Friend repays his debt with profit

CategoriesTrade, Business & All Things Money [490]

I gave some money to my friend to start business with someone. After one year my friend returned my whole amount with some profit and saying that no more business.

In the name of Allah, the most Beneficent, the most Merciful.

Answer

Asking for a loan or taking a loan is permissible as long as one has the intention & means of paying it back. If a person took a loan without the intention to pay it back, then one will be consuming unlawful wealth. (Sahih Bukhari p.321 v.1 & Fatawa Hindiyyah p.366 v.5)

There are two possible scenarios to your question. The first scenario is that you gave you friend the money as a loan. In this situation it will be permissible for you take something extra. The Islamic ruling is that it is recommended (mustuhub) for the debtor to pay something more when returning the loan. This however, should be done out of one’s own will, and not enforced. If it is forced on someone to pay an extra amount on the top of the amount borrowed, then this will be classed as riba, thus unlawful.

It is narrated by Saaiduna Abu Hurairah Radiallahu Anhu that the Prophet of Allah Sallallahu Alahi Wasalam said; “The best amongst the people is he who repays his debt in the most handsome manner.” (Sahih Bukhari p.322 v.1)

The second possible scenario is that the loan was given with the intention to become a sleeping partner in the business. This in fiqh terminology is called mudarabah. Mudarabah is a special kind of partnership where one partner providers the capital (rabb-ul-maal) to the other (mudarib) for investment in a commercial enterprise. The distribution of profit must be pre-determined by the two parties. Furthermore, the amount of profit ascribed to either of the parties must be independent of the capital amount, dependent solely on the actual profit realized by the commercial enterprise. That is, the profit assigned to a party cannot be a percentage of capital amount contributed as that would be considered a fixed return, or interest. The profit assigned to either of the parties cannot be a lump sum amount either as this would also constitute interest. (Extracted from An Introduction to Islamic Finance p.47 – p.51, Mufti Taqi Uthmani DB)

The upshot of the above paragraph is that it will be permissible for you take a certain percentage of his profits as long as you gave him the money with the intention to become a sleeping partner in the business.

Only Allah Knows Best

Mohammed Tosir Miah

Darul Ifta Birmingham

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