Financing a business through banks
Question:-
It is common Deeni knowledge that taking out an interest-bearing loan for the purposes of acquiring a business, is completely Haraam.
That being the case, how does one access the funds to start-up or purchase a business, as banks are the only possible lenders of funds especially in these uncertain economic times.
The alternative to not taking out an interest-bearing loan would be to continue working for the rest of your days or until you can somehow build up enough capital, which might take 5-10 years or more. This is, notwithstanding the difficulty of diligent saving, due to expenses incurred as one has to eat and provide.
Generally, family members and friends are unwilling, nor are they in any financial position to loan the type of funds in question (R500 000 minimum).
Kindly advise Mufti Saheb, as to how we as Muslims can approach this dilemma, without incurring Allah’s wrath.
Answer:-
The Hadith Sharif states that Allah Ta’ala declares war against a person that engages in interest-bearing transactions and a person that causes harm to a friend of Allah. Although a person may consider starting up his own business (through an interest-bearing loan) a means of progress in life but in reality, he is heading for destruction, as this is the starting point of engaging in war with Almighty Allah. On the other hand, a person that works for an employer and thereby earns his sustenance may not become a multi-millionaire or own large assets but he will live a life of contentment and peace, as the mercy of Allah Ta’ala will be pouring upon him and his family with the proviso that, he doesn’t violate the laws of Allah Ta’ala and obeys all His commands.
Now, coming to your query, if you are sincere and want to refrain from interest, insurance etc. then Allah Ta’ala will make an opening for you and provide for you from the unseen. There are many instances which we have witnessed with our very own eyes where people said that they rather rent for the rest of their lives to avoid interest-bearing transactions. Allah Ta’ala blessed them with their own houses with easy payment plans which were free of interest. This is the result of trying to please our Creator. It is due to weakness of Imaan that we have left the actual Provider, and turned our attention to everyone else.
Nevertheless, we have provided two options hereunder which are Shariah compliant. Firstly you could either enter into a partnership with a number of individuals. For example, if the business that you intend purchasing is worth R1 million, then you could get 9 investors to purchase the business with you and you will be the 10th investor. Each investor could purchase 10% of the business. However, since you will be a working partner and the remaining nine partners will most probably be silent partners, you could take a major portion of the profits in lieu of your services but with mutual agreement. Now, as you accrue additional capital, you could offer to purchase the shares of the remaining partners gradually over a period of time until you are a 100% shareholder in the business. However, you should bear in mind that it is not necessary for the remaining partners to sell their shares if they are not willing to do so.
The second option would be to get a third party to purchase the business from the seller for R1 million. He will then take possession of the business by taking hold of the keys, and he may thereafter sell the business to you for R2 million (for example) in fixed monthly instalments over a fixed period of time. These are two options that come to mind. Since, the person financing the venture in this scenario is benefitting from the sale, many wealthy individuals are engaging in this transaction nowadays.
In conclusion, be sincere and turn to Allah Ta’ala beseeching Him to fulfil your need. If after turning to Him, He doesn’t bless you with a business, then be grateful and pleased as He is indeed protecting you from problems and calamities that you aren’t able to foresee at this stage. One of the names of Allah Ta’ala is ‘Al-Hakeem’, referring to that Being whose actions are never void of wisdom, hence there is only good in His decision. May Allah Ta’ala guide you in this matter. Ameen!
ALLAH TA’ALA KNOWS BEST!
ANSWERED BY:
Mufti Mohammed Desai
Date: 12 Jumadal Ukhra 1444 / 05 January 2023