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Fatwa CenterA group of brothers formed a profit-making business
Question
We formed a 25-member trust, by accumulating Qr. 100 per month. We are giving loan for members without interest/profit. This was the basic theme of our trust (a self-helping trust for the members). Now we have excess fund and we started to do business. For example, if a person needs a computer we will buy it for them. The cost of computer Qr.2, 500, we will add 7.5% profit on that, thus making Qr.2, 687.50 (profit Qr.187.50). The person should give Qr. 250 plus Qr. 187.50, total Qr. 437.50 as down payment, and the balance Qr.2, 250. They should pay within 9 months an installment of Qr.225 each. Our question is it ‘Halal’ or ‘Haram’? Awaiting your earliest reply.
Answer
Praise be to Allah, the Lord of the Worlds; and may His blessings and peace be upon our Prophet Muhammad and upon all his Family and Companions.
Establishing a trust under the rulings of Islamic Shariah is lawful, it is a praiseworthy act.
The method of investment you mentioned in your question is lawful. It is called in Islamic jurisprudence Murabaha transaction after receiving the order which goes through the following three steps.
1) First party demands another party (a person or trust) to purchase something for him against some profit. This is a promise of purchasing so it is not considered a business contract.
2) The second party who is demanded to purchase is responsible for the purchased article and owns it. Hence, this party is responsible for any damage, destruction that could occur to the item before handing it over to the party who ordered the purchase.
3) Finally the first party, who ordered the purchase, receives the ordered article. Now, they are allowed to complete the transaction in cash or in installments with profit or without profit as both of them initially agreed.
Know that the one who orders someone to purchase for him is not obliged to purchase from him since it is only a promise of purchasing and he is free to fulfill his promise or not.
If both parties initially agreed that the one who demands someone to purchase for him is obliged to purchase then such an agreement is not valid in Shariah.
The reason is that they made contract on something which the seller does not own in the first place.
Allah knows best.
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