Distribution of Profit in Mudarabah-Based Investment Accounts - Appendix B (The Shariah Basis for the Standard)

Transcription

1. Shari ’ah Standard No. (40): Distribution of Profit in Mudarabah-Based Investment Accounts Appendix (B) The Shari’ah Basis for the Standard ■ The current account is considered as a loan because the bank has to guarantee its repayment on demand. In this regard the International Islamic Fiqh Academy issued its resolution No. 86 (9/3) which stipulates that “Demand deposits (current accounts) whether in Islamic or traditional banks are loans in the strict Shari’ah sense. The receiving bank holds such deposits under guarantee and is committed by Shari’ah to repay them on demand. The fact that the receiving bank is solvent does not affect this ruling” Rulings and Conditions relating to Profit ■ Profit has to be known because it constitutes the object of contracting, and therefore ignorance about it nullifies the contract. ■ It is impermissible in Mudarabah to specify the return for any of the two parties in terms of a lump sum amount or a certain percentage of the capital, because such specification eliminates profit sharing which constitutes a fundamental aspect of the Mudarabah contract. By such specification, the very essence of partnership will be lost when, for instance, the profit earned is just equal to the lump sum amount or percentage of the capital earmarked for one party. ■ Permissibility of applying the scoring method of profit distribution is based on the fact that the funds of the participants in the same investment base have all contributed to achievement of the return as per their respective amounts and periods of stay in the accounts. The scoring method is the most equitable method of accounting in hand that can be used for assigning profit shares commensurate to the amounts and their periods of stay in the accounts. However, entering into investment on such basis necessitates mutual relief from commitments (Mubara’ah) among investors with regard to any part of entitlement that could not be catered 1008
2. Shari ’ah Standard No. (40): Distribution of Profit in Mudarabah-Based Investment Accounts for through this method. It is a well established principle in Figh literature that much more exemptions can be allowed in partnership-based dealings (Musharakat Musharakat)) than in exchange-based dealings (Mu’awadah) and that division (Qismah) through approximation of shares is based on mutual consent. ■ Charging the Mudarabah expenses in the way shown in the Standard takes into consideration what should be done by the Mudarib for the sake of carrying out his investment decisions on receipt of the funds, and his commitment to do the work which entails having the bodies required for that purpose. A resolution to this effect has also been issued by the Al Baraka Seminar (4/1). ■ Impermissibility of charging interest for loans is based on the fact that such charge constitutes Riba. In this regard the international Islamic Fiqh Academy issued its resolution No. (10/2) stipulating that “whether such increment is charged for postponement of a defaulted debt, or as an interest on the loan stipulated since the time of signing the contract, both increments are forms of Shari’ah-prohibited Riba”. ■ Impermissibility of postponing specification of profit ratios for the two Mudarabah parties until the profit is earned is based on the fact that such postponement leads to Jahalah (ignorance) which could lead to dispute. On the contrary, agreement between the two parties - at time of distribution - on changing the ratios agreed upon or donating part of the profit is a right that the two parties may permissibly exercise. ■ Impermissibility of final distribution of the profit between the stakeholders of the company before deduction of expenses, allocations and reserves is the Shari’ah principle that no profit is to be sought before preservation of the capital. ■ Permissibility of distributing the profit on the basis of constructive liquidation and after ensuring the safety of the capital is based on acceptance of valuation in Shari’ah(4) in several applications including Zakah (4) See the Forth Resolution of the Muslim World League in its 15th Session, held in Makkah Al-Mukarramah, on 21–26/10/1422 A.H.; Resolution No. 30(5/4) of the International Islamic Fiqh Academy; and Fatwa No. (2/8) of the 8th Seminar of the Al Baraka, Fatawa Al Baraka, (P. 134). 1009
3. Shari ’ah Standard No. (40): Distribution of Profit in Mudarabah-Based Investment Accounts as well as theft incidents. In this context, the Prophet (peace be upon him) is reported to have said: “When someone liberates a slave he owns with other parties, he should pay partners from his money, and if he has no money, the slave has to be equitably valued for him”. (5) ■ The Shari’ah basis for the ruling that no profit has to be sought in Mudarabah before preservation of the capital is the Hadith of the Prophet (peace be upon him) who said: “A prayer performer is just like a merchant who obtains profit only after preserving his capital. Similarly a prayer performer cannot get his Nafilah (voluntary prayer) accepted before he performs Faridah (obligatory prayer)”.(6) This Hadith indicates that profit sharing is inacceptable before preservation of the capital. This is so because profit is an increment which cannot be obtained before obtaining the principal. ■ The Mudarabah contract becomes null and void when the two parties refrain from specifying profit sharing ratios and fail to find any established normal practice of profit sharing applicable to their case. This ruling is based on the fact that ignorance about profit, which constitutes the contracting object, must nullify the contract. ■ Profit sharing ratios can be commensurate to shareholding ratios or not, because profit is deserved for contribution of funds, work or guarantee. When any of these three aspects is fulfilled there is no Shari’ah prohibition for the partners to specify profit sharing ratios on mutual consent. This viewpoint is adopted in the Hanbali School.(7) ■ The Shari’ah basis for impermissibility of agreement between the two parties on charging the whole loss to one of them or using disproportionate ratios for loss distribution is the statement of Ali Ibn Abu Talib who is reported to have said: “Profit is to be distributed as per the agreement of (5) “Sahih Muslim” [2: 1140]. (6) Related by Al-Bayhaqi in “Al-Sunan” quoting Ali Ibn Abu Talib. Al-Bayhaqi mentioned that the chain of transmission of this Hadith includes a weak narrator: “Al-Mawsu’ah Al-Fiqhiyyah” [38: 74]. (7) “Al-Hidayah Sharh Al-Bidayah” by Al-Mirghinani, [3: 3-8], Al-Maktabah Al-Islamiyyah; “Bada`i’ Al-Sana`i’” by Al-Kasani, [6: 62-63]; and “Al-Mubdi’” by Ibn Muslih [5: 4], AlMaktab Al-Islami, Beirut, 1400 A.H. 1010
4. Shari ’ah Standard No. (40): Distribution of Profit in Mudarabah-Based Investment Accounts ■ ■ ■ ■ ■ the two parties, whereas loss should be borne according to the ratios of contribution to the capital”.(8) A condition which stipulates that the loss of one party should be borne by the other party is invalid because it is oppressive and would lead to reaping of unlawful gain by one party at the expense of the other. It is permissible for the two parties to stipulate a condition that when profit exceeds certain limit or index the whole additional amount should be taken by one of them, because such condition is permissible according to Shari’ah if it happens to be stipulated. It is impermissible to agree on earmarking the profit of a specific portion of the capital for one party and the profit of the remaining portion for the other, because such arrangement could jeopardize the process of profit sharing and lead to oppression. Permissibility of agreement between the two parties to change profit sharing ratios at any time, stems from the fact that the two parties are the sole owners of the profit, and agreement between them to change its distribution ratios does not entail a Shari’ah-prohibited act, such as discarding away the principle of profit sharing.(9) Permissibility of agreement on fixed or variable ratios of profit distribution is based on the validity of such agreement since it has been the result of mutual consent. The only restriction is that such agreement should observe the Shari’ah ruling that neither of the two parties should be deprived from his share in the profit. Regarding constructive liquidation a resolution has been issued by the Islamic Fiqh Academy of Makkah Al-Mukarramah.(10) (8) Related by Ibn Abu Shaybah in his “Musannaf ” [4: 268], Maktabat Al-Rushd Press, Riyadh. (9) See the proceedings of the 10th Al Baraka Seminar – Fatwa No. (8) and the 4th Al Baraka Seminar - Fatwa No. (5). This viewpoint is also supported by a Fatwa issued by the Shari’ah Board of the Faisal Islamic bank of Sudan (P. 107) and published in the Manual of Shari’ah Fatawa of the Center of Islamic Economic of the International Islamic Bank , (P. 53). (10) The 4th Resolution of the 16th Session, held by the Islamic Fiqh Academy of the Muslim World League. This viewpoint has also been adopted by the 8th Al Baraka Seminar (Fatwa No. 2). 1011