Fatwa ID: 04034
Answered by: Maulana Mujahid Hussain
As-Salāmu 'alaykum, I hope you are doing well. There is an Islamic Banking in Germany called 'Kuveyt Türk'. They have an investment/participation account system done through Mudāraba. Normally, the capital provider and the capital seeker, meaning the trader have to share the profit as well as the risk according to Shariah. But, according to German law banks are forced to assume the full risk. Would it be despite that allowed to participate? Their ethics council by international scholars allow it.
بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم
In the name of Allah, the Most Gracious, the Most Merciful
As you probably know in a Mudarabah investment the risk must be shared by both parties. According to the majority of Islamic Scholars as well as Islamic Fiqhi councils throughout the world the bank, is not allowed to bear the full risk. This is based upon the following Hadith :
حَدَّثَنَا أَحْمَدُ بْنُ يُونُسَ، حَدَّثَنَا ابْنُ أَبِي ذِئْبٍ، عَنْ مَخْلَدِ بْنِ خُفَافٍ، عَنْ عُرْوَةَ، عَنْ عَائِشَةَ، – رضى الله عنها – قَالَتْ قَالَ رَسُولُ اللَّهِ صلى الله عليه وسلم " الْخَرَاجُ بِالضَّمَانِ " .
Narrated Aisha, Ummul Mu'minin: The Messenger of Allah said: Profit follows responsibility.
Allowing the bank to bear the full risk results in the investment becoming a loan with interest in reality, despite whatever name it may carry on paper, as your capital is guaranteed plus extra, just like a loan with interest.
The bank can use other methods to make the transaction Halal, for example, if there was a voluntary agreement between the bank and the capital lender that if the investment resulted in a loss then the capital lender would forfeit his or her right to the capital and the money would instead be given to a charity.
As for the bank’s ethics council allowing the transaction, that would be a result of the council basing its judgment on the minority of scholars who allow the bank to guaranty the capital.
Only Allah Knows best.
Written by Maulana Mujahid Hussain
Checked and approved by Mufti Mohammed Tosir Miah
Darul Ifta Birmingham
Abu Dawood 3508, Nasaaie 4490, Tirmizi 1268, Ibn Maajah 2243, Darussalam print