses. When Ahmad invests the R10 000.00 he will become a shareholder in Zaid’s entire business to the proportion of his investment. Hence if the business was worth R90 000.00 before Ahmad joined, Ahmad will become a 10% shareholder after his investment. The partners may mutually decide what Ahmad’s share of the actual profits will be. If it was agreed that Ahmad will share 20% of the profits, and the total net profit for that year was only          R1 000.00, Ahmad will receive R200.00 only as his share of the profit. If the partnership is dissolved, each partner will receive his share of his actual worth in the business. In the above example Ahmad was a 10% shareholder and Zaid owned 90%. Upon dissolution of the partnership, the net value of the business will be ascertained. This will then be proportionately distributed. For instance if the net value of the above business at the time of dissolution was                  R300 000.00, Ahmad will take 10% which amounts to R30 000.00.

       The above is just one example. There are many other investments which could be unlawful. In order to ensure that one has not contravened the dictates of Shariah in one’s investment, always first check with an experienced Aalim.

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