Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh. (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

ASAK Brother Burhan,

I have a Muslim friend of mine, who has invested in my business and I give him quarterly fixed returns. Is this permissible? Can you pls. shed some light on this topic and If you feel the fixed returns are not permissible in Islam, could you pls. give me an option of giving returns to my friend. Salaams

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Answer:

Fixed returns

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is none worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

Your Question: I have a Muslim friend of mine, who has invested in my business and I give him quarterly fixed returns. Is this permissible?

If one gets a fixed return from an investment in a business, such a return would indeed be a manifestation of ‘riba’ or usury in the Sight of Shariah.

Your Question: …could you pls. give me an option of giving returns to my friend

The lawful option in Shariah would be to appropriate a percentage of the share of the business according to the level of participation of the investment of your friend in your business.

For example say the capital in your business is worth $1,000.00 and your friend wishes to invest $500.00 in the business, making the capital of the business $1,500.00. Thus your friend would be assigned 33.33% of the profits of the business; and if perchance the business were to make a loss, you friend would share 33.33% as his share of the loss.

Another example would be say your share of the capital in the business is only $200.00 and your friend wishes to invest $1,000.00 in the business. But because it is your business, your ideas, and it is you who are working in and running the business and your friend is a dormant partner, the two of you may wish to agree that the profits/losses of the business to be shared 60:40 in your favor, of 50:50, or 40:60 in your friends favor…..as long as the two of you come to an agreement regarding the distribution and share in both the profits and losses in the business, the transaction would be lawful in the Sight of Shariah.

When one gets a fixed return for one’s investment, or when one does not share an appropriate percentage if there were to be a loss….such transactions would be deemed as ‘riba’ in the Sight of Shariah.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Burhan