Mudhaarabah with An Islamic Bank
Fatwa No: 397408

Question

There’s something trending in banks nowadays by name of islamic banking or islamic saving account..in which account holder does some investment in form of his/her money deposited there and bank gives u profit on the money u put for investment but that profit isn’t fixed it changes every month and there’s no riba on that too..no such contract between two parties that say about fixed profit like thing..and also that there’s either u get benefit or not but ur money will not be in any kind of loss..there’s always either u get profit or not but invested money will remain as such..u get profit above it..Question is whether this type of saving islamic account or investment is allowed in our religion?

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.

It is acceptable to invest money in an Islamic bank that takes into account the Sharee’ah conditions in its financial transactions.

There are conditions for investing money through Mudhaarabah (speculation) which are as follows:

1- Both the owner of the capital money and the speculator (the person who involves in Mudhaarabah, which is the bank in this case), shall have a known share of the profit as agreed in the contract in the event of a profit.

2- Not guaranteeing the capital money of Mudhaarabah because it is a partnership between them: the owner of the capital money contributes with his money and the person in Mudhaarabah (here it is the Islamic bank) contributes with its effort. If there is a loss without any transgression or negligence from the person who contributes his effort, then the loss is deducted from the capital money and it is only the owner of the capital money who bears the financial loss. On the other hand, the person who contributes his effort bears the loss of his effort. The fact that the bank is cautious about its investments in a way that it reduces the percentage of losses to the extent that loss is very unlikely to happen; this does not affect the contract. What is important here is that the contract should not stipulate that the bank is a guarantor of the capital money.

Al-Muntaqa Sharh Al-Muwatta’ reads:

"A man gives another man money in a Mudhaarabah partnership and he conditions upon the man to whom he gave the money to guarantee it; he said: 'It is not permissible [..] this is because the condition of guarantee by the one who gives the money in Mudhaarabah is void.'" [End of quote]

Therefore, the contract should be checked to see whether or not it stipulates the condition of the bank guaranteeing the capital money. If the contract conditions the guarantee, then it is not permissible to enter into this contract to start with. However, if a person has already entered such a contract, then the condition is void and the contract is valid.

Al-Fiqh Al-Islaami wa Adilatihi, authored by Shaykh Wahba Az-Zuhayli, reads: "If he conditions on the worker to guarantee the capital money if it is lost, then the condition is void and the contract is valid; this is the view of the Hanafi and Hanbali Schools of jurisprudence."

3- The field of investment should be lawful.

For more benefit on Mudhaarabah, please refer to Fataawa 354718, 258553 and 231382.

Allah knows best.

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