https://www.youtube.com/watch?v=PYhHvsynZTA

Perhaps the most common question I get about BFF’s Income Share Funding’s product is: What makes you so confident that your product is Halal?

In this article I’m going to finally answer this question.

If you follow my YouTube channel or blog you probably know that I started a company in 2017 called BFF Income Share Funding. We offer U.S. consumers what we claim is 100% halal funding that can be used for pretty much anything. 

Very quickly, BFF’s financing product works as follows:

In return for a lump sum of money in funding, the financed agrees to share a fixed percentage of whatever they earn with BFF for a fixed period of time in which they are working. 

Consider the following example (keep in mind these are hypothetical numbers): 

Ahmed needs 50k in funding to pay off all the debt he incurred while in college. We estimate Ahmed is going to earn 100K, on average, every year for the next 5 years. 

We agree with Ahmed to share with us 11% of his income every year for the next 5 years in which he is working in return for 50K in funding we provide him with today.

If our forecast for Ahmed’s income turns out to be correct, we will collect 55K over 5 years on our initial investment of 50K. Again, keep in mind these are hypothetical numbers.

Ultimately, the performance of our investment, since Ahmed owes us a fixed percentage of his income, depends on how much Ahmed actually ends up earning. The better Ahmed does for himself, the better our investment’s performance will be. As a result, the financial well-being of Ahmed and the financial well-being of BFF are in perfect harmony. 

This is in stark contrast to interest-bearing debt where the financier is at best indifferent to the financial state of the borrower so long as they are making their payments and at worst hoping the borrower defaults so they can take control of the collateral.

Is it Halal?

Whenever you have a new product, especially in the field of finance, as a God-fearing Muslim it is natural to ask if your new product is Halal (permissible) or Haram (prohibited)?

To answer this question, there are a few things one must keep in mind:

For starters, one must know that in Islamic jurisprudence it is accepted that, with exception to rituals of worship, the default for everything in Islam is permissibility. 

Accordingly, to prove something is haram you have to do one of the following:

  • Find proof in the Quran or Sunnah [authenticated sayings and traditions of the prophet Muhammad (pbuh)] that explicitly says it is haram
  • Find proof in the Quran or Sunnah that something similar to the matter being reviewed is said to be haram and reason your way to conclude that it is haram
  • Illustrate how the matter in consideration violates a well-established consensus among Muslims.

Now, if you search the aforementioned sources and find nothing that says the product you are considering is haram either explicitly or in spirit, it is still advisable to ask around to see if there is something you missed or an aspect of your product that your possible internal bias may have made you blind to.

So this is exactly what I did; given that the product we offer doesn’t violate any explicit or implicit prohibition mentioned in the Quran, Sunnah or Islamic consensus, I searched for people who are considered knowledgeable in Islamic finance and asked for their opinions. Their responses were varied, some approved, others abstained from commenting and still others claimed that our product was haram.

In this article, I’m going to focus on the arguments brought about by commentators that said that BFF’s product is Haram, summarizing their commentary into three main objections in order to analyze these objections and see if they hold any merit.

It invovles Gharar

The first objection, relates to the uncertainty of future cash flows for both the investor and the investee, implying that this means there is Gharar in the transaction. One commentator said this:

الغرر ظاهر في هذه المعاملة فلا يدرى المحال الذي سيعمل فيه العامل ولا الدخل الذي سيتحصل عليه

There is major Gharar in this transaction as the worker doesn’t know the place where they are going to work nor the income they are going to earn. 

In the same breath, another commentator said:

The amount of return by the borrower is not fixed and known. They may make a lot when they start their job and they may make nothing if they don’t find a job. This may lead to strained relations between you and the borrower [referring to the person receiving the financing]. 

Let’s examine this claim…

Gharar is an Arabic term that means deception. In Islamic finance, it is used to refer to selling something without properly defining the object of sale.

As an example, the Prophet peace be upon him forbade selling fish in the sea or a calf in its mother womb because in these cases the object of sale is not properly defined.

In the case of selling fish in the sea for instance, neither the seller nor the buyer knows how many fish, what type of fish, or the weight of the fish that are in the sea which are the object of sale. In Islamic law, these details need to be specified to avoid disputes between the buyer and seller.

Properly specifying the object of purchase should not be confused with specifying the benefit the purchaser is going to gain from the object of purchase. If the fish is left to rot and it goes unconsumed, it was of no benefit to the buyer. On the other hand, if the buyer consumes the fish and gains nutrition from it then it was beneficial to them. The benefit of the fish to the buyer does not need to be defined in the purchase agreement for the agreement to be valid from an Islamic perspective. I know of no scholar in Islamic finance that disagrees with this.

In the case of an investment, the benefit of a particular investment is typically represented by how much cash it ultimately ends up generating for the investor. Similar to the case of buying fish, this benefit does not have to be defined in the investment’s purchase agreement, in fact in most cases it is impossible to do so. That’s why it’s called an investment and not an interest-bearing loan; the return is unknown beforehand.

In the case of BFF’s investments, the object of sale is very precisely defined; we purchase a well-defined fixed percentage of a person’s income for a fixed period of time in which they are working. The benefit of BFF’s investment to its investors, like any investment, will be determined by the cash flows that our investments ultimately generate for them after the investment is made.

It is certainly true that when an investment involving multiple parties does not perform as expected this may lead to disputes between the parties involved. However, prohibiting an investment because the results are unknown ahead of time would make virtually any investment prohibited in Islam! This is clearly false.

(I should point out here that in the two and a half years we’ve been operating we have had no serious disputes with any of our investors or investees.)

Further, the fact that the return of the investor is not predetermined is a good thing, because it means the investor is assuming a risk of loss which entitles them to a right to profit.

The relevant maxim in Islamic Jurisprudence is “Alghonm bil ghurm”
Which is an Arabic term that means: the right to profit belongs to whosoever bears the risk of loss.

To summarize, people who claim that our investments involve Gharar are simply confused about what Gharar is.

Gharar arises when the object of sale is not properly defined. It has nothing to do with defining the benefit the purchaser receives from the purchased item.

It invovles Riba

The most widely accepted method for identifying riba is summarized in the rule:

Every loan which involves a contractual guarantee of benefit to the lender involves riba.

Based on this rule there are two requirements for something to involve riba.

The first requirement is that it involves a loan.

A loan is an amount of money that is required to be returned after a period of time.

Based on this definition, does our investment involve a loan?

There is no amount of money that is required to be returned to us. We are purchasing a right to share in the funded’s income for a fixed period of time. Accordingly, the amount we collect from the investee is based on their income not what we invested in them. It is possible that on the day of financing, the investee becomes disabled and they are permanently unable to work in which case they would owe us nothing.

This would not be true if it were a loan.

So there is clearly no loan involved in our financing.

The second requirement for riba to be a viable suspect is that the lender is contractually guaranteed to benefit from the loan they make.

For argument’s sake even if we assumed there was a loan of some sort in our financing, you would still have to prove that the lender is entitled to more than their principle in order for riba to be involved.

Are investors contractually owed a profit from BFF’s income share investments?

No. It is possible for the financed to return less than the principle amount they are financed with and not be in default. Again, the obligations of the financed are not a function of the amount they are financed with rather they are a function of the income they earn. Accordingly, the investor may earn a profit or lose money depending on how much the financed actually ends up earning.

In summary, the financing we are providing neither includes a loan nor a contractual requirement to benefit for the capital provider. So it fails to contain either of the requisite components of riba. As a result, it’s really hard not to dismiss the accusation that our financing involves riba for being false on the face of it.

What gives you the right to share in someone’s income!

A third common theme among dissenting opinions is illustrated in the following commentary:

If you give me finance to buy a car, this can be made on lease basis whereby the return is the price of the usufruct of the car, but it cannot be a % of my employment income because the latter is generated by selling my man hours not from the car that you owned and leased to me.

…by what reason do you take a % of the employee’s income? The amount of finance does not justify it both legally and morally because it is not related to the amount of finance.

Basically, the objection here is that if I invest my money in a computer engineer using a BFF income share agreement wherein I gain a right to share in a fixed percentage of the engineer’s income for a fixed period of time and the invested money is used by the engineer to purchase a second car for his wife for example, then since the wife’s car is not the cause of the employee’s income, his labor is, then sharing in his income is unjust.

It would follow from this logic, that if a business owner decides to sell a piece of their business to BFF, and the business owner uses the money they got from the sale to buy a car for his wife, then BFF actually doesn’t have a right to share in the income of the business which it is part owner in since the money that was used to purchase their share in the business was not used to generate the business’s income. We know that this is untrue so the claim for which this becomes a logical necessity must not be true either.

To make the error of this objection even clearer, assume that a computer engineer forms a single-member business. Assume also that the only economic activity of this business is trading the labor of the computer engineer for income. Now assume that the computer engineer decides to sell a portion of their LLC to BFF for $50,000. As a result, BFF is now part owner of the LLC whose only business is the labor of the computer engineer. If the computer engineer uses the $50,000 to buy a car for his wife, is BFF no longer entitled to share in the LLC’s income which they are part owner in?

If the answer is: “of course BFF is still entitled to share in the income of the business they are part owner in. Their right to do so has nothing to do whatsoever with how the business owner uses the proceeds of the sale of part of their business to us”, which it is, then how is this different from BFF purchasing a right to share in someone’s income regardless of how the proceeds of the investment are spent by the financed?

The rights of an investor to benefit from their investment are in no way contingent on how the proceeds from their investment are spent. To suggest this is frankly quite silly.

I should add here, when you take out a loan for whatever reason, you are also committing a percentage of your future income to your lender. The difference between BFF’s income share agreements and an interest-bearing loan is that in the case of our income share agreements the share of income is fixed and the payout to the financier is variable, whereas with a loan the owed amount is known while the percentage of income is variable.

With BFF’s financing, the payments of the investee are designed to stay affordable since they are fixed percentage of income rather than a fixed dollar amount.  

Conclusion

I chose to share the above objections along with my responses because they summarize most of the dissenting opinions I’ve heard from commentators over the years.

It’s pretty clear, at least to me, that these responses hold no merit whatsoever. 

Given the lack of any arguments against our product that aren’t easily exposed as false if not downright silly, I am forced to believe that the reason no substantive arguments have been made against BFF’s product is that there aren’t any.

Now I’m faced with a choice. I can either abstain from offering our product knowing full well that there isn’t a single argument with merit that has been made against it over the 10 year period in which I’ve advocated for it or I can continue to offer this product as a Halal product which so far has helped many Muslims receive sensible consumer financing that is in line with their religion and substantively different and more advantageous to them than any alternative on the market today.

We’ve chosen the latter of the two choices.

I encourage anyone who has an objection to BFF’s funding product, which I haven’t already addressed in this article, to send their objections to me (rakaan@fundmebff.com) or to make them public and I will consider their objections and comment on them inshAllah.

I would also encourage any Islamic scholar with the knowledge that our product is halal to come out and publicly say that it is so, this would help for many Muslims looking for sensible financing.

So far we’ve helped people finance house purchases, pay off credit cards, buy cars, buy furniture and much more. 

If you’re interested in what BFF has to offer visit our website: FundMeBFF.com

If you’d like to learn more about our product, watch my video or read my article: How to receive Halal financing in the U.S.