What is the order of shariah regarding the recent fatwa of Alazhar about the lawfulness of predetermined profit in silent partnership (Mudarabah)?
الجواب بعون الملک الوھاب:۔اللھم ھدایہ الحق والصواب
Assalamu alaikum wa rahmatullahi wa barakatuhu
I have read, word by word, the complete fatwa of Alazhar regarding the lawfulness of the pre-specified profit in a silent partnership (Mudarabah). It is poles apart from the laws of holy shariah. According to the laws of shariah it is a kind of usury to pre-specify a particular amount of money whether it may be according to the percentage of capital or a fixed amount. All of the four schools of Fiqh clearly announce that such type of practice is not allowed and it will finish the partnership as has been stated in volume 3, on pages 36, 38, 39 & 43 of Kitabul fiqhi Ala Mazahibil Arbah written by Abdur Rehman bin Muhammad Al-Jazairi. Rather the mentioned fatwa of Alazhar itself admits that the majority of jurists disagree with it. However, here in these lines first I mention their core arguments and then I will write its rejection in the light of shariah laws. It has been said in the first lines of fatwa that,
“There is no doubt that mutual consent of the two parties to predetermine profits is permissible both in Islamic Law (Shariah), as well as logically, in order for each party to know its rightful share.”
The above statement shows that
1. According to the laws of shariah there is nothing wrong in pre-determined profit whether it may be according to the percentage of capital or a fixed amount.
2. It is correct logically because both parties has right to know its rightful share.
As regarding first point, it is obviously wrong because from the early ages of Islam up till today neither the Holy Quran nor the tradition of Holy Prophet (Blessings and Peace be upon him) support and nor any reliable jurist of Islam favors predetermined profit on the basis of percentage of capital or fixed amount for any partner. If there had been any proof from the mentioned sources, it would have been mentioned in fatwa but the fatwa did not presented any proof from the mentioned sources. On the contrary, any person who has a little knowledge of Islamic Jurisprudence knows that all three mentioned sources condemn this fatwa as the fatwa itself admits that according to the consensus of scholars such type of practice invalidates the partnership. As regarding the second point, it is too wrong because of following reasons,
1. If the profit of working partner will be predetermined he will not, surely, work hard because he knows that he will get what has been fixed for him whether the total profit of the silent partnership increases or decreases or the capital of partnership goes in loss. In this case, it is certain that partnership will face loss because of the lack of interest and hardworking of working partner.
2. And if the profit of investor will be predetermined the working partner suffers injustice in case of loss or lack of profit. He will have to pay predetermined profit from his own personal pocket. While the investor will not face any harm and his capital will be safe rather he will get profit also if the partnership ends with no gain, no loss. Is it not a partnership based on interest? Will it not ruin the working partner? Is it not against the saying of the Holy Prophet (Blessings and Peace be upon him) that “No harm is allowed لاضررولا ضرار”? Dr. Tantawi writes its answer in these words,
”The answer is that banks may lose in one investment, but make profits on many others, thus covering the losses”.
From this answer some other questions rise. First, what is about a poor skilled trader who is working for an investor in a partnership and has no other source of income and faces loss in partnership? Second, the silent partnership is a particular kind of partnership in which one partner invests capital and other partner presents his work. When both of the partners share equally meaning capital from the investor and work from the entrepreneur then in case of loss or no gain, at the end of partnership why will a entrepreneur be compelled to give pre-specified profit to the investor? Is he given profit only because of capital then why is an entrepreneur not given any profit because of his work?
3. And if both of the partners demand to know their rightful share in the beginning of the partnership as the fatwa declares that it is right of both parties to know their rightful share then how what is its possible way to inform both of them their predetermined profit? According to the fatwa of Alazhar if the profit of investor is mentioned in beginning then what is the criteria of predetermining profit for the entrepreneur? For example if Mr. A invests 100000 rupees as a capital and 15% of the capital pre-specified profit is fixed for investor. Mr. B is a working partner he also demands to predetermine his profit. If his profit is also determined according to the percentage of capital for instance 85%. If the partnership ends with the profit of fifty thousands, the investor will get 15% of capital i.e. 15000 rupees now how is it possible to pay 85000 to the entrepreneur? Will this amount be paid from capital only or from profit only or from both profit and capital? It is impossible to be paid from profit only because no mathematician of the world can bring 85000 out of remaining profit 35000. If it is paid from capital only or from capital and profit it will be obvious injustice with investor. If it is said that the predetermined profit of entrepreneur should not be kept so high rather it should 5% i.e. 5000 or 10% i.e. 10000. I ask then who will take the remaining amount of profit i.e. 30000 or 25000. According to the discussed fatwa, it will be given to the entrepreneur or bank. The question rises that why is not giving to the investor? No doubt, it is a specification without any specifier. If it is said that the profit of entrepreneur can not be determined. I, then humbly, ask what is your kind opinion about the fatwa which proclaims,
” banks pre-determine those profits or returns for their customers only after careful and detailed study of global and domestic market and economic conditions, the specific circumstances of each dealing, its type, and its average anticipated profitability.”
In the same way when the profit of both parties is determined and partnership faces loss or ends at a minor profit then according to the fatwa entrepreneur will pay the predetermined profit to the investor anyhow but who will pay the predetermined profit of entrepreneur. Is it not a kind of practice which supports the capitalism or interest?
The above discussion shows that predetermined profit for any of the partner is not allowed. The laws of shariah and the logic based on justice condemn it rather it is a kind of interest. When the great Jurist of Islam, Imam Ahmad Raza Khan rahmatullahi alaihi was asked whether it is a kind of usury or not if a person who collect the money of people with the condition that he will invest their money in business and take the one fourth of profit as his wages and the remaining money will give to the investors. If this person sets a contract that he will pay 12% of capital as a profit whether the business faces loss and in case of gain he will give 12% as well as the excess. Imam Ahmad ‘Raza Khan Rahmatullahi alaihi replied,
“This contract is forbidden. Although the profit does not decrease from the mentioned percentage yet all of them are sinners and it is forbidden to pay any amount which he will give to the investors in case of loss. And it is forbidden for investors to take the amount which he will pay from his personal pocket or from any other source in case of lack of profit.”
(Fatawa-e-Razwiyah Vol. 8 Page. 16)
Having written the references of the mentioned reply from Radaul Muhtar and Alamghiri, he further writes with the reference of Al-Hidaya that predetermining profit is a pure interest. He writes,
“A conditioned excess without a compensation for any party in a contract of exchange, is usury.”
(Ibid)
Now I proceed to the next shortcoming of fatwa. The fatwa states that,
“Pre-specification of profits for those who invest their funds with banks or other financial institutions through investment agency is permissible without any suspicion. This type of transaction is judged based on its benefit, and does not belong to the areas of creed and acts of worship, wherein change is not permissible. Consequently, investing funds with banks that pre-specify profits or returns is permissible, and there is no harm therein,”
According to these lines this fatwa does not opposes any unchangeable teachings of Islam but I say this statement is not correct. As I have mentioned in the above lines that the predetermining of profit for any of the parties depends upon injustice and cruelty and according to the teachings of the Holy Quran and the prophetic traditions injustice and cruelty is not allowed in any case so how can be accepted mere proclamation of the fatwa?
Now I proceed to the next shortcoming of the fatwa. The fatwa states that,
“The partnership itself is a hiring contract for an unknown compensation, thus full of Gharar. However, a consensus ruling is in effect allowing this contract (with profit-sharing), despite that Gharar (as stated by ’ibn Qudāmah). Hence, such partnerships belong to a class of contracts in which the Gharar [including that induced by pre-specification of profits] is ignored, provided that it does not lead to legal disputation.”
This is the main argument of making predetermined profit lawful. According to these lines as the silent partnership already includes uncertainty and in spite of this uncertainty (Gharar) shariah allows it, so there is nothing wrong if we create uncertainty (Gharar) by predetermined profit analogizing it upon the uncertainty allowed by shariah. I say, it is a wrong analogy (Qiyas). Because to the great Imam Abu Hanifa rahmatullahi alaihi and other reliable jurists silent partnership is contrary to analogy as has been mentioned in Hilyatul Ulama (Vol. 5 page. 326). And according to the rules of analogy (القياس) the antecedent (مقيس عليه) must be according to the rules of analogy (قياس) otherwise nothing can be analogized upon it as writes Ash-Sheikh Al-Imam Hafizud Deen An-Nasafi rahmatullahi alaihi
(وأن لايكون معدولاعن القياس)لان حاجتنا الي اثبات الحكم بالقياس فمتي ثبت حكم النص علي وجه يرده القياس الشرعي لم يجزاثباته في الفرع بالقياس.
( كشف الاسرارعلي المنار الجلدالثاني صفحه 129 طبعه الصدف ببلشرز كراتشي)
Translation: (The one of the basic condition of analogy is that the precedent must not be contrary to analogy) because we are in need of proving order through analogy so when the religious order (نص) is proved in a form that religious analogy rejects it so it is not lawful to prove it in another branch by analogy.
However, the holy shariah permits some types of uncertainty (غرر) but it is only allowed when it is minor uncertainty (غررحقير) and there is no way to fulfil necessity without facing labour as says Ash-sheikh Al-Imam Sharfud Deen An-Nuwavi rahmatullahi alaihi. He writes,
غررحقيرجمع المسلمون علي جوازاشياء فيها
)الصحيح لمسلم الجلدالثاني الصفحة 2 طبعه قديمي كتب خانه كراتشي )
Translation: Muslims have gathered on the lawfulness of those things which have minor uncertainty.
The minor uncertainty means that uncertainty which does not oppose the laws of shariah and there is no way to fulfil basic needs of people without bearing it e.g. It must not take to the dispute between two parties and must not cause any type of injustice and cruelty with either of the parties. For example the sale of foetus, bird in the air and milk is udder is not allowed. Sheik-ul-Islam Imam Burhanud Deen Al-Marghinani rahmatullahi alaihi says,
”The sale of fish which the vender may have caught, and afterwards thrown into a fountain from which it can not be taken without difficulty, is null because there the delivery is impracticable.”
He rahmatullahi alaihi further writes,
(Al-Hidaya Vol.2 Page. 51 Printed by: Maktaba-e-Shirkate Ilmiyah Multan)
Translation”The sale of a bird in the air or of one which after having been caught is again sat at liberty is null because in the one case it is not property and in the other delivery is rendered in impracticable. The sale of foetus in the womb or of the offspring of the foetus is null because the Holy Prophet (Blessings and Peace be upon him) has prohibited it and also because there is a probability of fraud. The sale of milk in the udder is null because there is a possibility of fraud, in the udders being perhaps void of milk, and full wind, or because there might be arise a contention with respect to the mode of extracting the milk, or because might happen that the udder containing more milk at the time of extracting it than at the time of sale, and hence there might be implicated in the sale something not properly the subject of it.”
The mentioned above sales have been forbidden only because of uncertainty might not cause dispute and injustice although someone can say in the matter of fish that vendors are very skilled in catching fish because fish can not run away from the fountain so there is no uncertainty or it is a minor uncertainty likewise the same thing can be said in case of bird in the air, milk in udder and foetus but the Holy Prophet (Blessings and Peace be upon him) made the sale of foetus unlawful due to uncertainty. No doubt, it looks a minor uncertainty but there is a chance that it can become the cause of injustice and dispute. In the matter of selling fish in a pond from which it can not caught without tricks if the seller could not caught and delivered it to the buyer, the buyer will demand for fish or return of his money. Consequently there is a big chance of fight or if he could not get his money he will suffer injustice. Likewise the matter of milk in udder, bird in the air and foetus in the womb if the buyer could not get the thing which he bought he will have to suffer injustice. And injustice and cruelty is not allowed with a Muslim in any case. The Holy Prophet (Blessings and Peace be upon him) said,