Fatwa #3426814 October 2015United Kingdom
Investment will be based on the principles of Musharakah (equity partnership)
Question
Ive been offered a 2.5% stake in a business for 50k. Last 3 years average dividends has been approx 300k a year. So 2.5% will approx get £7500 which is 15% Return on Investment. At end of each year, the seller has the option to buy back the 2.5% at original purchase price (50k). Is this type of investment sharia compliant?
Answer
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
We understand that you have been offered a 2.5% stake in a business for a fixed price. The seller will also have the option to buy back the 2.5% share at the original price.
Based on our understanding of the above and your explanation, the above investment will be based on the principles of Musharakah (equity partnership). Therefore all the rules and laws of Musharakah will be applicable. Musharakah refers to an equity partnership where two or more partners contribute cash/kind to a business partnership.
However according to Shariah, a buy-back option is not Shariah Compliant. One may fix the partnership term/period for one year and then offer the 2.5 % share to the seller at the original price or mutually agreed price after the year has terminated. You are not obligated to sell your share to the seller and you are not bound to sell your share for 50k.
And Allah Ta’āla Knows Best
Ismail Desai,
Darul Iftaa
Checked and Approved,
Mufti Ebrahim Desai.