Q: The government backed Start Up Loans Company is offering a shariah compliant loan to customers wanting a halal alternative. The shariah compliant loan is being arranged by the Financing Sharia Enterprise and from their website it appears they are using the Mudaraba system. Is this acceptable according to shari’ah?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: Mudaraba is a contract wherein one party invests [not lends] capital and the other party invests labour in managing the joint venture and the profit, if any, is shared at a pre-agreed ratio. If there is no profit at the end of the joint venture or there is even a loss, the investor will be returned his capital minus any loss and the manager’s efforts will be in vain. The investor’s capital is not guaranteed and the manger’s labour may also bear no fruit. The language on the Financing Sharia Enterprise website used to describe the Mudaraba structure does not lend confidence to the sharia-compliance of the scheme as it describes the financier as a lender and not as an investor. There is no lending in Mudaraba. Period. It is a joint venture with one party providing the finance and the other party providing the labour with a share in the profit if profit is made. This is not the understanding one gleans from the website.
Even if the structure is that of a joint investment and it is simply a case of misuse of language (lender) shariah-compliance of the scheme can only be determined once details of the full terms and conditions become available.