Did Nabi ﷺ do business?

Yes. Islam does not look down on business. Allah has made trade halal, and made riba haram¹. Money can change hands by trade that both sides agree to².

• Nabi ﷺ worked for a living. As a young man he looked after sheep for the people of Makkah, for a small wage³.
• He traded for Khadijah. The books of sirah (the life story of Nabi ﷺ) say this: Khadijah was a respected businesswoman in Makkah. She sent him to Syria with her goods. He came back with a good profit, and his honesty amazed her. People already called him al-Amin, the trustworthy one.
• He was a good partner. A man called As-Sa'ib had once been his business partner. Later he told Nabi ﷺ: you were my partner, and what a good partner. You never argued and never fought with me⁴.
• The Companions traded too. Abu Bakr said: my people know that my trade was enough to support my family⁵.

Abd al-Rahman ibn Awf came to Madinah with nothing. A rich brother offered him half his wealth. He thanked him and said: show me the market⁶.

The goal is a business that does not pull you away from Allah. Allah praises men whom neither trade nor selling distracts from remembering Allah, from salah and from zakat¹⁰.

How does a partnership work?

The key idea: partners share the risk, so they share the result. Nabi ﷺ said: profit goes to the one who carries the loss¹¹. Only the person who can lose may earn.

Nabi ﷺ made a sharing deal at Khaybar. He gave the land to its farmers to work, and they kept half of what it grew¹². It was a share of the harvest, not a fixed amount.

1. Musharakah: everyone brings money

Musharakah (sharing) means two or more people each put money into a business. Often they all work in it too.

• You split the profit the way you agreed, as a percentage of the profit: 50/50, 60/40, and so on.
• You split a money loss by how much money each person put in. If you put in 70 percent of the money, you carry 70 percent of the loss. All scholars agree on this.
• Hanafis and Hanbalis: the profit split can be different from the money split. So a partner who works harder can get more. Malikis and Shafi'is: profit follows each person's share of the money. Extra work is paid as a wage.

2. Mudarabah: one brings money, the other does the work

Mudarabah means one person (the investor) gives money, and the other (the working partner) runs the business with it. The Companions did this, and scholars agree it is allowed.

• You split the profit by an agreed percentage.
• If money is lost, the investor carries the loss. The working partner loses his time and effort.
• The worker does not pay back lost money, unless he was careless, broke the agreed terms, or used the money for himself.
• You cannot make the worker promise to return the money no matter what. That term does not count. It turns the deal into a loan with profit, and that is riba.

• Sharing what you earn from work, like two electricians who pool everything they both earn: most schools allow it. Shafi'is do not.
• A limited company: most scholars today accept it, as long as its work and deals are halal. Some scholars have doubts. Owning shares is covered in Shares, funds and pensions.

Why is a fixed, promised return riba?

This is the most important rule in this chapter. Say a friend tells you: I will put 10,000 into your shop, and you pay me 10 percent a year, whatever happens. That is not a partnership. It is a loan with interest. Interest is riba, and all Muslims agree it is haram¹³.

Allah says: if you repent, you may keep the money you lent. Do not wrong others, and you will not be wronged¹⁴. A lender gets back what he lent, and no more. Nabi ﷺ cursed the one who takes riba, the one who pays it, the one who writes it down, and its two witnesses¹⁵.

A share of the profit is fine. A fixed sum is not.

• Nabi ﷺ said you may not profit from something when you carry none of the risk¹⁶.
• An investor who is promised a fixed sum carries no risk. The business could lose money, and he still takes his.
• An investor who takes a percentage of the profit shares the good times and the bad. No profit means nothing for him. That is fair and halal.

Mistakes that turn a deal into riba

• Promising the investor his money back plus a fixed amount.
• Setting his profit as a percentage of the money he put in ("5 percent of your money") instead of a percentage of the profit.
• Giving one partner a fixed sum from the profit first ("the first 1,000 is mine"). Scholars agree this ruins the partnership.

These are allowed: a fixed rent on a van or shop you own, a fixed wage for work, selling goods for more than you paid, and an expected profit in a business plan. You can hope for 15 percent. You just cannot promise it. For the full rules, see What riba is.

Why write the deal down?

The longest ayah in the Quran is about writing deals down. Allah says: O you who believe, when you take a debt for a fixed time, write it down. He says this is fairer, better proof, and more likely to stop doubts¹⁷. Scholars say the same wisdom applies to partnerships. Good friends fall out over money when nothing was written.

What to put in it

• Who puts in how much money, and who does what work, with any wage.
• How you split the profit (a percentage of the profit) and when you pay it out. How you carry a loss: by each person's money.
• What the business must never do: no riba, no haram goods, and limits on spending.
• How a partner can leave, how you work out what his share is worth, and what happens if a partner dies.
• How you settle a dispute, for example by asking a trusted third person.

Nabi ﷺ said: Muslims must keep the terms they agree to, except a term that makes the halal haram, or the haram halal¹⁸. Allah says: keep your contracts¹⁹.

How do partners keep each other's trust?

A partner holds the other partner's money. That makes it an amanah (something trusted to you). Allah says: do not betray what is trusted to you²⁰.

• The Quran warns: many partners wrong each other, except those who believe and do good. And how few they are²¹.
• Al-Bara ibn Azib and Zayd ibn Arqam were business partners. When they were unsure about a deal, they went to Nabi ﷺ together and asked²². Ask before you act.
• Nabi ﷺ praised the Ash'ari tribe. When food ran short, they put all they had on one sheet and shared it out equally. He said: they are from me, and I am from them²³.

You may hear this saying: "Allah is the third of two partners, as long as neither cheats the other." People quote it often, but its chain of narrators is weak. So we do not use it as proof.

What trust looks like

• Open books. Every partner can see the accounts.
• No secret side deals. Do not put your personal costs on the business.
• Do not compete with your own business behind your partner's back.
• Speak up early when things go badly. Hiding bad news is a kind of betrayal.

How should you treat your staff?

Agree on the work and the pay before they start. Pay in full and on time. Do not give people more work than they can handle. Nabi ﷺ said: give the worker his wage before his sweat dries²⁴. The full rules are in Honest dealing, gambling and work, with the story of a worker whose wage saved a man trapped in a cave. Also follow the work laws where you live: contracts, minimum pay, holidays and taxes.

How can you fund a business the halal way?

• Your own savings. Start small, like Abd al-Rahman ibn Awf.
• A loan with no interest (qard hasan) from family or friends. Write it down and pay on time. Nabi ﷺ said: whoever takes people's money and means to pay it back, Allah will pay it for him²⁵.
• A partner or investor who shares the profit and the loss, as explained above.
• Buying stock now and paying later, at a price agreed today. Nabi ﷺ bought food this way from a Jewish trader, and left his armor with him as a guarantee²⁶.
• Halal leasing: see Leasing, rent-to-own and car finance.
• Islamic business finance. A bank buys goods and sells them to you for a profit you know in advance (murabaha), or rents equipment to you (ijarah). Scholars differ on how well some Islamic banks follow the rules. See Banks, savings and Islamic banks, and follow a scholar you trust.
• Grants and support schemes that charge no interest.

What about a bank loan with interest?

A normal bank loan with interest is riba. Scholars agree on that. Wanting to start or grow a business is not the kind of desperate need that makes riba allowed. See Doubtful things, need and mistakes.

Already have one? Do not lose hope. Repent and take no new ones. Pay it off as fast as you sensibly can, and look for a halal loan to replace it. See Debt and lending and the debt nobody talks about.

Can you charge more for paying later?

A higher price to pay later

• All four schools allow a higher price for paying later, if you fix one price at the time of sale. For example: 1,000 cash, or 1,200 over a year. The customer picks one, and that price never goes up.
• Adding more because the customer pays late is riba.
• A late fee you keep for yourself is riba, say most scholars and Islamic law councils. Some scholars and Islamic finance bodies allow a term where a late payer gives a set amount to charity, not to you. Others do not allow even this. Both views are held by real scholars.

Be kind to people who cannot pay

• Allah says: if the person who owes you is having a hard time, give him time until things get easier. And if you let the debt go as charity, that is better for you²⁷.
• Nabi ﷺ said: may Allah have mercy on a person who is easy-going when he buys, when he sells, and when he asks for his money back²⁸.
• A trader long ago told his staff: when someone cannot pay, let it go, so that Allah may let us go. And Allah forgave him²⁹.

But you may ask for what you are owed

• When someone who can pay keeps delaying, that is injustice³⁰.
• You may remind them and stop selling to them on credit. If needed, you may go to a court or a debt collector for the amount owed, and no more.
• Be firm with someone who plays games. Be gentle with someone who is struggling. Ask first, before you judge.

How much profit can you make?

Islam sets no limit on profit. You may sell at any price the buyer freely agrees to³¹. Prices once rose in Madinah, and people asked Nabi ﷺ to fix them. He said: Allah is the One who sets prices. He did not want to wrong anyone in their money³².

• Do not take advantage of a buyer who does not know the normal price, like a tourist or someone in a panic. Some scholars, such as the Malikis, let that buyer return the goods when the price was far above normal.
• When traders push prices up unfairly, many scholars say the government may set a fair price.

Do not hold back goods to push prices up

Nabi ﷺ said: whoever hoards is a sinner³³.

• Hoarding (ihtikar) means buying up goods people need and holding them back, so that prices go up.
• Some scholars say this only covers food. Others say it covers anything people truly need, like medicine or fuel.
• Normal stock is not hoarding. Keeping a warehouse, buying in bulk when prices are low, or storing goods for the season is fine.

How do you advertise honestly?

You may tell people about your product and praise what is truly good in it. The line is lying and hiding things. If buyer and seller tell the truth and make everything clear, their deal is blessed. If they lie and hide things, the blessing is wiped out³⁴.

• No false claims. No fake "before and after" photos, and no health claims you cannot prove.
• No fake shortage ("only 2 left" when there are 200), and no fake reviews.
• Do not swear oaths to make a sale. It may sell the goods, but it wipes out the blessing³⁵.
• Keep ads decent, with no immodest pictures.

See also why money never lasts.

Do you pay zakat on a business?

Yes. You pay 2.5 percent zakat on goods you hold to sell. All four schools agree. Once a year, on your zakat date, add up three things: your stock (at the price it would sell for that day), your business cash, and money customers owe you that you expect to get.

Do not count what the business uses to work: the shop, machines, vehicles and computers. Each partner pays zakat on their own share, unless the partners agree to pay together from the business. The full rules, including business debts, are in Zakat on your wealth. Work it out with the zakat calculator.

How do you keep a family business fair?

A family business can be a great blessing. It can also cause the worst family fights, usually after a parent dies. A few good habits stop most of them.

While you are alive

• Write down who owns what. Is the son who works in the shop a partner, or paid staff?
• Pay family members who work a fair wage, or give them a written share.
• Be fair between your children. A father gave one son a gift. Nabi ﷺ asked if he had given the same to all his children. He had not. Nabi ﷺ said: fear Allah, and be fair between your children³⁶.
• Hanbalis: giving one child more without a good reason is haram. Most other scholars: it is something to really avoid. Many scholars allow more for a real reason, like a disability or a great need.

After the owner dies

• The owner's share of the business is part of what he leaves behind. It is shared by the fixed shares in the Quran, and daughters and wives get theirs.
• You cannot leave extra in your will to someone who already inherits³⁷. So a will cannot give the business to one son over the others.
• You may leave up to one third to people who do not inherit, or to charity. Nabi ﷺ told Sa'd: it is better to leave your heirs rich than poor³⁸.
• The heirs can keep running it together with a new written agreement. Or one heir can buy the others out at a fair price. Brothers must never quietly keep their sister's share.

See Wills and inheritance. Laws are different in each country. Check your local law and speak to a qualified adviser. For a real case, use a scholar or a trusted inheritance calculator.

What do people wrongly think is haram?

• A big profit, as long as there is no cheating.
• A higher price for paying in installments, if it is fixed at the start.
• Trading with non-Muslims. Nabi ﷺ did it³⁹⁴⁰.
• A fixed rent on something you own, or a fixed salary for managing your own company.
• Wanting to grow rich in halal ways. Abd al-Rahman ibn Awf and Uthman were rich Companions.

Common questions

My uncle wants to invest in my shop, but he wants a fixed 10 percent a year. Is that allowed?

No. A fixed return on money is riba. Offer him a share of the profit instead, for example 30 percent of the profit. Share any loss by how much money each of you put in. Write it down⁴¹.

I ran the business with my friend's money, and we lost. Do I have to pay him back?

Not if you were honest and careful. In mudarabah, the investor carries the money loss, and you lose your work. If you broke the agreed terms or were careless, you must pay it back.

A customer has not paid me for three months. Can I add a late fee?

A fee you keep is riba. Remind them, and give them time if they are struggling⁴². If they can pay but will not, that is injustice⁴³. You may take legal steps for the amount owed.

My father's shop was run by my brothers. Do my sisters get a share?

Yes. His share of the shop is part of what he left, and the sisters inherit by the Quran's shares. The brothers can be paid fairly for their work, but they cannot keep their sisters' share.

I already have a bank loan for my business. Is all my income haram?

No. The interest is the sin, not your trade. Profit from halal work is halal. Repent, pay the loan off as fast as you sensibly can, and look for a halal loan to replace it.