A promised fixed return on investment is Riba
Fatwa No: 237331

  • Fatwa Date:10-2-2014 - Rabee' Al-Aakhir 10, 1435
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Question

Assalam Alaikum, I am an Indian working in Saudi Arabia. Presently I have been offered a commercial Property (Retail space in a Mall). The developer assuring me , if I pay full amount, he will give me minimum 1% of the cost of property , as rent, every month for next 15 years. If the property goes with higher rent I will get the higher rent otherwise minimum I will get 1% rent. Please let me know, weather this type of arrangement is ok in Islam. The developer is assuring me a minimum fix return on my investment and I am confused it may constitute interest , which is haram. I await your Fatwa/Advise to proceed further. Khuda hafeez

Answer

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.

It is impermissible for you to invest your money in the mentioned commercial venture because of the stipulation on part of the developer to guarantee you a minimum of one percent return on your investment given the points clarified in Fataawa 90870, 5160 and 10549.

It is, however, possible to validate the contract if you both agree that your ratio of profit is to be determined in proportion to the capital invested by you. Thus, you become entitled to a ratio of profit that conforms to your share in the capital and you would also suffer the loss exactly according to the ratio of your investment. Thus, you are not guaranteed a minimum fixed profit regardless of whether the business accrues profit or loss.

It is worth mentioning that the partner's ratio of the total profit does not have to be in proportion to his share in the capital as long as the proportion of profit to be distributed between the partners is agreed upon at the time of making the contract. A partner with 30 percent of investment can be entitled to a larger or smaller ratio of profit if it is agreed among the partners with their free consent. Ibn Muflih  may  Allaah  have  mercy  upon  him wrote: "In a profit-sharing partnership, the ratio of profit for each partner should be agreed upon at the time the contract becomes effective, even if the ratio of each partner was not in proportion to the capital invested by him..." [Al-Furoo‘]

On the contrary, the loss must be divided between the parties exactly in accordance with the ratio of capital invested by each one of them. Kashshaaf Al-Qinaa‘ reads: "...Whether the two parties agreed that the ratio of profit for each partner is in proportion to the capital invested by him or according to what they stipulated, the proportions of losses borne by partners must be commensurate with the proportions of their contributions to the capital. This is because the loss (Al-Wadhee‘ah) is upon the capital and the profit is according to what they stipulated. Loss denotes a decrease in the capital, the property of the partners; therefore, each partner is liable for a percentage of loss that matches his share of ownership in the partnership."

Allaah Knows best.

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