I am working with a local foreign exchange investment company who makes money by converting and selling your local currency to foreign currency and makes an agreement to pay back the investment amount in one month with additional profit. Since they are providing service of foreign exchange, they will always make money on the capital amount I invest with them and therefore agree to pay back the capital amount with profit that is calculated by using fixed profit percentage on the converted currency.
As an example, if I invest $100 dollar, they will convert my investment to some foreign currency like Indian Rupees, which will be INR 6407.00 as of 12/28/17, they will then add 10% of profit to this amount which will become 6471.07 and this will be converted to local USD dollar based on the exchange rate from one month from the investment date i.e. as of 1/28/18, lets assume it is 1 usd = 62.00 INR for sake of discussion. So, my final profit with capital amount will be $104.372.
Can you let me know if this kind of investment is permissible since I will always make profit but the profit amount I receive will be determined based on the exchange rate of the day he returns my capital?
الجواب وباللہ التوفیق
The transaction mentioned in your question is considered impermissible from a Shar’ai standpoint. There are several reasons for it. Hazrat Mufti Taqi Usmani Saheb Damat Barakatuhum narrating the reasons has written:
- The money and currencies are fundamentally for paying the price of and thus conveniently acquiring goods, and the currency shall not be used as a business or trade in itself. The Islamic Shari’ah has disliked making the trade of currencies as opportunity for businesses, except for the cases where it is needed and is performed with the conditions described for it to be permissible. These conditions (e.g. the requirements for exchanging dirham and deenars) have been described in books in detail along with the issues such businesses are giving rise to in the financial system.
- The business of currency exchange is considered as bay’ sarf in the point of view of several ulamah kiram where the possession of the currencies by both the parties at the time of concluding the deal is necessary, while according to our ulamah kiram, it is considered as bay’ fuloos in which least one of the two parties involved in the transaction has the possession of the currencies at the time of concluding the deal. But in these companies, being online, at the time of conclusion of the deal among such companies there is no possession by even one party.
- For the sale to be correct it is necessary that the seller is the owner of the good being sold and the Shari’ah has forbidden to sell the things without such possession, whereas in such companies many a times there is no possession while the sale is considered concluded, and the giving and taking of goods and their price is not found in these sales which is an inclusive component of the reality of the sale.
- Some forms of such businesses also involve interest.
- The buyer buys unspecified currency from such companies, as the currency gets specified with the possession, and here normally there is no possession, therefore, the amount of currency is unspecified (فقہ البیوع:۲/۷۶۳ تا ۷۶۵).
- In addition to the above-mentioned points the partnership seems to be only in the profit in this dealing whereas it is necessary for the partnership to have participation in bot profit and loss.
- It is not correct to fix the amount as profit. On the other hand fixing a percentage while having a partnership is correct, e.g., one percent of profit, two percent, ten percent etc.
On the basis of the above-mentioned reasons investing money in such a business is not correct.
واللہ اعلم بالصواب