Subject : In Principle, Financial Transactions should be Based on Clear Agreement between the Parties
Fatwa Number : 3753
Date : 14-03-2023
Classified : Partnership in Business
Fatwa Type : Search Fatawaa

Question :

Zaid came to Amr advising him to invest a sum of money in the stock exchange, and told him: "Don't worry, I got this." Accordingly, Amr understood that the profit will be 50/50 and Zaid alone will be liable for the loss. Amr paid that sum as a mixture of investment and debt. The contract was concluded in Zaid`s name who paid (20000 JDS) by Amr. Within 45 days, they made a profit of about (6000 JDs) and this amount was divided equally between them. However, after a few days, the stock exchange collapsed and all the investors lost their money. Zaid filed a case against the stock exchange, but it was of no avail.  Zaid committed to pay (17000 JDs) to Amr. I.e. the capital minus his portion of the profit (3000 JDs). What is the ruling of Sharia on this contract?

The Answer :

All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon Prophet Mohammad and upon all his family and companions.

The general rule is that financial transactions should be based on a clear and unequivocal agreement between the parties indicating its nature and Sharia framing for fear of confusion, especially in the event of a disagreement between the parties. As for the situation mentioned in the above question, the Sharia framing of this transaction is likely to be one of two things:

First: The two parties agreed that one of them provides the capital while the other provides the work/labor for a percentage of the profits, be it one third, one quarter, one-half or a certain percentage. In event of loss, the capital provider loses his money while the other party loses his work and effort. This is  called Mudaraba  contract, so it isn`t allowed that the profit percentage be unknown or that one of the partners guarantees the other partner's share if the former didn`t fail in performing the duties entrusted to him, as this renders this partnership invalid.  When the Mudaraba contract is nullified, the capital provider is entitled to his capital with the profits while the worker/laborer is entitled to wages-given in similar contracts-from that capital. Imam Zakaria al-Ansari {May Allah have mercy on him} said: "Each of them-either of the partners when the partnership is spoiled-is entitled to wages, from the other partner, equal to his work." {Al-Ghurara Al-Bahiyah Fi Shareh Al-Bahjah Al-Wardiyah, Vol.3: p.169}.

If the worker/laborer caused the loss due to his negligence and misconduct, then he should make compensation since his actions caused damage to the Mudaraba contract, the capital provider, broke the terms of the contract or led to none adherence to that which is for the benefit of the capital provider. However, these things can only be assessed by the experts of this field. An-Nawawi said: "In the Mudaraba contract, the worker/laborer is an agent acting on behalf of the capital provider to the best of the latter`s interest." {Rawdat At-Talibeen, Vol.5: p.127}.

Second: The paid amount is a debt from one party to the other provided that the owner receives monthly profits against that debt. This is forbidden usury/interest and the loaner must make repentance by taking his original capital and leaving the rest. This is in compliance with the words of Allah Who says {What means}: "yet if you repent, you shall have your principal, unwronging and unwronged." {Al-Baqarah, 279}. And Allah the Almighty knows best. 



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