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Ruling of Sharia on Changing Contract`s Formulation

Answered according to Shafi'i Fiqh by Darul Iftaa Jordan
Is it permissible to change the form of portfolio management from profit-sharing Mudarbah contract into a contract of agency investment in return for 1.5 % of capital per year without the consent of the client? Is it permissible to take a known fee as a percentage of capital against managing the portfolio`s funds through agency investment contract? 

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.

In principle, the formulation of contract rests on the concept of offer and acceptance, because it leads to consensus between the parties and their withstanding of the financial as well as the legal implications of contract. Allah says (What means): "O ye who believe! Eat not up your property among yourselves in vanities: But let there be amongst you Traffic and trade by mutual good-will: Nor kill (or destroy) yourselves: for verily God hath been to you Most Merciful! "{An-Nisaa`, 29}.

Imam Al-Ghazali mentioned four pillars of sale transaction in his book {Al-Waseet Fil Madhab, V.3:P.8}: "The first pillar is formulation, which is offer and acceptance. It is considerable because it indicates consensus of parties. Consensus is the basis of contract, but it is something hidden; thus, it is reflected in contract`s formulation."

As for changing the agreement from a certain form of contract to another, it is considered avoidance of first contract and constitutes a new agreement over the second contract. Therefore, there has to be offer and acceptance as well and the client`s approval to that change as a prelude to agreeing on the rest of conditions. This particularly applies when both contracts differ in nature as well as legal and financial implications. Moreover, it isn`t permissible to suffice with notifying the client.

In conclusion, it isn`t permissible to change the formulation of contract save with explicit offer and acceptance of both parties. And Allah the Almighty knows best.

 

 

 

This answer was collected from the official government Iftaa Department of Jordan.

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