Can profit be fixed in an investment?

Q. I invested R100 000 of stock in my friend’s business. My friend agreed to give me a fixed return on investment of R50 000 on R100 000 after selling the stock. At the end of it, I would receive R150 000 in total. Is this correct according to Shariah?

A. The transaction in reference is non-Shariah-Compliant. The Shariah-Compliant alternative is to enter into a Mudaarabah partnership.

In brief, a Mudaarabah partnership entails one person giving to another person capital to do business and both of them share the profit based on a percentage of profit share. For example, Hamzah gives R100,000 to Zaid as capital to do business and they agree on a 50% profit share.

Hamzah and Zaid cannot agree on a fixed profit share, for e.g. R50,000 profit as this will be tantamount to interest. The business could make R40,000 but Zaid will have to pay Hamzah R50,000 or the business could make R60,000 but Zaid will only have to pay Hamzah R50,000.

Therefore, in the enquired situation, it is not permissible to agree on a fixed amount of profit share i.e. R50,000 on your investment of stock in your friend’s business. A percent of profit share for e.g.50% must be agreed upon for the investment to be Shariah-Compliant.

Allah Ta’ala Knows Best

Mufti Ismaeel Bassa