One of the Shariah-compliant cooperative contracts is the Musyarakah contract. This contract involves joint participation in business activities, including sharing profits and bearing losses. However, there are cases where one of the shariks, especially a large investor, asks for a capital guarantee from the business manager when investing in a business. Is this permissible in Shariah?
The basic provisions regarding the sharing of Musyarakah business losses are mentioned in DSN MUI fatwa no 114/DSN-MUI/IX/2017 regarding Shirkah contracts as follows:
‘Shirkah business losses must be borne by the sharik proportionally in accordance with the portion of business capital they have contributed.’
The above fatwa states that the sharing of business losses with a Musyarakah contract cannot be done in any other way other than divided proportionally according to the percentage of capital deposited. From the above fatwa, it is understood that it is not permissible for one of the partners to bear the losses of the other partners.
It is also mentioned in the AAOIFI sharia standard on shirkah and contemporary shirkahs as follows:
يجب ان تتفاق نسبة الخسارة مع نسبة المساهمة في رأس المال و لا يجوز الاتفاق على تحمل أحد الأطراف لها أو تحميلها بنسب مختلفة عن حصصص الملكية, و لا مانع عند جصول الخسارة من قيام أحد الأطراف بتحملها دن اشتراط سابق
‘The percentage of losses should be in accordance with the percentage of capital contribution and it is not allowed to agree that one party should bear or bear in a proportion different from the ownership portion, and it is not allowed that if a loss occurs, one party bears it without prior agreement.’
From the AAOIFI standard above, it is clearly understood that it is not allowed for one shareholder to bear the loss of another shareholder in a Musyarakah contract.
Then how can someone get the security of their funds from losses when investing in a Musyarakah contract? There are several ways that can be done in this condition:
1. Doing Your Own Business Checks
To mitigate potential investment losses with a Musyarakah contract, the first and foremost step is to conduct a thorough examination of the business in question. This involves a comprehensive review from multiple angles, starting with the management team (which is the most crucial), and extending to the financial health of the business (or financial projections for new ventures). Additionally, it is essential to verify the business’s legal standing, including the deeds of establishment, business licenses, taxes, and other relevant documents. This meticulous due diligence also applies to issuer shares on the stock exchange or securities crowdfunding platforms. Investors can gain insights through records or transcripts of General Meetings of Shareholders (GMS) and routine company reports, as well as by examining the past track record of the issuer’s management. This multi-faceted approach ensures a well-informed investment decision, aligning with the principles of Islamic finance.
2. Insuring Business Assets
The second way that can be done to mitigate potential investment losses with the Musyarakah contract is to insure business assets in the invested business. This is done to mitigate the risk of damage to the business assets that may prevent the business from generating profits or reduce its valuation. Examples of insurance that can be done are money insurance, fire insurance for property, accident insurance for operational vehicles, and so on. Of course, the insurance used in this process must be sharia insurance in accordance with sharia principles in takaful.
3. Asking For a Competitive Profit Sharing
Asking for competitive profit sharing in a Musyarakah contract is not a direct way to mitigate business risk. Instead, it is a method to balance or offset the risk of a high-risk business. According to the general investment rule, “high risk, high return,” investors in high-risk businesses are justified in seeking competitive profit sharing, as long as it complies with Sharia principles. This approach ensures that while investors take on significant risk, they also have the potential for substantial returns within the boundaries of Islamic finance.
Musyarakah is one of the most Shariah-compliant and easy-to-understand business contracts, but there is a desire on the part of the parties to mitigate the risks involved in this contract by asking for a guarantee of return of capital. Hopefully, this article will enlighten us on the ruling of this contract and provide us with a solution to mitigate the risk of our investment.
Wallahu a’lam
References
- المعايير الشرعية (١-٤٥). (2015).
- Majelis Ulama Indonesia, D. S. N. (2020). Fatwa Dewan Syariah Nasional-Majelis Ulama Indonesia No 114/Dsn-Mui/Ix/2017 Tentang Akad Syirkah [Review Of Fatwa Dewan Syariah Nasional-Majelis Ulama Indonesia No 114/Dsn-Mui/Ix/2017 Tentang Akad Syirkah].