I have entered into a partnership with an Egyptian specialized in swimming pools. I issue deferred cheques for him and he purchases products and materials and sells them to customers. I get 40% of the profits and he gets 60%. Moreover, any loss is borne by him alone and he pays me on time. What is the ruling of Sharia on this?
Answer:
All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon our Prophet Mohammad and upon all his family and companions.
Issuing deferred cheques for a partner, taking a fixed percentage of the profits, and not being liable for any loss is Riba (Usury). This is because every loan that derives a benefit (to the lender) is Riba. Allah the Almighty says {What means}: " O ye who believe! Fear God, and give up what remains of your demand for usury, if ye are indeed believers." {Al-Baqarah, 278}.
We advise you (Asker) to enter into a Mudaraba agreement with that person whereby you provide the capital, cash or deferred cheques, and he provides the skill and labor; the profit is to be divided according to an agreed ratio. Moreover, loss is borne by you and he gets nothing for his labor. This way, your business becomes valid. And Allah the Almighty knows best.