Is it permissible to treat a debt owed to a person as capital for a Mudharabah contract?
General Chapter
Al-Mughni
Book of Partnership
Primary text
It is impermissible to designate a personal debt owed to a person as capital for a Mudharabah contract. Ahmad explicitly stated this, and it is the view of the majority of scholars, including 'Ata', Al-Hakam, Hammad, Malik, Al-Thawri, Ishaq, Abu Thawr, and the People of Opinion (Ashaab ar-Ra'y), as recorded by Ibn Al-Mundhir. The primary reason is that the capital legally remains with the debtor until it is actually taken into possession (Qabd) by the creditor; no possession has occurred here.
Supporting text
Some of our companions suggested permissibility, arguing that if the debtor pays the debt amount to the worker whom the creditor authorized to receive it, the debt is settled, similar to handing over movable goods for trade. Some Shafi'i scholars suggested the transaction is valid, but the worker receives only a customary wage because conditioning the Qirad upon a condition is invalid according to them. However, the primary view prevails because the money is legally in the possession of the debtor.