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I was wondering if the following case has riba?
In this opportunity it is a investment, not a loan. I give money to the company which says they will pay back a certain percentage of my principle back every month. So suppose they pay back 12% of my initial investment back to me every month for 1 year that would be 144% or a 44% gain by the end of the year. After the year ends I have to reinvest for it to continue after the year ends. BUT the 12% is NOT guaranteed, if the business does not profit then I receive nothing and could lose my initial principle as well. And this opportunity REQUIRES that you be involved, so you can’t just give the money and wait for the end of the year. In order to receive the 12% back you must perform certain duties every month. If you don’t perform the duty for a month you do not receive the 12% for that month.
So there is NO contract or anything, if the business works I get the money if it doesn’t I don’t (so I’m sharing profit/loss like in a business), and on top of this I am not a bystander in the deal as I have to work in order to earn that 12% back each month.
So I was wondering does this deal have “riba”? In my knowledge riba was an excess received for a transcation where you just wait for the time to collect your money, but THIS involves working to get your money back. This feels more like a business joint venture as I have to promote the business. But I would like to confirm that this 44% extra that I end up with by the end of the year is not riba?
There are two major problems and some confusion in the venture referred to. The first problem is the profit is distributed in proportion to the capital while it is necessary for the validity of joint venture that the profit should be distributed on the basis of an agreed percentage of the actual profit accrued to the business and not on the basis of the capital invested by a partner.
The second problem is that the partner is deprived of profit if he does not work while in a joint venture, all the assets are jointly owned by all the parties as per the proportion they invested and therefore, a sleeping partner can not be deprived of his share in the profit though his profit must not exceed the ratio of his investment.
The confusion is that what would happen to the capital of the partner who does not want to reinvest after one year? Since every partner has right to terminate the joint venture at any time after giving a notice to his partner and the assets will be distributed between the partners as pro rata or the price of share of leaving partner should be determined by mutual consent and given back to him when the other partners wish to continue the business.
Therefore, the joint venture under discussion is not valid according to Islaamic Shariah and hence 44% would come under the fold of Ribaa.