Loans, Tawarruq, discounting, financing of business : Halal business and funding

Fatawa Question

[Question one] : Dear Dr. Kahf, As Salam Alaikum The e-mail below is your response to my email received almost 2 years ago on the subject of Halal business and funding. Although our plans got delayed somewhat we are now at a point where we want to seriously pursue the acquisition of a medical billing company in the US and have identified private equity investors that we want to present our business plan to over the next couple of weeks. We are finalizing the business plan and have run into a situation where your advice would be of great help. We are keen to keep away from any interest-based funding for the acquisition. Although we are confident we should, In Sha Allah, be able to get private equity funding for the long-term capital requirements, one problem we anticipate is the reluctance of investors to fund working capital, and they may either offer to advance that amount to us as a bridge loan on interest or they may advise us to approach banks for the working capital requirements. It might become very difficult to explain the Islamic theory of Riba to these investors, as they would be accustomed to dealing with interest on a regular basis. May I request your advice on a couple of issues ? 1. Per the business plan I will have an ownership stake in the company in the US that will conduct the business. Since my US partner (or the investors) would not mind taking such interest-based loans and if taking a working capital loan becomes imperative in their view, is there any way to structure the ownership of the company such that I do not remain responsible (from a Shari’ah perspective) for the interest-based loan taken by the company ? OR, 2. Could you suggest any way in which we may be able to get the investors to provide funding for the working capital without bringing in the Shari’ah angle (so as not to create any bias in the investors' minds) ? Your advice would be much appreciated. [Question two] : I am taking the liberty of writing you directly on a subject that I need some clarity on. I am an Indian Muslim and I run an offshore medical transcription company (offering a service to doctors in the US transcribing their dictation on patients they see / treat / operate on.) My first question relates to a business I would like to start. There is an opportunity now to offer services apart from transcription to healthcare providers in the USA like clinics and hospitals in the form of medical billing services. I am sure you are aware of this business however I will explain it a little here for the sake of clarity-since most people are covered under some form of health insurance in the US, doctors most often have to collect their reimbursements for services rendered from the health insurance companies that cover their patients. The healthcare providers have to follow some procedures like filing claims (bills for services performed) with the health insurance companies and then have to follow up with these companies until they get paid. Such services can be outsourced to companies that do this for a percentage of the collections and they are called medical billing companies. I am now interested in setting up an offshore medical billing business in India. My question is-would this be a Halal business to do since we would be collecting funds from the health insurance companies on behalf of the doctors ? My second question relates to the funding of this business. I have a partner (Indian Muslim) in the USA, and he has suggested that we buy a US medical billing company so that we can get a ready platform from which to start. He says that the usual way to do such acquisitions is by investing only a small part of the purchase price, with the rest being funded by seller financing (where a seller agrees to accept a majority of the value of the company in deferred payments over 1-2 years) and the rest by bank loans to cover the reminder. The bank loan will obviously carry interest but my partner says that is the normal way to do these acquisitions in the USA. Can this loan from the bank for the purpose of buying the business be considered Halal ? Wassalam,

Fatwa

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Publication Date

2008-06-20

Main Subjects

Financial and Accounting Sciences
Islamic Studies

Topics

• Islamic jurisprudence
• Financing
• Loans
• Tawarruq
• Discount

No. of Pages

4

Data Type

Fatawa

Language

English

Record ID

BIM-729674

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• MLA
• AMA