Mudhaarabah with guarantees from the entrepreneur to ensure the absence of misconduct and negligence

10-4-2014 | IslamWeb

Question:

As Saamu Aliku, We are in INdia,No Islamic bank or rule,so we establish a society to help poor Muslims and save them from Interest. Urgent Pls . Answer the following question : Society invest 120 thousand for one year with a business man and Share in profit or loss.But in India we do not have the power if the business man runs away society may lose the money. So, the society ask him to pay ten thousand monthly and the account will be checked at the end of year , if there is profit they will Share if loss the only society will bear not the business man. Is it allowed? We are not assuring our capital we are assuring the person should not cheat and escape? Or is it allowed to ask the business man to keep some gold, silver, cheque only for the surety of his personality, not for the investment , we do not want to be cheated but we are ready to bear loss. Allaah hafiz.

Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and Messenger.

Mudhaarabah (i.e. partnership where one partner provides the capital [capital provider] to the other [entrepreneur or manager] for investment in a commercial enterprise) is a trust financing contract and the entrepreneur is entrusted with the capital; there is no guarantee required from him unless there is misconduct or negligence as underlined in Fataawa 5160 and 81579.

However, the capital provider has the right to take sufficient guarantees from the entrepreneur – such as a third party guarantor or a pledge - to ensure the absence of misconduct, negligence, or breach of the terms of the Mudhaarabah contract on his part; on condition that the capital provider does not put any such securities into effect unless it is proven that there was misconduct, negligence or breach of terms.

If you had agreed on the profit-sharing ratio (at the time of the conclusion of contract), if any, then it is alright for the two parties to agree that the entrepreneur should pay a fixed monthly amount to the capital provider, then you settle your accounts at the end of the fiscal year and at the time of dividing the profits. If you are entitled to that money as a share of the profits, it is yours and in case of loss, with no occurrence of misconduct or negligence, the capital provider bears the loss as underlined in Fatwa 231382.

We find nothing wrong with the transaction you mentioned in the question. As for your question ‘Is it allowed to ask the businessman to keep some gold, silver, cheque only for the surety of his personality, not for the investment,” if you mean that you take such items as a surety to be used to cover any loss (or depletion) of capital in the event of misconduct, negligence, dishonesty, fraud or breach of the terms of the contract by the entrepreneur, or that you deposit them with a third party, then there is no harm in doing that as clarified earlier. But if you mean something else, then please explain it further so that we would be able to answer your inquiry.

Allaah Knows best.

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