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Question: There are two independent parties. Company A is looking to hire a bulk cargo ship for 1 year. Company B is looking to sign a contract with a cargo trader to move their cargo at a specified price and quantity for 1 year (called a Contract of Affreightment). Both companies want to minimise on the market risk. For example, if the price to hire a ship decreases (market), company A loses money, as they will have to sublet the ship at a loss. If price to hire a ship increases, company B loses money, as they will have to pay extra to a shipowner to perform their contract to move the cargo. Is it permissible for both companies to work with each other and come to an agreement that, how much ever the market goes up or down, the Company that benefitted from the market gives part of or their full market linked profit to the Company that lost money from the market? Although both party can’t profit from their main contract to hire a ship and to ship the cargoes, the reason why they would come to this agreement is to (i) reduce risk (ii) increase their market share (iii) profit from operational efficiency, independent of market influences. Response: In the field of Islamic jurisprudence, scholars have categorized the various types of contractual partnerships in business transactions (ash-Sharikāt). Among these categories, the form perhaps conceivably related to the scenario described in the question is known as Shirkat al-‘Inān (Cooperative Partnership). This type of partnership involves an agreement between two or more parties, where each partner contributes capital and actively participates in the business through physical effort. The profits are distributed based on mutual agreement, while any losses which transpire are borne proportionally to the amount of capital each partner has invested. This equitable distribution ensures fairness and aligns with the principles of Islamic Fiqh, emphasizing shared risk and effort in the partnership. It states in Al-Mawsūʿah al-Fiqhiyyah: The jurists have unanimously agreed that losses in general partnerships are to be borne by all partners in proportion to their respective capital contributions, and it is not permissible to stipulate otherwise. Ibn ‘Ābidīn stated: "There is no disagreement that stipulating losses contrary to the proportion of capital contributions is invalid." They also agreed that in a muḍhārabah (profit-sharing partnership), the working partner does not bear any of the losses; all losses are borne by the owner of the capital. This ruling differs from the treatment of profits, which are distributed based on mutual agreement and stipulation. However, the jurists noted that if the working partner makes a profit and subsequently incurs a loss, the loss is deducted from the profit as long as the profit-sharing partnership remains ongoing Al-Mawsūʿah al-Fiqhiyyah (44/6). Nevertheless, the scenario described in the question does not qualify as a cooperative partnership as it fails to meet the criteria and structure of the permissible forms of partnership outlined in Islamic jurisprudence. The primary reason is the absence of a legislated partnership or a joint enterprise venture. This is evident from the question, as it underlines that the two companies are independent entities with distinct natures of operation. The agreement between them is focused on mitigating market risks rather than establishing a shared business. Thus, the essence of this contract is that it is a hire agreement (ʿaqd ijārah) for transporting and delivering between Party A and Party B, wherein both parties mutually agree to a stipulated clause or term that losses due to market fluctuations are to be shared between them. This term or condition within the contract is impermissible in Islamic law for several reasons. It unjustly imposes upon the service provider to bear responsibilities beyond their control, such as market fluctuations.