Written by: Fatwa Saudi Fatwa Committee
Is it permissible to give money to a person so they can engage in business with it, and the profits are shared between the two parties either equally or in any other agreed ratio?
Answer:
The situation described in the question is as follows: One person gives a specified amount of money to another and says, "Engage in business with this money, and whatever profits are earned will be split between us equally, or I will take one-fourth and you take three-fourths, or I will take three-fourths and you take one-fourth, or any other ratio we agree upon." We say that there is no issue with this arrangement, and it is permissible. Some scholars have even reported a consensus (ijma') on its permissibility. This is called Mudarabah, which is derived from the following verse of the Qur'an:
«وَآخَرُونَ يَضْرِبُونَ فِي الْأَرْضِ يَبْتَغُونَ مِن فَضْلِ اللَّه»
[Al-Muzzammil: 20]
"And others travel through the earth seeking Allah’s bounty."
In this arrangement, both parties benefit. The owner of the capital uses their wealth to make a profit, and the worker (agent) benefits from the profits generated from the money. If Allah had not facilitated this opportunity, the worker might not have found any other means of earning.
However, it is important to note that this contract must, in all circumstances, be free from gambling and chance. That is, the profit and loss between the investor and the worker must be clear and defined. The share of the worker must be fixed, such as one-half, one-fourth, one-third, one-eighth, or one-tenth.
Therefore, if someone says, "Take this money and trade with it; the profit for the first month is yours, and the profit for the second month is mine," this is not permissible. This is because there may be a situation where the first month’s profits are much higher than the second month, or vice versa. Similarly, if someone says, "Trade with this money, and the profit from the business in Makkah is mine, and in Madinah, it will be yours," this is also not permissible. Or if someone says, "Trade with this money, and the profit from cars will be mine, and the profit from clothes will be yours," this is not permissible either. This is because it is possible that the profits from cars are higher than from clothes, or vice versa.
Similarly, it is not permissible to say, "Trade with this money; the profit will be half mine and half yours, and the loss will also be shared equally." This is not allowed because it is not permissible to stipulate a loss for the agent. The loss must be borne entirely by the investor.
Therefore, it is essential to ensure that these elements are correctly managed, and if there are no obstacles in the proper arrangement, there is no harm in engaging in such an agreement.
[Ibn Uthaymeen: Noor 'Ala al-Darb, 7/279]
A Matter of Mudarabah
Question:Is it permissible to give money to a person so they can engage in business with it, and the profits are shared between the two parties either equally or in any other agreed ratio?
Answer:
The situation described in the question is as follows: One person gives a specified amount of money to another and says, "Engage in business with this money, and whatever profits are earned will be split between us equally, or I will take one-fourth and you take three-fourths, or I will take three-fourths and you take one-fourth, or any other ratio we agree upon." We say that there is no issue with this arrangement, and it is permissible. Some scholars have even reported a consensus (ijma') on its permissibility. This is called Mudarabah, which is derived from the following verse of the Qur'an:
«وَآخَرُونَ يَضْرِبُونَ فِي الْأَرْضِ يَبْتَغُونَ مِن فَضْلِ اللَّه»
[Al-Muzzammil: 20]
"And others travel through the earth seeking Allah’s bounty."
In this arrangement, both parties benefit. The owner of the capital uses their wealth to make a profit, and the worker (agent) benefits from the profits generated from the money. If Allah had not facilitated this opportunity, the worker might not have found any other means of earning.
However, it is important to note that this contract must, in all circumstances, be free from gambling and chance. That is, the profit and loss between the investor and the worker must be clear and defined. The share of the worker must be fixed, such as one-half, one-fourth, one-third, one-eighth, or one-tenth.
Therefore, if someone says, "Take this money and trade with it; the profit for the first month is yours, and the profit for the second month is mine," this is not permissible. This is because there may be a situation where the first month’s profits are much higher than the second month, or vice versa. Similarly, if someone says, "Trade with this money, and the profit from the business in Makkah is mine, and in Madinah, it will be yours," this is also not permissible. Or if someone says, "Trade with this money, and the profit from cars will be mine, and the profit from clothes will be yours," this is not permissible either. This is because it is possible that the profits from cars are higher than from clothes, or vice versa.
Similarly, it is not permissible to say, "Trade with this money; the profit will be half mine and half yours, and the loss will also be shared equally." This is not allowed because it is not permissible to stipulate a loss for the agent. The loss must be borne entirely by the investor.
Therefore, it is essential to ensure that these elements are correctly managed, and if there are no obstacles in the proper arrangement, there is no harm in engaging in such an agreement.
[Ibn Uthaymeen: Noor 'Ala al-Darb, 7/279]