Assigning profit in partnership-Mudhaarabah contract
Fatwa No: 354718

Question

My friend is conducting a business and asked me to invest some money in his business. I gave him two lacs taka (Bangladeshi currency) without any contract. The percentage of profit which he will give me was not discussed and not written in a contract. He gives me a part of the profit after 3/4/6 months, but it is not fixed amount. When he makes a big profit, he gives me more. I am satisfied with whatever he gives me. Is there any problem with this?

Answer

All perfect praise be to Allah, the Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

You mentioned in your question that your friend will invest your money in his existing business; which indicates that he will mix your money with his money and invest them together. If this is the case, then this contract is considered as partnership and Mudhaarabah (refer to fatwa 276166 for definition): a partnership because your money is mixed with his money and they will be invested together; and Mudhaarabah because he is the only one who will work with your money [i.e. you do not participate in the work with your effort; the effort is only his].

Ibn Qudaamah  may  Allaah  have  mercy  upon  him said, “Chapter: The fourth category: It is when the money of two different people are joined and the effort is only done by one of them, so this combines partnership and Mudhaarabah.” 

In your case, the capital money of each one of you should be known, and you should agree in the contract what each of you deserves from the profit, and this should be a known percentage, like half for each one of you, for example.

You mentioned in your question that you did not agree about determining a percentage from the profit but are satisfied with what your friend gives you, whether it is little or much. This is not valid; rather, the percentage of profit for each one of you must be determined.

Ibn Qudaamah  may  Allaah  have  mercy  upon  him said:

As regards Mudhaarabah, where there is partnership, which is when the money of two different people is joined together while the effort is only done by one of them, like when each one of them gives one thousand, and one of them gives permission that the other trades with the two thousand, so whatever he conditions of profit if it is more than a half is permissible, because he partakes in Mudhaarabah with his friend with one thousand, and the worker in Mudhaarabah deserves part of the profit according to what they agreed upon in the contract.

The meaning of this is that the trader [who is your friend] who works with his money and your money gets his own profit from his own money and an excess percentage in return for his work with your money. If this additional percentage is little or much, then there is nothing wrong with this, because he is a worker (partner) in the Mudhaarabah in your money. The one who is a worker (partner) in Mudhaarabah deserves in the profit what was agreed upon in the contract. It is for this reason that Ibn Qudaamah  may  Allaah  have  mercy  upon  him said, “The worker in Mudhaarabah is entitled to what they agreed upon, without any difference of opinion.

With regard to the previous work, without an agreement on the percentage of the profit, then your friend deserves the wages of the one who does similar work in return for his work with your money.

It is also a condition that the activity of this business be lawful. For more benefit, please refer to fatwas 94668 and 10549.

Allah knows best.

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