Islamic Investment with Holistic Cooperative Culture for all...

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Islamic investment with Holistic Cooperative Culture means a joint pool where investors contribute their surplus money for the purpose of its investment to earn halal profits within the strict conformity with the principles of Islamic Shari’ah.

The subscribers of the fund may receive a document certifying their subscription and entitling them to the pro-rata profits actually earned by the Fund. These documents may be called ‘certificates’, ‘units’, ‘shares’ or may be given any other name, but their validity in terms of Shari’ah, will always be subject to two basic conditions. First, instead of a fixed return tied up with their face value, they must carry a pro-rata profit actually earned by the fund.

Therefore, neither the principle nor a rate of profit (tied up with the principle) can be guaranteed. The subscribers must enter into the fund with a clear understanding that the return on their subscription is tied up with the actual profit earned or loss suffered by the fund. If the fund earns huge profits, the return on their subscription will increase to that proportion.

However, in case the fund suffers loss, they will have to share it also, unless the loss is caused by the negligence or mismanagement, in which case the management, and not the fund, will be liable to compensate. Second, the amounts so pooled together must be invested in a business acceptable by Shari’ah. It means that not only the channels of investment, but also the terms agreed with them must conform to the Islamic principles. Keeping these basic prerequisites in view, the Islamic Investment may accommodate a variety of modes of investment such as follows.

Equity Fund:

In an equity fund the amounts are invested in the shares of joint stock companies. The profits are mainly derived through the capital gains by purchasing the shares and selling them when their prices are increased. Profits are also earned through dividends distributed by the relevant companies.

It is obvious that if the main business of a company is not lawful in terms of Shari’ah, it is not allowed for an Islamic Fund to purchase, hold or sell its shares, because it will entail the direct involvement if the shareholder in that prohibited business. Some scholars argue that the permissibility of Bai’-al-Dayn (debt trading) is restricted to a case where the debt is created through the sale of a commodity. In this case, they say, the debt represents the sold commodity and its sale may be taken as the sale of a commodity. The argument, however, is devoid of force. For, once the commodity is sold, its ownership is passed on to the purchaser and the seller no longer owns it.

Mixed Fund:

Another type of Islamic Fund may be of a nature where the subscription amounts are employed in different types of investments, like equities, leasing, commodities, etc. This may be called a Mixed Islamic Fund. In this case if the tangible assets of the Fund are more than 51% while the liquidity and debts are less than 50%, the units of the fund may be negotiable. However, if the proportion of liquidity and debts exceeds 50%, its units cannot be traded according to the majority of the contemporary scholars. In this case the Fund must be a closed-end fund.

Islamic Investment via Musharakah (partnership) & Mudharabah (co-partnershi):

Musharakah (partnership) and Mudarabah (co-partnership) are the joint venture whereby all the partners participate in the business right from its inception and continue to be partners up to the end of the business when all the assets are liquidated. The concept of Musharakah (partnership) and Mudarabah (co-partnership) is based on some basic principles:

1. Financing through Musharakah (partnership) and Mudarabah (co-partnership) does never mean the advancing of money. It means to participation in the business and in the case of Musharakah (partnership), sharing in the assets of the business to the extent of the ratio of financing.

2. An investor/financier must share the loss incurred by the business to the extent of his financing.

3. The partners are at liberty to determine, with mutual consent, the ratio of profit allocated to each one of them, which may differ from the ratio of investment. However, the partner who has expressly excluded himself from the responsibility of work for the business cannot claim more than the ratio of his investment.

4. The loss suffered by each partner must be exactly in the proportion of his investment.

Keeping these broad principles in view, we proceed to see how Musharakah (partnership) and Mudarabah (co-partnership) can be used in different sectors of financing.

Investment Financing:

In the case of investment financing, the traditional method of Musharakah (partnership) or Mudarabah (co-partnership) can be easily adopted. If the financier wants to finance the whole investment, the form of Mudarabah (co-partnership) can come into operation. If investment comes from both sides, the form of Musharakah (partnership) can be adopted.

In this case, if the management is the sole responsibility of one party, while the investment comes from both, a combination of Musharakah (partnership) and Mudarabah (co-partnership) can be brought into play according to the rules already discussed. Since musharakah or mudarabah would have been affected from the very inception of the investment, no problem with regard to the valuation of capital should rise. Similarly, the distribution of profits according to the normal accounting standards should not be difficult.

However, if the financier wants to withdraw from the Musharakah (partnership), while the other party wants to continue the business, the latter can purchase the share of the former at an agreed price. In this way the financier may get back the amount he has invested along with a profit, if the business has earned a profit.

On the other hand, the businessman can continue with his investment, either on his own or by selling the first financier’s share to some other person who can substitute the financier. Since financial institutions do not normally want to remain partner of a specific investment for good, they can sell their share to other partners of the investment as aforesaid. If the sale of the share on one time basis is not feasible for the lack of liquidity in the investment, the share of the financier can be divided into smaller units and each unit can be sold after a suitable interval. Whenever a unit is sold, the share of the financier in the investment is reduced to that extent, and when all the units are sold, the financier comes out of the investment totally.

Hence, an Islamic investment is not a mere religious issue, but today, it is a global icon with universal opportunity for all humanity with no issue of one's religion, race, color, gender, status or nationality.