Ratio of Profit in Partnerships across the Madhhabs
Question:
I had a specific financial question, which also applies to a broader concept. I have read that in a musharakah agreement, Imam Shafi (RAH) and Imam Malik (RAH) are of the view that the ratio of the distribution of profit from the partnership must be the same as the ratio of the initial investment between the partners. Imam Abu Hanifah (RAH) is of the opinion that so long as there is prior mutual agreement between the parties that the distribution of the profit may differ from the ratio of investment. Firstly, is this a correct understanding?
Now, based on this… would this indicate that a financial plan which operated according to the above-stated opinion of Imam Abu Hanifah would not be permissible to those following the Shafi school of thought? Furthermore, couldn’t this potentially render some of the financial fatawas issued by Mufti Taqi Usmani invalid for followers of other schools of thought if his fatwa is based on an allowance given only in the hanafi school of thought, as shown in the above example? Isn’t it necessary therefore for shariah boards to stress the criteria upon which their rulings are based? Lastly, I speculate that perhaps the Ulama in their wisdom have made some simplifications in this regard in light of the “greater good” and if this is case, I would be interested in knowing the wisdom behind this.
Answer:
It is correct that according to the Shafi’i and Maliki schools of thought, it is necessary for a valid partnership (musharaka/shirka) that each partner receives profit exactly in proportion to his investment. Therefore, if ‘A’ invested 40% in the business, then he will only be entitled to 40% of the profit. Any agreement to the contrary will invalidate the contract.
According to the Hanafi and Hanbali Madhhabs, any ratio of profit can be stipulated with the consent and agreement of the partners. It is not necessary for a valid partnership that the ratio of profit is in accordance with the investment.
However, according to Imam Abu Hanifah (Allah have mercy on him), if a partner stipulates that he will remain a sleeping partner throughout the term of Musharaka, then his share of profit can not be more than the ratio of his investment. (See: Ibn al-Qudama, al-Mughni, 5/140 & al-Kasani, Bada’i al-Sana’i, 6/162).
The above are the opinions of the various schools of thought with regards to musharaka or shirka. One should always try and attempt to follow the rules of one Madhhab and not pick and choose from the opinions of other Madhabs.
However, contemporary scholars mention that contrary to worship (ibadaat), business and trade (mu’amalaat) is based on ease and leniency (musamaha), in that there is a wide scope for following the opinion of another Madhhab.
Many contemporary scholars including Shaykh Taqi Usmani give verdicts according to the opinion of other Madhhabs. You can see many examples of this in Shaykh Taqi’s works, such as An Introduction to Islamic Finance.
Therefore, if there is a genuine need, then one may follow the opinion of another Madhhab as long as it does not result in combining the views of two Madhhabs in one matter (talfiq) which is not permissible.
And Allah Knows Best
[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK