Fatwa: Are Bonds Halal?

This is iA the most comprehensive resource for this question on the internet.

We present views from IslamQA then our resident expert Mufti Billal Omarjee presents his views, and finally IFG present a commercial perspective on the matter.

View One: IslamQA

A bond is a certificate which, according to its terms, obliges the issuer to pay the bearer the face value plus the agreed amount of interest when it reaches maturity, or to pay other benefits, such as prizes awarded by drawing lots, or payment of a fixed amount, or any discaunt.

The Islamic Fiqh Council has researched the matter of dealing in bonds and issued the following statement:

  1. Bonds which represent a commitment to pay the face value plus interest, or conditional benefits, are haraam according to sharee’ah, whether one is buying, selling or handling them, because they are considered to be interest-based loans. This applies whether they are issued by private companies or by public bodies run by the state. The fact that they are forbidden is not affected by giving them other names such as “certificates”, “investment documents” or “savings”, or calling the interest “profit”, “commission” or “returns”.
  2. Also forbidden are bonds that offer prizes, because these are loans made on the condition that the benefits or increase will go to the group loaning the money, or to one of them, who is not specified at the time of investment, in addition to the fact that this is based on the idea of gambling.
  3. Another kind of forbidden bonds, which it is haraam to buy, sell or handle, is bonds or documents based on bidding for a specific project or activity from which the owners will not benefit in any definite way, but will only receive a share of the profits according to the number of bonds or documents that they own, and they will only receive this profit if the project is actually carried out.

And Allaah knows best.

Source: here

Mufti Billal Omarjee view:

A bond is an IOU. The bondholder lends money to a company, government or some other organisation. In return typically, the company or government promises to pay a predetermined regular interest and a capital sum at the end of the bond’s life. There are different type of bonds and they are all interest bearing instruments. Hence it is not permissible to invest in them.

The shariah compliant alternative to bonds is the Sukuk in which you can invest.

And Allah knows best!

The IFG view:

Bonds are an interest-bearing loan instrument and as such are unambiguously haram. As such we concur with all the fatawa above.

If you would like to invest in something halal then we recommend you check out our investment comparison page where you can compare all sorts of investments and choose one that’s best for you.

In particular, sukuk are the Islamic version of bonds, which may be of interest. Furthermore, property investment such as Yielders offer a regular rental return as well. These alternatives to bond are important - as having a fixed-income low-risk asset class in your portfolio is important as part of a balanced and diversified portfolio.

If you would like to learn more about each investment and how to structure your investment strategy – check out our Halal Investing Course here.

Salaam,

I wonder if investing in a fund such as the Oasis Crescent Global Income Fund which is categorised in the Islamic Global Bonds category would be permissible? If so, how does one calculate their zakat on such a fund, I presume the total value of the investment would be considered as a zakatable asset and 2.5% would be paid on that? As opposed to a shares-based fund where you can pay 40% of total value of the investment.

Thanks,
Umer.

Wasalam

May Allah bless you.

The Oasis Crescent Global Income is focus on the Islamic bond called Sukuk in Arabic. Sukuk are usually shariah compliant alternatives to conventional bonds.
The Zakat on the Sukuk will depend on its underlying assets.
If you need help calculating the Zakat on it then let us know and we will assist you inshaAllah.

And Allah knows best!

JZK for the answer. Yes, I would like some guidance on how to calculate zakat due on it. I was going to treat the entire value of investment in the fund as “cash” and pay 2.5% on it but I will be overpaying and it would diminish the relatively low returns from a bonds based fund. May be we can use a hypothetical example of having a total value of £5000 invested in that particular fund to demonstrate how to derive the zakat due?

Please drop me an email and I will let you know the information that I need.

billal@shariahconsultant.com

Regards