in accordance with each partner’s
percentage of contribution toward the
capital (if it is a contractual partnership).
Scenario: Zayd and Fatima start a
restaurant together which requires
$100,000 to start up. Zayd invests
$25,000 and Fatima $75,000. They
agree to split the profits as 25% to
Zayd and 75% to Fatima. However,
Fatima wants them to split any losses
50/50.
Ruling: Impermissible
Explanation: As mentioned earlier,
fairness and justice are key components
of Islamic Finance. Islam mandates
that a person’s reward should
be proportionate to his/her risk and
vice-versa. The greater risk a person
assumes, the greater reward they
should be able to reap. Conversely,
if they are getting less reward, they
should not be exposed to a greater
risk.
It is for this reason a person’s liability
must be proportionate to their ownership
stake or capital contribution.
In regard to profit sharing, however,
there is more flexibility in cases in
which one partner takes on more
responsibility or work. In such cases,
the partners may agree for the working
partners to earn a greater portion
of the profit to compensate for their
efforts.
Proof: ‘Ayesha j narrates that the
Messenger of Allah a stipulated that
the profit must be proportionate to
the risk (Nisai).
Practical applications: One of the
common methods of halal home
financing is diminishing partnerships.
In this financing scheme, the financer
and client jointly buy a house as partners
after which the client eventually
buys out the share of the financer. A
litmus test to ensure the partnership
between the financer and client is true
in nature and not fictitious is to ensure
that the liability of each partner
is proportionate to their ownership
stake. Otherwise, if a disproportionate
amount of risk is put on the client,
this would not be a true partnership
and the Shari‘a compliance of such
financing would be questionable.
Question from previous edition:
Ali has a pet shop in which he sells
various animals. He sells snakes, fish,
hamsters, cats, and German Shepherd
dogs. Is the money earned from Ali’s
business halal?
Answer: All of the aforementioned
animals have potential halal usage.
Even the dogs may be used as guide
or guard dogs which is permissible.
As such, the income earned from Ali’s
pet shop would be halal.
Test Your Understanding: Zaynab
is looking for a way to earn passive
income. She comes across an investment
opportunity online in which
she is required to invest a minimum
of $5000. Her profit will be 2% of
her investment and she will be paid
weekly for one year. Would such an
investment be permissible?
Answer: Learn the answer in the next
issue of al-Madinah magazine.
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