Shari’ah-Compliant Investment

An opportunity to invest has arisen. Kindly find the details of the proposed investment below:

• I am required to invest an amount of R1 000 000.00 into a private company for the purpose of business expansion.

• The investment term is 5 years.

• The capital will be repaid at a fixed rate of R200 000.00 per annum over the 5-year period.

In addition to the capital repayment, a “profit” is structured as follows:

• Year 1: 5% of R1 000 000.00 = R50 000.00

• Year 2: 5% of R800 000.00 = R40 000.00

• Year 3: 5% of R600 000.00 = R30 000.00

• Year 4: 5% of R400 000.00 = R20 000.00

• Year 5: 5% of R200 000.00 = R10 000.00

The percentage return (5%) remains fixed throughout the investment period, while the capital reduces annually through repayment.

From my understanding, this appears to resemble a loan arrangement with a fixed return linked to the outstanding capital.

1. Is this investment structure permissible in Shariah, or does it fall under impermissible Riba due to the fixed return?

2. If it is not permissible, what alternative, Shariah-compliant structures would you recommend (e.g. Musharakah, Mudarabah, or any other model) that would be fair and beneficial to both parties?

3. How can such an agreement be restructured to ensure compliance while still allowing for capital recovery and a reasonable profit?