Question

Assalamu alaikum warahmatullah wa barakatuh, i’m trying to make an investment company where i’ll get clients who’ll give me their own money and i’ll buy with their money stocks ( that engage in halal business) for a commission (that would be my earnings), i wont promise them steady guaranteed returns/profits and we’ll share the profit/loss ratio (i would still be paid my own commission regardless if it’s a loss or profit in that time period but i may charge a lower % at a loss). Would All my earnings be halal with no doubt?

Answer

There are two ways of structuring this type of investment.

The first is called a mudarabah contract. In a mudarabah contract the investors will provide the capital and you will carry out the task of buying and selling shares. You would then split the profit according to a predetermined ratio. In a mudarabah contract the profit distribution must be as a percentage of profits and not a fixed amount. For this reason, it would not be permissible to agree a percentage ratio as well as a fixed commission. You can only agree a percentage ratio.

The second is to structure it according to a paid agency. In such a case you will be paid a fixed fee for your services. However, in this case you will not be entitled to any share of the profits.

We would advise reading an Introduction to Islamic Finance by Mufti Taqi. Under the mudarabah and ijarah section you will find details regarding the conditions of a valid contract and will be able to determine which structure works best for yourself. If you have any further queries, please do not hesitate to contact us.

Introduction to Islamic Finance page 33

AAOIFI Shari’ah Standard (13) Mudarabah: 8/2

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel