He is investing someone else’s wealth and will bear half of the losses

Question

Praise be to Allah.

Firstly:

The one who invests the
wealth of others either takes part by means of his work only, so that the
money belongs entirely to someone else, or he takes part by means of his
work and his wealth. The former is called a mudaarabah transaction, in which
the profits are shared according to whatever he has agreed upon with the
owners of the money. It may be 20% or more or less, but the rate must be
stipulated in the mudaarabah contract.

As for losses, he does not
bear any of them; the losses are borne entirely by the owner of the capital,
and the worker loses his work and effort, unless the loss is due to some
shortcoming or transgression on the part of the worker, in which case he has
to bear the loss.

If it is stipulated in the
mudaarabah contract that any loss or part of it – such as 50% – is to be
borne by the worker, then this condition is invalid and there is a
difference of scholarly opinion as to whether the contract itself is valid
or invalid.

Secondly:

If you are contributing
both your wealth and your work, then the profits are to be shared according
to the agreement, as stated above.

As for losses, they are to
be borne according to the capital invested. If you put in one-tenth of the
capital, for example, then you must bear one-tenth of the loss; if you put
in one half of the capital, then you must bear one half of the loss, and so
on.

Among the comments of the
scholars about the worker in a mudaarabah contract not having to bear any
financial loss, and the partners bearing losses according to their shares
are the following:

Ibn Qudaamah (may Allaah
have mercy on him) said in al-Mughni (5/22): The loss is to be borne
by each partner according to his share of the wealth; if the shares (of two
partners) were equal then they each bear half of the loss. If there were
three shares then they each bear one third of the loss. We do not know of
any difference of scholarly opinion concerning this matter, and it is the
view of Abu Haneefah, al-Shaafa’i and others.

The loss in a mudaarabah
contract affects the (invested) money only, and the worker does not bear any
loss, because the loss affects the capital, which has to do with the owner
of that capital, and the worker has nothing to do with it, so the loss
affects the investor’s wealth only; but they share any growth that takes
place. End quote.

He also said: If it is
stipulated that the worker is liable for the money or for part of any loss,
this condition is invalid, and we do not know of any dissenting opinion, but
the contract is still valid. This was stated by Ahmad and it was the view of
Abu Haneefah and Maalik.

It was narrated from Ahmad
that the contract is invalidated thereby, and this was narrated from
al-Shaafa’i, because it is an invalid condition which invalidates the
mudaarabah contract. But the former view is more correct.

End quote from al-Mughni
(5/40).

And Allaah knows best.