Q. A person collected an amount of money from several people so as to invest it in a commercial enterprise on a profit-and-loss-sharing basis. After working for a few months, all the invested money, including his own capital, is lost. The other people are demanding that he return their capital in full. Is he liable to return it? Should he treat the money invested by the others as debt that he is liable to return?
After the collapse of this venture, the man was able to save some money from his salary. Is it liable to zakah when he has such debts to repay? If he invests this money with an Islamic bank in order to repay the debt, is it still liable to zakah?
Abdurrahman, Jeddah
A. The rule that applies here is that the terms of the contract are binding on the two parties. In any business deal, the terms should be stated very clearly so that no confusion or ambiguity is allowed to mar the transaction or cause problems. If the terms in this case were clearly stated that the investors are partners bearing their shares of loss and entitled to a specified share of profit, then that is what should apply.
If the loss is total, then everyone shares in that loss. The person who conducts the business is responsible for his own share of the loss and nothing more.
Having said that, I wish to add that there are situations that may change the above and make the manager of the fund partially or fully responsible for the loss. One such situation is that of negligence, or not taking due care to ensure that the deals entered into are sound, or using the invested money in nonprofitable aspects of the business.
Let me give you an example. Suppose a person takes from others a total sum of SR200,000. He then pays half this amount as rent, equipment and furniture, and a further SR25,000 in salaries of office staff for the first five months, and pays himself SR 3,000 a month for the time he spends in managing the business.
That leaves only SR 60,000 to conduct a couple of transactions. If these make a loss and the money thus vanishes, how can he say to the investors that all their money is gone, unless it is clearly stated at the beginning that they will also provide for the rent, furniture, salaries, etc? If he has not specified these at the beginning, then they may be justified if they accuse him of deception.
Take another case. The man who presents himself as manager of the business has had no experience in such matters. He feels that all that he needs to be a successful businessman is capital. He persuades some relatives and friends to part with their own savings, promising them some large profits. He quotes them some figures about profits made by others in the business he wants to try his hand in, but he does not tell them that he knows nothing about that particular market and how the business is conducted. Trusting him as a good friend and relative, they give him the money hoping for some returns. However, like any new adventurer, he ends up in heavy losses. Is he responsible for such losses? To a large extent he is, because he concealed some material facts that would have affected people’s response to his project had they known them.
The reader seems to understand this, because he is speaking about these losses as a debt owed by the man to his co-investors.
But I cannot judge in this case, because I do not know the details. I am only answering the questions put to me and making some assumptions in order to illustrate my answer. The facts should be put to a competent authority, preferably to a court of Islamic law, to give a proper judgment, defining responsibilities.
As for zakah on the man’s new savings, the answer is that if he considers himself in debt to those people, he should start repaying them immediately. In this way, he would not be liable to zakah because he is repaying his debt. It seems to me, however, that he wants to keep this money, invest it in some way for profit, without paying zakah because he claims that he is in debt. From the Islamic point of view, a debtor should repay his debt as soon as possible, unless the creditor agrees to deferment.