It is not permissible to execute a project by means of bonds
19-7-2011 | IslamWeb
Question:
As-Salaamu ‘Alaykum,
1 - I have a construction company and I want to engage in the tenders launched by the government. The government will give me bonds that will be payable by installments when the execution period is over. The duration of the bonds will be 10 years, and the profit will certainly increase for the extended duration of debt.
2 - Almost the same question, but this time in the case that I want to finance a contractor throughout the period of the project execution, and then I will take profit for the financing (which is done according to the Islamic dealing of Mudhaarabah) based on the duration and acquisition of the bonds, which will be payable within 10 years.
Answer:
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu 'alyhi wa sallam, is His slave and Messenger.
Bonds are a means of loaning resorted to by banks, companies, and governments. Those who issue bonds guarantee to pay the bondholder, after a definite period of time, the amount of money which is specified in the bond, along with an annual rate of interest. There is no doubt that dealing in such bonds is prohibited because they are loans that are based on interest, made by the debtor and taken by the creditor. The value of a bond is the loan, and the fixed interest is the increase, involving Ribaa (interest or usury).
It is, therefore, not permissible for you to participate in the project in return for a cost that is paid in bonds, because the construction contract will include another contract, which is the interest-based lending contract. It is also not permissible for you to finance another contractor or any other project in return for obtaining bonds that involve interest, because this is not real Muraabahah or investment. It will definitely be an interest-based loan contract, because the Muraabahah sale was well-known to the early scholars of Fiqh (Islamic jurisprudence) and its form is that a seller says that he has bought, for example, a house for 1,000 monetary units and wants to sell it at the same price along with an increase of 200 monetary units, and the buyer accepts the deal.
If you deal with the contractor in the form of Muraabahah as defined by the early scholars of Fiqh, then it would be permissible, provided that you will receive money, even by installments, and not bonds.
Also, you may engage in a partnership or Mudhaarabah with someone if he contributes a part of his money to carry out the project. In this case, you can specify a rate of profit or assign him certain compensation for supervising the project as you have agreed. Then, the net profit will be divided between you in proportion to the contributed amount. Also, both of you will sustain any loss, if there is any. Alternatively, you can engage in Mudhaarabah with him provided that you bear the cost of the project and he will carry it out. You would then divide the profit as agreed, and you would bear any loss, should it occur, from your capital only.
The prevailing condition is that the deal must be free from dealing in the forbidden bonds as we have mentioned.
Allaah Knows best.