Establishing charitable funds to

Q: The students fund in King Saud University located in Riyadh provides services such as offering loans or financial aid to needy students. Supporting these activities financially, the fund invests the deposited money in some banks. It participates in investment ventures to benefit from the profit and increase the capital of the fund and not to keep the money inactive in these bank accounts. Attached are copies of the proposals that help achieve these goals which are offered by some banks and companies. (Part No. 14; Page No. 360) Faisal Islamic Bank and Dallah Al-Barakah are some of these companies. The board of directors of the fund want to know the lawful ruling that you and the members of the Permanent Committee would kindly give on these proposals. May Allah guide you and grant you success!

A: The fund is allowed to give money reserves to individuals or associations which invest them in lawful transactions; not in the prohibited or Riba-based transactions. One example of a lawful transaction is Mudarabah partnership (speculative partnership, giving an amount of money to trade with in return for a share in the profit). In this case, the fund provides the capital and the agent provides the effort and work. The profit is halved or shared according to the agreement, and the loss is incurred by the money holder. Owing to the fact that Mudarabah involves profit and loss, it is impermissible to agree on paying a monthly set profit, such as 5%. Accordingly, the attached proposals are not permissible as they include guaranteed profit and go against Shari`ah (Islamic law) rulings on transactions. May Allah grant us success. May peace and blessings of Allah be upon our Prophet Muhammad, his family and Companions!