Question

Assalamu Alaikum Wa Rahamatullah Wa Barakaatuu

Our Sheikh and Ameer, Ata Bin Khalil Abu Al Rashtah, my question is: what is the ruling on the profit sales contract (Murabaha)? Is it permitted, fasid, or batil (invalid)? It so happened that some of our brothers made an agreement using the Murabaha contract -after some time - they realised that it is invalid. The first party who paid the capital, received the same amount of the capital plus a half (in profit), now after realising the prohibition of the contract, he is demanding the rest of the profit. The Question: What is the nature of the contract in terms of permission and prohibition? Is the money that he received permitted or prohibited? Does he have the right to demand the remaining profit after taking the amount of the capital and a half, even though the brothers know that the basis of action is that they must be restricted to the Shar' rules.
Please benefit us and Jazak Allah Kul Khair. Abu Suhail, Berlin

Answer

Wa Alaikum Assalam Wa Rahmatullah wa Barakaatuhu

What you called a Murabaha contract according to what came in your question where the owner of capital pays the money to another party for the purpose of trading with the money or deal with it and then gives him a guaranteed profit; this is not allowed in Islam.

What is permitted in Islam is when the owner of capital pays money to another party to trade with and they have an agreement upon a specific rate of profit share between them when there is a profit, and if there was no profit then both do not gain anything. If there is a loss the capital owner bears it as the other party who exerted his effort and traded would have lost his effort, i.e. it does not specify a guaranteed profit for the capital owner as we mentioned before.

This is what is called joint venture (Mudharaba).
A joint venture (Mudharaba) is one of the types of companies, because it is a company of money and body. The company is one of the transactions that Islam has permitted. On the authority of Abu Huraira that he said, that the Prophet (saw) said:إن الله يقول: أنا ثالث الشريكين، ما لم يخن أحدهما صاحبه، فإذا خانه خرجتُ من بينهما "Allah says: I am the third (party) of the two partners as long as one of them does not betray his partner, if he does then I abandon them" [Narrated by Abu Dawoud]

The Sahaba (ra) agreed that Mudharaba is permitted. Umar (ra) paid the money of the orphans by Mudharaba. This is mentioned in the Musanaf of Ibn Abu Sheeba.

Regarding the profit in Mudharaba, it is subject to the conditions depicted by both contracting parties.

As for loss, it is on the money. It was extracted by Abdul Razaq As-San'ani in his Musanaf from Ali (ra) regarding Mudharaba: الْوَضِيعَةُ عَلَى الْمَالِ، وَالرِّبْحُ عَلَى مَا اصْطَلَحُوا عَلَيْهِ "Loss is in money, and profit is based on what they agreed upon". Wadhee'a means loss.

For your information the term Murabaha in Shar' was mentioned in buying and selling contracts and not work contracts.Those who use Murabaha in work contracts between the capital owner and Mudharib, they use it out of its Shar'i place.

That is because Murabaha in the language means real profit, it is said: I sold the good by Murabaha or I bought Murabaha. In technical terms: for the seller to show the price he bought his products for sale and it should be for a known profit, it is from the Trust Sales because it relies on the trust of the seller in giving the information regarding what he paid for the product.

It is allowed in shar' because it is the buying with a profit on top of the cost price that the seller paid when he bought the product. If the seller says I will sell you this product with this much profit of the price that I bought the product for and the buyer is made aware of the price, and he accepts that, this is permitted because it is a known sale.

Your brother,
Ata Bin Khalil Abu Al-Rashtah

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