Sharia Limit on Profit? New

Permissible Profit in Islamic Trade: Quran & Hadith

Question: Has Sharia set a limit on profit in trade? To what extent is it permissible to take profit? Some scholars say that a profit of ten or a certain percentage is permissible. Is this proven by the Quran and Hadith?

Answer:

Alhamdulillah:

Undoubtedly, in the view of Sharia, trade is an excellent and honorable profession for earning wealth and making a profit. Trade is mentioned favorably in numerous verses of the Quran and authentic Hadiths. In fact, in various Quranic verses, Allah the Almighty has described profit as “فَضْلِ اللَّهِ” (the bounty of Allah).

I seek refuge in Allah from the accursed Satan.

In the name of Allah, the Most Gracious, the Most Merciful.

فَإِذا قُضِيَتِ الصَّلو‌ٰةُ فَانتَشِروا فِى الأَرضِ وَابتَغوا مِن فَضلِ اللَّهِ ..

“And when the prayer has been concluded, disperse within the land and seek from the bounty of Allah.”

(Surah Al-Jumu’ah, Verse 10)

وَآخَرونَ يَضرِبونَ فِى الأَرضِ يَبتَغونَ مِن فَضلِ اللَّهِ…

“...and others traveling through the land, seeking of the bounty of Allah...”

(Surah Al-Muzzammil, Verse 20)

Even during the great act of worship like Hajj, Allah did not forbid earning this bounty. He says:

لَيسَ عَلَيكُم جُناحٌ أَن تَبتَغوا فَضلًا مِن رَبِّكُم…

“There is no blame upon you for seeking bounty from your Lord (i.e., even during Hajj).”

(Surah Al-Baqarah, Verse 198)

The Prophet Muhammad (peace be upon him) said:

“أَلَا مَنْ وَلِيَ يَتِيمًا لَهُ مَالٌ فَلْيَتَّجِرْ فِيهِ وَلَا يَتْرُكْهُ حَتَّى تَأْكُلَهُ الصَّدَقَةُ”

“Listen, whoever is a guardian of an orphan who has wealth should invest it in trade and not leave it idle, lest the Zakat consumes it.”

(Sunan al-Tirmidhi, Hadith No. 641)

This narration is weak. (Al-Albani, Da’if al-Jami’ 2179 • Da’if)

This means that if wealth is not invested in trade and Zakat is paid on it every year, it will gradually diminish without any profit. Although this narration is weak in its chain of transmission, it points to an important aspect of trade: the minimum objective of any trade should be to earn a profit so that a person’s needs can be met, provisions can be arranged, and the original capital continues to grow instead of being slowly depleted by paying Zakat.

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The Sharia Limit on Profit

A detailed study of the Quran and Sunnah shows that Sharia has not specified a fixed rate of profit—not ten percent, not twenty percent, nor more or less. Perhaps the wisdom behind this is that setting a single profit rate for all times and all regions would be contrary to justice and fairness. This is because some goods have very high consumption and sell quickly, such as food items. Other goods have slower, sometimes very rapid, consumption, such as cars, furniture, and clothes. Obviously, the profit margin for these two types of goods cannot be the same. For goods that sell quickly, the profit margin should be lower, while for the other type, it can be higher.

There are many reasons why Sharia did not set a limit on profit, a few of which are:

1. Some shopkeepers are small-scale and trade with little capital, whereas large shopkeepers trade with large capital, such as wholesale dealers. Obviously, a large capitalist can remain profitable even with a very small profit margin, while a small shopkeeper cannot grow their business with a low profit margin. Therefore, it is necessary for them to take a higher profit.
2. Some goods are considered essential goods, while others are counted as luxury goods. Clearly, the profit margin for these two types of goods cannot be the same. Essential goods are also purchased by the poor, so their profit margin should be very low. In contrast, the profit margin on luxury goods can be higher. This is why Sharia has declared the hoarding of essential goods like grain as haram (forbidden), as hoarding is used to seek excessive profits, which is devastating for the poor. However, the hoarding of luxury goods (valuable items for beautification other than food) has not been forbidden.
3. Some goods reach the market after passing through only one mediator, so their profit margin is lower. In contrast, some goods come from the factory and pass through several mediators before reaching the market. The profit margin for this type of product should be higher than for the former.
4. Sometimes, trade involves extremely fragile items like glassware, where there is often loss due to breakage. In such cases, keeping a low profit margin would result in a loss for the shopkeeper, as they must cover the cost of broken items from the sale of the remaining stock.
5. Sometimes, a business deals with rare items that have low sales. For instance, a shopkeeper might stock 50 or 100 units of an item for a customer’s need, but only 10 pieces sell, and the rest goes to waste. For example, in my mobile phone business, a glass protector costs 30 to 35 rupees. For common, routine mobiles, we might sell it for 50 rupees. But for special imported mobiles that are rare, we sell it for 100 rupees. Superficially, the profit is three times, but for these special mobiles, only 10 or 20 out of 100 protectors and covers sell; the rest is wasted because that model is no longer sold in the market. Now, if the shopkeeper sells such special items with a small profit, he will suffer a double loss due to the wasted stock, instead of making a profit.
6. Another scenario is that a person buys vegetables from the wholesale market and sells them right there; he can sell them with a small profit. But another person takes those vegetables from the market and spends the whole day roaming through streets, cities, and villages, working hard. He will take a higher profit on those vegetables because his effort is greater, and he has invested more time. A person with a small shop in a village with low rent can manage with a small profit. But a person with a large shop in a mall with high rent will take a higher profit to cover the shop’s expenses.

In short, many factors are at play in determining the rate of profit, as explained above. Justice demands that all these factors be considered when setting a profit margin. If Sharia had fixed a single rate of profit for all situations and all types of goods, it would have been contrary to justice. Sharia has left it to the conscience of the trader to determine a profit rate while considering all these factors and the prevailing norms in society. They should set a rate that neither harms them nor the buyers. No one’s rights should be violated because ethics play a significant role in Islamic economics.

This is in complete contrast to the capitalist system, where any method of earning wealth is permissible, whether it comes from interest (usury), hoarding, or selling alcohol and other harmful items. In Islamic economics, every method of trade is forbidden if it violates someone’s rights or is contrary to morality. Although Islam has not specified a profit rate, adherence to ethics is necessary in all situations.

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Scholarly Views and Evidence

Some Hanafi scholars have declared taking a profit of 100% or more as incorrect, while some Maliki scholars have deemed a profit of more than 30-35% as incorrect.

However, it is proven from the actions of the Prophet Muhammad (peace be upon him) and his companions (may Allah be pleased with them all) that they sometimes took a profit of 100% and sometimes even more. Their actions are the greatest proof that in some cases, a profit of 100% or more can be taken, provided that no one is oppressed and no one’s rights are violated. Below are a few incidents where a profit of 100% or more is mentioned.

Evidence 1:

It is narrated in Bukhari, Tirmidhi, and Musnad Ahmad that the Prophet Muhammad (peace be upon him) sent Hazrat Urwah (may Allah be pleased with him) with one dinar to buy a goat for him. Hazrat Urwah (RA) negotiated with the seller and bought two goats for one dinar. As he was returning with the two goats, he met a man on the way who bought one of the goats from him for one dinar. (Essentially, Hazrat Urwah (RA) sold the goat with a 100% profit). Then, Hazrat Urwah (RA) came to the Prophet (PBUH) and said, “Here is one goat and one dinar.” The Prophet (PBUH) asked in surprise, “Urwah, how did you manage this?” Hazrat Urwah (RA) narrated the entire incident. Upon this, the Prophet (PBUH) prayed for blessings in his trade. After that, his situation was such that even if he bought dust, he would make a profit from it.

(Sahih al-Bukhari Hadith No. 3642, Sunan al-Tirmidhi Hadith No. 1258, Sunan Ibn Majah Hadith No. 2402, Musnad Ahmad Hadith No. 19356)

This hadith is clear evidence that Urwah (RA) bought two goats for one dinar and then sold one goat, worth half a dinar, for a full dinar on the way back. He brought back both the dinar and a goat, meaning he made a 100% profit. When he narrated the entire incident to the Prophet Muhammad (PBUH), he did not object but rather prayed for blessings in his trade, which is clear proof that there is no fixed Sharia limit on profit.

Evidence 2:

An incident of taking more than 100% profit is recorded in detail in Sahih al-Bukhari. The summary of the incident is that Hazrat Zubair (RA), who was the cousin of the Prophet (PBUH) and was given the glad tidings of Paradise in his lifetime, bought a piece of land on the outskirts of Madinah for 170,000 dirhams. After his martyrdom, to pay off his debts, his son Hazrat Abdullah bin Zubair (RA) sold the same land for 1,600,000 dirhams.

(Sahih al-Bukhari Hadith No. 3129)

In essence, he made nearly a tenfold profit. This event took place during the caliphate of Hazrat Ali (RA). The seller was Hazrat Abdullah bin Zubair (RA), and the buyers were several esteemed companions, such as Muawiyah (RA) and Abdullah bin Ja’far (RA). The deal was finalized in the presence of many companions. If taking such a high profit was wrong in the eyes of Sharia, the companions would have certainly objected, but no one did. Therefore, this incident is proof that more than 100% profit can also be taken, provided there is no fraud, deception, or hoarding involved.

The purpose of mentioning these incidents is not to suggest that it is permissible to take 100% or more profit in all types of trade. The purpose is only to show that Sharia has not fixed a rate of profit. In some cases, the profit rate can be 100% or more, and there is no religious objection to it, provided that this profit is not obtained through fraud, deception, or hoarding.

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Contemporary Fatwas

Fatwa from the Saudi Permanent Committee for Scholarly Research and Ifta:

Question: “A person is involved in buying and selling. He sells goods on credit with a profit that may reach one-third or one-quarter. He may sell the same item to one person for a price less or more than he sells it to another. He asks, is this permissible?”

Answer:

قال الله تعالى:

( وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ) ,

وقال تعالى: ( يَا أَيُّهَا الَّذِينَ آمَنُوا إِذَا تَدَايَنْتُمْ بِدَيْنٍ إِلَى أَجَلٍ مُسَمًّى فَاكْتُبُوهُ ) الآية .

"Allah says: 'Allah has permitted trade and has forbidden interest' ... And He says: 'O you who have believed, when you contract a debt for a specified term, write it down...'"

“Based on this, if the questioner sells what he sells after having full ownership and possession of it, then there is no harm in him selling it for a price that is mutually agreed upon, whether the profit is a quarter or a third. Similarly, there is no harm in him having varying prices for his goods, on the condition that he does not lie to the buyer by saying he sold it to him for the same price as he sold to someone else when the price is different. And it should not involve uncertainty (gharar) or be against the market price.

However, he should adopt the qualities of leniency and contentment, and should love for his Muslim brother what he loves for himself, for in that there is goodness and blessing. He should not indulge in greed and avarice, for these often stem from hard-heartedness, base character, and harsh morals.”

(Fatawa al-Lajnah al-Daimah, 13/88. Signed by Sheikh Abdullah bin Ghudayyan, Sheikh Abd al-Razzaq Afifi, Sheikh Abdullah bin Mani’, and Sheikh Abd al-Aziz ibn Baz.)

Summary:

The brief summary of this fatwa is that a person asks if it is permissible for a shopkeeper to sell his item to one person with a small profit and to another with a large profit. The scholars replied that Allah has made trade lawful, and as long as the buyer agrees to the price and the seller does not sell by lying, etc., it is permissible for him to take whatever profit he wishes, whether small or large. Just as he can sell his item for less than his cost price, he can also sell it with a maximum profit, whether it is one-third or one-fourth; there is no harm in it. However, if he sells according to the market rate and with a reasonable profit and shows kindness to people, that is better.

Fatwa of Sheikh Ibn Uthaymeen (may Allah have mercy on him):

Sheikh Ibn Uthaymeen (may Allah have mercy on him) was asked: “Is there a Sharia limit that specifies commercial profits, setting it at a third or otherwise? I have heard that some people limit it to a third, arguing that the sale is based on mutual consent, and they chose a third to satisfy everyone. We hope for a detailed clarification, may you be rewarded.”

He answered:

“The profit that a seller earns is not specified by Sharia, not in the Book of Allah, nor in the Sunnah of the Messenger of Allah (PBUH), nor in the consensus of scholars, nor do we know of anyone who has specified it… In any case, we say that there is no limit to profit due to the general meaning of Allah’s statement: (وَأَحَلَّ اللَّهُ الْبَيْعَ) ‘Allah has permitted trade,’ and the general meaning of His statement: ( إِلاَّ أَنْ تَكُونَ تِجَارَةً عَنْ تَرَاضٍ مِنْكُمْ ) ‘except when it is a transaction by mutual consent from you.’

So, whenever the buyer is pleased with the price and buys at it, it is permissible, even if the seller’s profit is large. The only exception is if the buyer is someone who does not know the prices, is naive about values and costs. In that case, it is not permissible for the seller to deceive him and sell to him for more than the market price…

So we say in response: Profit is not limited by Sharia. It is permissible for the seller to profit as he wishes, due to the general nature of the two noble verses… and because increase and decrease are subject to supply and demand… It is known that a person might buy something for one hundred, then prices suddenly increase, and he sells it the next day or after a long period for two hundred or three hundred or more.

Yes, if someone monopolizes a certain commodity and sells it only for whatever price he desires, then the ruler has the right to intervene in his affair and compel him to sell it at a price that neither harms him nor the people… But if the matter is open, and the item is available everywhere and not monopolized by anyone, then there is no harm in him taking whatever profit he wishes, unless he is profiting from an ignorant, naive person who does not know better; then it is haram for him to profit more from him than what people normally profit on that item.”

(From “Fatawa Nur ‘ala al-Darb”)

Summary:

The great Saudi Mufti, Sheikh Ibn Uthaymeen, was asked if there is a fixed limit for profit in Sharia. His response was that there is no fixed limit for profit in Sharia, neither in the Quran, nor in the Sunnah, nor is there any consensus of scholars on it. A shopkeeper can take as much profit as he wants, and the proof for this is the general Quranic verse that Allah has made trade lawful. When the buyer agrees to the price, it is permissible for the seller to take as much profit as he desires… And if a person bought something at a low price and kept it, and later the market rate increased, it is permissible for that person to sell it at the higher price. However, if he lies, takes advantage of a customer’s innocence to earn double or triple profit, or sells at an inflated price after hoarding, all of this is haram and impermissible.

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Conclusion and Forbidden Profits

All this evidence proves that Sharia has not set a limit on profit and has left it to the market, because based on the principle of supply and demand, the market sets the profit rate itself. Those with knowledge of economics understand this principle well. However, if the situation is such that the market profit rate is excessively high due to certain reasons, then it becomes necessary for the government to intervene in the market to regulate prices and profit margins.

It is necessary here to briefly mention the profits that are haram to earn:

1. Profit earned from the trade of haram items such as alcohol, narcotics, idols, etc., is haram. Similarly, profit earned from the trade of anything harmful to people is haram, such as food items that have spoiled due to the passage of time or medicines that are harmful to health.
2. Profit obtained through fraud and deception is haram. Forms of deception include charging an excessive price from a buyer perceived as naive or simple-minded, or taking undue advantage of a buyer’s dire need to charge double or quadruple the price. These methods of earning profit are haram.
3. Profit earned by hoarding essential food items is also haram.

The summary of this entire discussion is that earning profit in trade is permissible and even a commendable act, as Allah has termed it “the bounty of Allah.” Sharia has not set any limit on profit. Some hadiths mention taking 100% or even more profit.

It is better to be content with a smaller profit. Taking a smaller profit increases sales and grows the business, whereas taking a larger profit may provide a temporary benefit, but in reality, taking excessive profit leads to the decline of the business. Hazrat Abdur Rahman bin Awf (RA), a very wealthy companion who was given the glad tidings of Paradise in this world, was asked the secret of his wealth. He replied, “I never rejected even the smallest of profits.”

Taking very high profits is not permissible in some situations, such as on consumer goods related to the poor and those we classify as essential items, like food and clothing. It is not right to take excessive profit on these. Earning profit through deception, fraud, hoarding, or any method that harms buyers is haram. Similarly, profit earned from the trade of forbidden things is also haram. Although traders have every right to earn lawful profit, the government also has the right to intervene when necessary to set the prices of consumer goods and the rate of profit, so that a few people cannot harm the general public.

(And Allah the Almighty knows best what is correct.)

Reference: https://alfurqan.info/problems/1301