Fatwa ID: 08178
Answered by:
Alimah Shireen Mangera-Badat
Question:
Salaam bro.
Are you familiar with Islamic finance or know someone that is?
Specifically regarding taking on investors for a business and paying dividend/returns.
بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم
In the name of Allah, the Most Gracious, the Most Merciful
Answer:
There are many ways for halal investments to take place. Without knowing what your specificities are, there are many ways forward. However, there are two main types:
1. Mudarabah (Profit-Sharing Partnership)
One party provides capital (investor), while the other provides management/effort (entrepreneur).
Profits are shared based on a pre-agreed ratio, but losses are borne only by the investor unless mismanagement or negligence occurs.
No fixed returns: earnings depend on business performance.
2. Musharakah (Equity Partnership)
Both investor and entrepreneur contribute capital.
Profits and losses are shared proportionally based on investment.
No fixed returns: earnings are based on actual profit/loss.
The main finance move forward is the Mudarabah.
I’ll provide a few more details on the different types of partnership, which may prove helpful for your fit.
1. Shirkatul ‘Inaan (شِرْكَةُ الْعِنَان) – Capital and Management Partnership
This is the most common form of partnership in Islamic finance. It is when two or more individuals contribute capital and/or effort to a business and share profits and losses based on an agreed ratio.
Key Features:
Each partner contributes capital (money, assets, or goods).
Management responsibilities can be shared or assigned to a specific partner.
Profit is divided according to an agreed ratio, but losses must be proportional to capital contribution.
If a partner mismanages funds, they are liable for their negligence.
2. Shirkatul Wujooh (شِرْكَةُ الْوُجُوه) – Credit-Based Partnership
This is a unique type of partnership where partners do not invest capital but rather use their reputation and creditworthiness to purchase goods on credit. They then sell the goods and share the profits.
Key Features:
No monetary investment is required.
Partners purchase goods on credit from suppliers.
After selling the goods, they share profits based on an agreed ratio.
Losses are divided equally because neither partner contributed capital.
3. Shirkatul A‘maal (شِرْكَةُ الْأَعْمَال) – Work-Based Partnership
Also called Shirkatul Sanai’ (شِرْكَةُ الصَّنَائِع), this partnership is skill-based rather than capital-based. It occurs when two or more people combine their labour and expertise to provide services and share profits.
Key Features:
No financial capital is required.
Partners contribute their skills or labour.
The profits are shared based on an agreed ratio.
If there is a loss, it is usually the time and effort that partners have invested.
4. Shirkatul Musahamah (شِرْكَةُ الْمُسَاهَمَة) – Joint-Stock Partnership
This is a modern form of partnership that functions similarly to a corporation or joint-stock company. Here, the business is divided into shares, and investors purchase these shares to become part-owners.[1]
Key Features:
Capital is divided into shares, and each investor owns a portion.
Shareholders elect directors to manage the company.
Profits are distributed as dividends according to the number of shares.
Shares can be bought and sold in a stock market.
Liability is usually limited to the amount invested.
Comparison Table:
| Partnership Type | Capital Contribution? | Labor Contribution? | Profit Distribution | Loss Distribution |
| Shirkatul ‘Inaan | Yes | Yes | Agreed ratio | Based on capital contribution |
| Shirkatul Wujooh | No | No | Agreed ratio | Equal (since no capital is invested) |
| Shirkatul A‘maal | No | Yes | Agreed ratio | Loss is mainly effort and time |
| Shirkatul Musahamah | Yes | No | Based on shares | Based on shareholding |
The main point to consider for any transaction is that dealings must be free from Riba and deceit.
For the Almighty has stated in the Qur’an:
“O believers! Do not devour one another’s wealth illegally but rather trade by mutual consent. And do not kill ˹each other or˺ yourselves. Surely Allah is ever Merciful to you.” (Surah Isra: 27)[2]
If your investors are like-minded and honest and share the same Islamic values, there should be no hindrance to what you intend to move forward.[3]
If you have a specific business model in mind or specific investor that you are thinking of co-partnering with, please feel free to ask so further clarification can be made.
I hope that this answers the question.
Only Allah knows best.
Written by
Alimah Shireen Mangera-Badat
Checked and approved by
Mufti Mohammed Tosir Miah
Darul Ifta Birmingham
[1] الاقتصاد الإسلامي، ص ١٤
[2] يأيها ٱلَّذِينَ ءَامَنُوا۟ لَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَـٰطِلِ إِلَّآ أَن تَكُونَ تِجَـٰرَةً عَن تَرَاضٍۢ مِّنكُمْ ۚ وَلَا تَقْتُلُوٓا۟ أَنفُسَكُمْ ۚ إِنَّ ٱللَّهَ كَانَ بِكُمْ رَحِيمًۭا
[3] المودي للواجبات التارك للمحرمات، الاقتصاد السلامي، ص ٢
