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Question:
Aslm
what’s the ruling in shariah banking ?
What’s the opinion in shariah investments ?
Is profit sharing as legitimate term
Answer:
As salām ʿalaikum wa raḥmatullāhī wa barakātuhu
In the Name of Allāh, the Most Gracious, the Most Merciful.
Sister in Islam,
Please find the answers to your queries below.
- Sharīʿah Banking
At the outset, it is essential to understand the operational system of the Sharīʿah-compliant banking sector.
Initially, banks operated solely as commercial banks. Due to the absence of Islamic banking alternatives, many Muslims found themselves engaging in interest-based transactions to meet their financial requirements.
In response to this challenge, contemporary Muftis and ʿUlamā closely studied and assessed areas within the banking system that did not align with the principles of Sharīʿah, and after careful examination, devised alternative approaches for many banking practices. These concepts were then drawn out and handed over to the banks.
The responsibility for the second step lies with the bank, requiring them to precisely draft each contract and ensure that the Sharīʿah concept, as well as the terms and conditions, are accurately reflected in the contract.
The last step is the most crucial step entails the meticulous execution of the transaction. Any flaws in carrying out this step can render the transaction non-compliant with Sharīʿah, even if the concept and contract are Sharīʿah compliant.
There are instances where banks may falter in carrying out the second and third step. This has raised concerns among some Islamic scholars regarding whether we can deem every transaction conducted by banks as permissible or not.
Therefore, a general ruling cannot be given with regards to Islamic Banking. Rulings can only be made after studying the relative contracts and procedures in detail.
- Sharīʿah Investments
There are a number of investments that claim Sharīʿah compliancy. We cannot comment on the compliancy of any investment without assessing the investment scheme. Each investment scheme’s sharīʿah compliancy will have to be judged on an individual basis. The investment scheme will have to be judged according to its investment model and its terms and conditions.
- Profit Sharing
Profit sharing is a legitimate term which may refer to either a Mushārakah or a Muḍarabah partnership.
Mushārakah refers to a joint enterprise in which all the partners share the profit or loss of the joint venture.
Muḍarabah is a partnership where one partner gives money to another for investing in a commercial enterprise. The investment comes from the first partner, while the management and work are exclusively the responsibility of the other.
Both Mushārakah and Muḍarabah are governed by rules that are detailed in the books of Fiqh. One may refer to Muftī Taqi Uthmani’s book titled, An Introduction to Islamic Finance for further reading.
And Allāh Taʿālā knows best.