Shariah Compliant Cattle Investment Scheme

Shariah Compliant Cattle Investment Scheme


Please see the attached copy of how the cattle investment is working. 


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

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We have reviewed the proposed cattle investment model. 

We understand that the cattle will be purchased for the investors from MYM who will also maintain the cattle investment. The cattle will not be individually owned by the partners but owned holistically by the partners of the investment scheme. The expenses will be paid to the farmer who is also a partner before splitting the profits of the investment scheme. The calves are also sold based on a fixed profit sharing methodology and the farmer agrees to purchase the cattle in the event of an investor withdrawal for a fixed price of 15 000 ZAR. 

There are a number of considerations in reviewing a Shariah Compliant financial solution including a thorough review of the underlying financial mechanism/construct, the terms and conditions and the supervision and monitoring of the agreement to ensure continual shariah compliance. While the concept may be Shariah Compliant in general, the underlying terms and conditions should also reflect a proper shariah compliant financial solution.  

Nevertheless, in the enquired scenario, there are a number of transactions outlined such as the purchase and sale agreement between MYM and the investors, the farming expense contract with the farmer and the agreement to re-purchase the partnership units from exiting investors.  

The proposed shariah investment scheme while being compliant in general should be reviewed based on the underlying shariah agreements and also considering a number of other shariah issues as outlined as follows: 
1.All the transactions referred to should be separated and individualized to ensure segmentation from a shariah perspective. There should be separate documentation for each transaction. 
2.All the mechanisms for the partnership including management, liquidation and distribution of dividends/profits should be stipulated and agreed upfront.  
3.The issue of liquidation in the event of an exit by the partner should be based on a unilateral promise to purchase (Wa’d) which is not legally binding and separated in the form of an individual promissory agreement. This should not be a fixed guarantee buyback as that would be impermissible. 
4.The service level agreement between the farmer and investors should be separated and fixed in the form of a proper shariah compliant Ijarah agreement. 
5.The partnership assets while being in the name of the MYM or the manager of the partnership, is only for expediency purposes and should actually be owned by the partners themselves who have unfettered access to the partnership assets. 
6.In general, we understand that the investors in such schemes are sleeping partners who are not actively involved in the management of the investment partnership assets and hence the partnership profit in such an instance should be fixed to their capital contribution ratio. Alternatively the partners may actively contribute to the partnership by attending and contributing to the Annual General Meeting (AGM) of the partnership where they may provide constructive opinions, suggestions and thoughts on the management of the partnership. A fixed management clause may also be inserted in the partnership agreement granting the rights of sole management to the manager or MYM. In such an instance, the profit sharing ration for the investors will be fixed to their capital contribution ratio.  
7.The partnership constitution could either be a Musharakah or Mudarabah. We infer from your presentation that this is a Mudarabah, sweat equity partnership with no capital contribution from MYM. In any event based on the adopted concepts of either Musharakah or Mudarabah, the partnership contribution from the investors should be in the form of cash investment and not the cattle itself. This is premised on the view of Imam Abu Haneefah RA which does not make provision for contributions in kind by the partners/investors. Alternatively the manager could constitute a partnership in the form of a Musharakah with the investors and be deputed by the Shurakaa/partners as an investment agent/manager (Wakeel bi Il-Istismar) to manage the investment partnership.  
8.With regards to the profit share/dividends, there should be a fixed dividend/profit policy with a fixed ratio or percentage such as 40/60 to the investor and manager. The profits should not be fixed as a number or a fixed percentage equating to a fixed numeric. All profits should be paid after actual mutually agreed expenses.  
9.The initial purchase and sale agreement should also be separated and individualised such that MYM/seller does not execute a purchase and sale agreement with itself while also being a partner/Shareek directly. (Tasarruf bi al-Nafs).  
10.We advise you to seek further advice in terms of ensuring the underlying terms and conditions are shariah compliant. Also seek the advice of a proper tax advisor and legal advisor in ensure general governmental compliance. In certain instances and in South Africa, section 24 JA of the ITA makes provision for Islamic Financial transactions.  
11.All the mechanisms and structures of the proposed scheme should be fixed and clarified upfront. There should also be a proper shariah board to oversee the activities of the scheme and a shariah audit should be conducted on an ongoing basis to ensure shariah compliance.  

You are welcome to contact us at the Darul Iftaa for further guidance on structuring a shariah compliant agreement. We also free shariah partnership templates. You can read more on Musharakah/Mudarabah and Islamic Investment funds by downloading our book “Your Brief Guide to Islamic Finance” from 

You can also read further on Shariah compliant investments here: 

(PS. Kindly note that our opinion issued is not a general confirmation of shariah compliance and the 
specifics of the scheme will have to be revised before issuing a definitive ruling on the proposed scheme)

and Allah Ta'ala Knows Best

(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa

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