Fatwa #1040919 December 2003United States of America
1.I am currently paying investors based on my year-end profit margin around 10%? 2.Investor is demanding that 10% per month? 1. Is profit sharing Riba. 2. Is the investor right in his demand?
Question
The second investor is the freight forwarder who initially wanted me to pay $100 per shipment without knowledge of his employer. I told him that is bribe and is haram. I suggested the option that he invest with me and I will pay him my profit margin. He agreed, but said it should sort of follow in line with the number of shipmetns. Since, number of shipments is higher than what he is getting as profit share. He is demanding that amount he has invested should receive 10% per month or around 120% per year. My profit margin is approximately 10%, so on a yearly basis that would 120%. I really am confused, as I think this practice would be tantamount to paying Riba. I would appreciate your clarification. Thank You.
Answer
In principle, a shareholder may get a profit share from the profits earned. It is incorrect to base the profit on the capital investment. Thus, your partners request of 10% per month on his invested amount is incorrect.
What is the difference of specifying U$100 profit and 10% of U$1000. Just as one cannot specify U$100 on a U$1000, so too one cannot specify 10% of U$1000
and Allah Ta'ala Knows Best
Mufti Ebrahim Desai
What is the difference of specifying U$100 profit and 10% of U$1000. Just as one cannot specify U$100 on a U$1000, so too one cannot specify 10% of U$1000
and Allah Ta'ala Knows Best
Mufti Ebrahim Desai