Fatwa: Is share/stock trading halal? Can you invest in the stock market?

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

We present views from IslamQA, Seekersguidance, and Islamweb, then our resident expert Mufti Faraz Adam presents his views, and finally IFG present a commercial perspective on the matter.


View One: Islamqa

Shares may be divided, according to the field of activity and work involved, into three categories:

Shares based on permissible work, such as companies that deal with transportation, shipping, manufacturing clothing, tools, office supplies, furniture, medical equipment, real estate, and so on, and do not engage in any haraam practices or transactions, such as cheating, or lending or borrowing on the basis of riba; rather they follow Islamic rulings in all their transactions and dealings.

These types of companies are called “permissible” or “clean” companies, and it is permissible to buy and sell shares in them.

Shares based on prohibited types of work, such as companies that deal with tourism, hotels that promote and aid in immoral actions, breweries, riba-based banks, commercial insurance companies, companies that print and distribute indecent magazines, and so on. It is not permissible to buy shares or invest in this type of company, and it is not permissible to advertise them or promote them.

With regard to these two types of companies, there is no confusion about the ruling and the matter is quite clear.

Companies whose field of work is basically permissible, but they engage in some haraam practices or transactions, such as transportation companies – for example – that have interest-bearing accounts in the bank, or they are financed by means of riba-based loans from banks or from people in the form of stocks.

These types of companies are called “mixed” companies. The contemporary scholars differed concerning the ruling on them, but the most correct view is that it is haraam to buy shares in them, invest in them or promote them.

That is because the shareholder is a partner in the company based on the number of shares he holds, so he is a partner to every transaction into which the company enters, such as riba or other haraam transactions.

With regard to the prohibition on promoting these companies, that is because of what that involves of co-operating in sin and transgression, helping to spread haraam and causing people to fall into it. Allah, may He be exalted, says (interpretation of the meaning):

“Help you one another in Al‑Birr and At‑Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression”

[al-Maa’idah 5:2].

This view was favoured by the majority of contemporary scholars, including the scholars of the Standing Committee for Issuing Fatwas in the land of the two Holy Sanctuaries. A statement to that effect was also issued by the Islamic Fiqh Council belonging to the Organisation of the Islamic Conference, as well as the Islamic Fiqh Council belonging to the Muslim World League.

It says in Fataawa al-Lajnah ad-Daa’imah, 14/299:

The basic principle is that it is permissible to hold shares in any company if it does not deal with haraam things such as riba and so on. But if it does deal with haraam things such as riba, then it is not permissible to hold shares in it.

Based on that, if any of the shares mentioned are in a company that deals with riba or haraam things, then it is essential to withdraw from it and get rid of any profit by giving it to the poor and needy. End quote.

Shaykh ‘Abd al-‘Azeez ibn ‘Abdullah ibn Baaz, Shaykh ‘Abd ar-Razzaaq ‘Afeefi, Shaykh ‘Abdullah ibn Ghadyaan, Shaykh Saalih al-Fawzaan, Shaykh ‘Abd al-‘Azeez Aal ash-Shaykh, Shaykh Bakr Abu Zayd

It also says (14/299, 300):

Firstly: if it is proven that a company deals in riba, whether taking or giving, it is haraam to hold shares in it, because that comes under the heading of helping in sin and transgression. Allah, may He be exalted, says (interpretation of the meaning):

“Help you one another in Al‑Birr and At‑Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression. And fear Allaah. Verily, Allaah is Severe in punishment”

[al-Maa’idah 5:2].

Secondly: if a person previously acquired shares in a company that deals in riba, then he has to sell his shares in it and spend the interest on charitable causes. End quote.

Shaykh ‘Abd al-‘Azeez ibn ‘Abdullah ibn Baaz, Shaykh ‘Abd ar-Razzaaq ‘Afeefi, Shaykh ‘Abdullah ibn Ghadyaan, Shaykh ‘Abdullah ibn Qa‘ood

The Islamic Fiqh Council belonging to the Organisation of the Islamic Conference issued a statement concerning shares in its seventh conference, held in Jeddah, 7-12 Dhu’l-Qa‘dah 1412 AH/ 9-14 May 1992 CE, in which it says:

(a)

As the basic principle concerning transactions is that they are permissible, founding a share-based company that has Islamically acceptable aims and activities is something that is permissible.

(b)

There is no difference of opinion concerning the prohibition on holding shares in companies whose basic aims are haraam, such as dealing in riba, or producing or trading in haraam things.

©

The basic principle is that it is haraam to hold shares in companies that sometimes deal in haraam things, such as riba and so on, despite the fact that their basic activities are Islamically acceptable.

End quote from Majallat al-Majma‘, issue no. 6, vol. 2, p. 1273; issue no. 7, vol. 1, p. 73; issue no. 9, vol. 2, p. 5.

The Islamic Fiqh Council of the Muslim World League issued a statement on the same matter in its fourteenth session in 1415 AH/1985 CE, the text of which is as follows:

As the basic principle concerning transactions is that they are permissible, founding a share-based company that has Islamically acceptable aims and activities is something that is permissible.

There is no difference of opinion concerning the prohibition on holding shares in companies whose basic aims are haraam, such as dealing in riba, or manufacturing or trading in haraam things.

It is not permissible for a Muslim to buy shares in companies or banks if some of their transactions involve dealing in riba, or manufacturing or trading in haraam things.

If an individual purchased shares not knowing that the company deals in riba, then he finds out about that, what he must do is get out of it.

The prohibition in this case is clear because of the general meaning of the evidence in the Qur’an and Sunnah concerning the prohibition on riba, and because buying shares in companies that deal with riba when the purchaser is aware of that means that the purchaser himself is a partner in dealing in riba, because the share represents part of the company’s capital, and the shareholder has a share in the company’s activities and possessions. So if the company lends any money with interest, or borrows with interest, the shareholder has a share of that, because those who deal with lending and borrowing on the basis of interest are doing that on his behalf and acting as his delegate, and delegating someone else to do a haraam action is not permissible.

May Allah send blessings and peace upon our Prophet Muhammad and upon his family and companions. Praise be to Allah the Lord of the Worlds. End quote.

Dr. Muhammad ibn Sa‘ood al-‘Usaymi (may Allah preserve him) was asked about the ruling on investing in mixed shares.

He replied: It is not permissible according to the majority of scholars, except investing in “clean” shares, whether one is buying shares or investing. End quote.

http://www.halal2.com/ftawaDetail.asp?id=1201

With regard to the view that shares in all types of companies are haraam, this view is incorrect, because there are some companies of the first type, which are the ones that adhere to Islamic rulings in their dealings. But perhaps those who are of this view were motivated to say that because companies of the first type are very few and most companies are of the second and third types.

And Allah knows best.

Taken from: https://islamqa.info/en/answers/112445/ruling-on-buying-and-selling-shares


View Two: Seekersguidance

NOVEMBER 9, 2009, Answered by Mufti Taqi Usmani

Question: Conditions for Investment in Shares

Answer: Taken from www.albalagh.net

In the light of the forgoing discussion, dealing in equity shares can be acceptable in Shariah subject to the following conditions:

  1. The main business of the company is not in violation of Shariah. Therefore, it is not permissible to acquire the shares of the companies providing financial services on interest, like conventional banks, insurance companies, or the companies involved in some other business not approved by the Shariah, such as the companies manufacturing, selling or offering liquors, pork, haram meat, or involved in gambling, night club activities, pornography etc.

  2. If the main business of the companies is halal, like automobiles, textile, etc. but they deposit there surplus amounts in a interest-bearing account or borrow money on interest, the share holder must express his disapproval against such dealings, preferably by raising his voice against such activities in the annual general meeting of the company.

  3. If some income from interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend paid to the share-holder must be given charity, and must not be retained by him. For example, if 5% of the whole income of a company has come out of interest-bearing deposits, 5% of the dividend must be given in charity.

  4. The shares of a company are negotiable only if the company owns some non-liquid assets. If all the assets of a company are in liquid form, i.e. in the form of money that cannot be purchased or sold, except on par value, because in this case the share represents money only and the money cannot be traded in except at par.

What should be the exact proportion of non-liquid assets of a company for the negotiability of its shares? The contemporary scholars have different views about this question. Some scholars are of the view that the ratio of non-liquid assets must be 51% at the least. They argue that if such assets are less than 50%, the most of the assets are in liquid form, therefore, all its assets should be treated as liquid on the basis of the juristic principle: The majority deserves to be treated as the whole of a thing. Some other scholars have opined that even if the non-liquid asset of a company or 33%, its shares can be treated as negotiable.

The third view is based on the Hanafi jurisprudence. The principle of the Hanafi school is that whenever an asset is a mixture of a liquid and non-liquid assets, it can be negotiable irrespective of the proportion of its liquid part. However, this principle is subject to two conditions:

First, the non-liquid part of the mixture must not be in a negligible quantity. It means that it should be in a considerable proportion. Second, the price of the mixture should be more than the price of the liquid amount contained therein. For example, if a share of 100 dollars represents 75 dollars, plus some fixed assets the price of the share must be more than 75 dollars. In this case, if the price of the share is fixed as 105, it will mean that 75 dollars are in exchange of 75 dollars owned by the share and the rest of 30 dollars are in exchange of the fixed asset. Conversely, if the price of that share fixed as 70 dollars, it will not be allowed, because the 75 dollars owned by the share are in this case against an amount which is less than 75. This kind of exchange falls within the definition of “riba” and is not allowed. Similarly, if the price of the share, in the above example, is fixed as 75 dollars, it will not be permissible, because if we presume that 75 dollars owned by the share, no part of the price can be attributed to the fixed assets owned by the share. Therefore, some part of the price (75 dollars) must be presumed to be in exchange of the fixed assets of the share. In this case, the remaining amount will not be adequate for the price of 75 dollars. For this reason the transaction will not be valid.

However, in practical terms, this is merely a theoretical possibility, because it is difficult to imagine a situation where a price of the share goes lower than its liquid assets.

Subject to these conditions, the purchase and sale of shares is permissible in Shariah. An Islamic Equity Fund can be established on this basis. The subscribers to the Fund will be treated in Shariah as partners “inter se.” All the subscription amounts will form a joint pool and will be invested in purchasing the shares of different companies. The profits can accrue either through dividends distributed by the relevant companies or through the appreciation in the prices of the shares. In the first case i.e. where the profits earned through dividends, a certain proportion of the dividend, which corresponds to the proportion of interest earned by the company, must be given in charity. The contemporary Islamic Funds have termed this process as “purification.”

The Shariah scholars have different views about whether the “purification” is necessary where the profits are made through capital gains (i.e. by purchasing the shares at a lower price and selling them at a higher price). Some scholars are of the view that even in the case of capital gains the process of “purification” is necessary, because the market price of the share may reflect an element of interest included in the assets of the company. The other view is that no purification is required if the share is sold, even if it results in a capital gain. The reason is that no specific amount of price can be allocated for the interest received by the company. It is obvious if all the above requirements of the halal shares are observed, the most of the assets of the company are halal, and a very small proportion of its assets may have been created by the income of interest. This small proportion is not only unknown, but also a negligible as compared to the bulk of the assets of the company. Therefore, the price of the share, in fact, is against the bulk of the assets, and not against such a small proportion. The whole price of the share therefore, may be taken as the price of the halal assets only.

Although this second view is not without force, yet the first view is more cautious and far from doubts. Particularly, it is more equitable in an open-ended equity fund because if the purification is not carried out on the appreciation and a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit of the Fund at a time when no dividend is received by it, no amount of purification will be deducted from its price, even though the price of the unit may have increased due to the appreciation in the prices of the shares held by the fund. Conversely, when a person redeems his unit after some dividends have been received in the fund and the amount of purification has been deducted therefrom, reducing the net asset value per unit, he will get a lesser price compared to the first person.

On the contrary, if purification is carried out both on dividend and capital gains, all the unit-holders will be treated at par with the regard to the deduction of the amounts of purification. Therefore, it is not only free from doubts but also more equitable for all the unit-holders to carry out purification in the capital gains. This purification may be carried out on the basis of an average percentage of the interest earned by the companies included in the portfolio.

The management of the fund may be carried out in two alternative ways. The managers of the Fund may act as mudaribs for the subscriber. In this case a certain percentage of the annual profit accrued to the Fund may be determined as the reward of the management, meaning thereby that the management will get its share only if the fund has earned some profit. If there is no profit in the fund, the management will deserve nothing, but the share of the management will increase with the increase of profits.

The second option of the management is to act as an agent for the subscribers. In this case, the management may be given a pre agreed fee for its services. This fee may be fixed in lump sum or as a monthly or annual remuneration. According to the contemporary Shariah scholars, the fee can also be based on a percentage of the net asset value of the fund. For example, it may be agreed that the management will get 2% or 3% of the net asset value of the fund at the end of every financial year.

However, it is necessary in Shariah to determine any of the aforesaid methods before the launch of the fund. The practical way for this would be to disclose in the prospectus of the fund on what basis the fees of the management will be paid. It is generally presumed that whoever subscribes to the fund agrees with the terms mentioned in the prospectus. Therefore, the manner of paying the management will be taken as agreed upon on all the subscribers.

Taken from: https://seekersguidance.org/answers/hanafi-fiqh/conditions-for-investment-in-shares/


View Three: Islamweb

The rule of trading in stock markets differs according to the kind of shares that are involved. Thus, the shares of trade companies or factories which limit their dealings or their manufacture to what is lawful according to the Sharia are lawful under the conditions that such companies do not deal in Riba (usury + interest). It is, however, forbidden to buy or sell shares from any other companies that do not limit their dealings and activities to what is lawful because any profit that one gets from them is resulting from a forbidden act. Indeed, dealing with these companies is a kind of cooperation with them and advertisement for them. Allah Says (Interpretation of meaning): (Help you one another in righteousness and piety. But help you not one another in sin and rancour). [5:2]. If you have already bought some of the forbidden shares, you should repent to Allah and get rid of them to show to Allah your true intention and give up all forbidden things. And whoever gives up something for the sake of Allah, He (Allah) will compensate that thing with a better one. Allah Says (Interpretation of meaning): (And for those who fear Allah, He (ever) prepares a way out of every difficulty. And He provides for him from sources he never could expect).[65:2,3). We advise, then to invest your money -which is a favor from Allah - in the ways of investment made lawful by Allah. Do not reciprocate Allah’s favor with a sin. So, do not invest your money in what Allah has forbidden. Finally, think about the meaning of the following sound Hadith: The Prophet Muhammad (Blessings and peace of Allah be upon him) said: “A servant of Allah will remain standing on the Day of judgment till he is questioned about his life, how he spent it; and about his knowledge and how he utilised it; and about his wealth from where he acquired it and in what (activities) he spent it, and about his body as to how he consumed it” .[Tirmizi]. Allah knows best.

Taken from: https://www.islamweb.net/en/fatwa/82105/trading-in-stock-market


Mufti Faraz view

To give a more wholesome and comprehensive answer to this question, the following two questions will be addressed:

  1. What are shares from a Shariah perspective?
  2. Are all shares halal?

1. What are shares from a Shariah perspective?

Shares are not simply slices of ownership in assets of a company. From the lens of the law, shareholders are not considered as the owners of the assets in the company. The Court of Appeal declared in 1948 that “shareholders are not, in the eyes of the law, part owners of the company”. In 2003, the House of Lords reaffirmed that ruling, in unequivocal terms. “Ownership” of shares is not the same as owning your own freehold property. Shares do not give legal ownership of the underlying assets of a firm. Instead, shares are a bundle of rights.

Although a Shariah ruling is not entirely premised on legal and accounting classifications, there is certainly an overlap and several parallels in the way realities are understood. However, each subject works within a framework and operates with set rules. Hence, whilst we take support from legal and accounting principles, Shariah has its own framework, its own principles, its own processes and tools to ultimately analyse and conclude on a matter.

Shares are a recent phenomenon and an exact parallel or precedent is not found in the classical works of Islamic law. Although some scholars have drawn parallels of companies limited by shares or limited by guarantee to that of Waqf, Baytul Maal and ownership in servants in the pre-modern era, there are still differences between each.

Ownership (Milkiyyah) in the legal sense and in the Shariah is not a simple concept; it is a relationship between a person and a thing. Like friendship, ownership has many characteristics, rights and manifestations. If a relationship has enough of these characteristics, we can describe it as ownership. I am of the view that shares grant sufficient rights to distinguish shares from debts, derivatives and to make it fall generally within equity albeit different to the equity one owns in their freehold property.

Shares are clearly different from debt obligations as there are no obliged repayments, nor is the capital guaranteed and nor are shareholders ranked pari-passu with creditors. Further, shares are treated as equity from an accounting perspective. Thus, shares are clearly different to debt obligations.

Shares are different to derivatives as shareholders have more rights than derivative holders. Shareholders’ rights arise in the Companies Act 2006. However, these may be modified by the company’s articles of association, a shareholders’ agreement and possibly under the terms of a specific share issue. Shareholders generally have the rights to attend general meetings and vote. Shares also grant the shareholder rights to dividends, however there is no obligation on the directors to pay dividends.

Although shares give their holders no right of possession and no right of use, it is understandable that these rights are not key nor sought by shareholders. A company could not give rights to possession nor could it give rights of use to hundreds of shareholders, the firm could simply never function! While shares do not give similar rights to equity in freehold nor the same level of Milkiyyah, they still harness relationships and features sufficient to classify the shares as a type of

Milkiyyah granting Huquq (rights) in an entity. As such, shares are essentially a bundle of rights and give shareholders an “interest” in the firm. These rights are sufficient for the shareholder to be considered Malik (owner) of shares in an entity. Therefore, shares, although they do not have a direct parallel to classical structures and investments and are not symmetrical to traditional understandings of ownership, they are still a valid form of investment and they do grant a novel type of Milkiyyah and interest to shareholders.

2. Are all shares halal?

There are various types of companies in terms of how Shariah compliant they are. We can broadly group the companies into three:

1. Shariah compliant business & Shariah compliant financials

This refers to companies which have a Shariah compliant business activity such as the trading of halal food and beverages, textiles, halal pharmaceuticals. They further have no borrowings with interest and they do not receive any unlawful earnings from interest-bearing deposits, unlawful investments or trade of unlawful products.

Such listed companies are very difficult to find as they require an entire Islamic economic system with all Islamic financial institutions in terms of capital markets, Shariah compliant money markets, Takaful institutions, Islamic banks and more.

2. Non-Shariah compliant business

This refers to those companies which have a non-Shariah compliant business activity such as the production of pork, production of alcohol and conventional financial institutions trading in non-Shariah compliant products and instruments. Investing in such equities is never Shariah compliant and should be avoided at all cost.

3. Shariah compliant business & mixed financials

Many companies fall into this area where their business is Shariah compliant but they may have a small proportion of borrowings with interest or may have deposits in a business account in a conventional bank and thus receive interest.

With the interconnectedness of the financial system and most companies operating in conventional systems, it becomes almost impossible to evade some exposure to non-Shariah compliant financial services. Thus, majority of contemporary jurists permit investing in such companies as long as one does not benefit from the impure income and secondly, as long as the company proves to have minimal exposure to interest. This is established by successfully passing financial screening criteria. The two screenings a company must go through are as follows:

1. Business screening

  1. A company shall not be involved in any of the following businesses:

a. Companies in the Financial services industry that are involved in interest-based lending and/or distribution of interest-based products. This includes financial intermediaries such as conventional banks, conventional insurance, interest-based lending (excluding windows operating in compliance with Shariah principles).

b. Manufacturing or distribution of alcohol and tobacco;

c. Companies operating in betting and gambling operations like casinos or manufactures and providers of slot/gambling machines;

d. The production, packaging, processing, or any other activity related to pork and non-halal food and beverages;

e. Bio-technological companies involved in human genetic manipulation, alteration, mutation and cloning; excluding those that are involved in medical research.

f. Shariah non-compliant entertainment, that deals with the operation of cinema theatres, composing, production and distribution or sale of music or pornography, the operation of Shariah non-compliant TV or radio stations; and

g. Any other activities not permissible under Shariah, as determined by the Shariah Advisor.

2. Financial Ratios Screening

Once a company passes the initial screening, a detailed analysis of its financials will be conducted using the last available audited financial statements. Investments shall not be made in companies with the following financial ratios:

a. Total Conventional debt (interest bearing) divided by the Total Asset of the company that is equal to or greater than 30%;

b. Cash and Accounts Receivables divided by the Total Asset that is equal to or greater than 70%;

c. The sum of cash plus interest-bearing securities divided by the Total Asset is equal to or greater than 30%; and

d. Non-permissible income equal to or greater than 5% of total revenues.

The above financials are Ijtihadi in reasoning and slightly differ among scholars and institutions, however, there is very little variance between the various screening criteria. The following Shariah screening criteria are very similar and are commonly referred to:

Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI); (ii) Dow Jones Islamic Market Indexes (DJIMI); (iii) Kuala Lumpur Shariah Index (KLSI); (iv) Financial Times Stock Exchange Shariah Global Equity Index (FTSE); (v) Standard & Poor’s Shariah Indices (S&P); (vi) Morgan Stanley Capital International World Islamic Indices (MSCI); (vii) Thompson Reuters Ideal Ratings Islamic Indices; (viii) STOXX Europe Islamic Index; and (ix) ISRA Bloomberg Shariah Stock Screening Indices (x) Al Meezan.


The IFG view

We agree with Mufti Faraz’s analysis and the AAOIFI analysis. Where we slightly differ is on our quantitative screening criteria. We agree with 2(b) but with the caveat that the threshold is increased to 80%. AAOIFI stipulate 70% here instead. We think this is too conservative and there are often situations where businesses do end up with a lot of liquidity.

Some people also also require that the liquid assets of a company must not exceed the value of its market capitalisation (which is calculated by multiplying the number of issued shares of that company by its share price). We agree with this in principle, but given that this result is so vanishingly rare we generally leave out this screen for purposes of simplicity.

You can learn how to screen shares on the stock market for sharia-compliance here.

If you can’t be bothered with the headache of painstakingly screening each stock - you can just buy ready-made bunch of sharia-compliant stocks held in well-balanced portfolios by investing in a fund. You can compare all the halal investment funds on our comparison page here (just filter for “stocks & shares”).

You can actually set up an account with a company called SimplyEthical who only show companies on there that are halal. If you mention that you heard about them through IFG when you sign-up it helps us keep the lights on - and doesn’t cost you a penny.

Salam,

Some sectors seem permissible and don’t have halal tradings i.e IT and Health Care
Is it permissible to buy indices based on these sectors because there are not many halal ETFs?

thanks and salam,
Sameh

P.S I’m not a resident in the UK to take advantage of some halal platforms i.e Wahed Invest and simplyethical

Salaam Sameh

Firstly - welcome to the forum!

Our thoughts are that for certain sectors (e.g. tech in particular) the debt levels are also very low. So within these sectors, if you get comfortable that the ETFs are holding stocks the vast majority of which are permissible - we could get comfortable with that.

However it definitely isn’t a foolproof approach by any stretch.

We will iA be regularly sharing specific stock screens in the coming months so that we can help people like you identify the halal stocks in a sector easily.

1 Like

Jazak Allah Ibrahim!

1 Like

Salam Brothers,

Firstly. jazakumu Llah for this synthesizing work. That’s very quality and helpful content.

Secondly. Mufti Faraz view is very interesting but I really feel uncomfortable to deal with Riba even if it represents a small portion of the company’s transactions. So my questions are as follows : Knowing that it’s Ijtihad, what are the financial ratios based on ? Why did the scholars chose precisely 30% for the debt/ assets ratio for example ? Why not more or not less ?

Thanks for the answers

Wa Alaykum Salaam,

You are correct that this is an Ijtihad of contemporary scholars. A few decades ago, scholars faced this issue where the majority of the listed companies had interest-bearing debt and interest receivables. Keep in mind, equity is an important diversification of investment portfolios. Thus, the scholars saw that there was Umumul balwa (widespread exposure) and this cannot be resisted unless one adopts a nomadic approach to business and finance. Therefore, the scholars at the time were of the view that there should be some allowance and concession to invest in equities since there was rarely any alternative for listed companies to keep deposits in other than interest-bearing accounts(as Shariah compliant banks were few in the west in the early 90s), many of the listed companies were non-Muslims, there was many a time that the companies took loans because they was a genuine need for financing. However, the challenge they faced was determining an acceptable threshold. Some proposed 49% as that is the final number to remain a ‘minority’. However, others argued that the Hadith has mention of 1/3 being sufficient and excessive in the following narration:

Sa’d said: “I was stricken by an ailment that led me to the verge of death. The Prophet came to pay me a visit. I said, ‘O Allah’s Apostle! I have much property and no heir except my single daughter. Shall I give two-thirds of my property in charity?’ He said, ‘No.’ I said, ‘Half of it?’ He said, ‘No.’ I said, ‘One-third of it?’ He said, ‘You may do so, though one-third is also excessive. (Bukhari)

Based on the above, scholars felt that there is a reference to excessiveness in the sacred text, so it would be more prudent to adopt one-third as a benchmark for excessiveness.

Although 30% is not one-third, 30% was seen as a reasonable standard just below one-third to prevent the “excessiveness” from being within touching distance.

Although this is an Ijtihadi issue, since then, majority of scholars have adopted this view and therefore the view has gained further strength and is now a standard based on widespread scholarly acceptance and approval.

2 Likes

Salam,

I was looking at the following video https://www.youtube.com/watch?v=oakLG3d-2Tw&t=27s

and I would love to hear your opinion regarding whether you think his method is considered shariah-compliant or we should solely focus on the AAOIFI standard (or other well-known standards).

Wasalam

May Allah bless you.

First of all, the speaker is not a shariah scholar (as I have been told).
Secondly, I am not saying that his method is not shariah compliant, however, I have never heard of an opinion similar to his from a scholar either.

In an ideal world, we would invest in companies that have no interest-based debts. Until we see this day, it would be best to rely on screening method from reputable shariah scholars bodies, such as AAOIFI.

And Allah knows best!

1 Like

I’ve asked a few sheikhs locally (Leeds, UK) and online (https://www.mcabayarea.org/ask-the-sheikh) and they agreed with his method. I am in the following dilemma,

I feel his way makes more sense, as he looks directly into the interest expense rather than debt.

If company A & company B have a market cap of 1 billion dollars, and company A has 50% debt and company B has 20% debt. But since company A has better management/more secure, it could be paying less interest compared to company B yet company B would be considered shariah compliant.

So my dilemma is that I feel his method makes more sense (religion wise and investment wise, and the biggest example was Tesla, it wasn’t shariah compliant at $250, as far as I know, but it’s shariah compliant at $1000) but AAOIFI is much more standardized.

I am a fund manager so I am trying to ensure shariah-compliance while at the same time ensure that the investment makes sense rather than waiting for the price to go up to buy.

I would love to hear your opinion as I was very convinced with your answer in my previous question about advertising and streaming services

@Mufti_Billal

Thank you in advance

Salam Mufti sahab,

When we screen stocks, should we do it on an annual basis or quarterly basis. I guess, quarterly is better, but its hard to keep screening stocks every quarter. Whats your opinion on this?

Best,
Furqan

Wa alaykum salaam,

Screening quarterly is the normal industry practice and you should do this quarterly.

Allah knows best

If the quarterly results show the stock becoming non-sharia compliant, when do we treat this to have happened. At the beginning of the quarter or end? Also, if stocks need to be liquidated, can any broker fees be paid from the impure proportion?

Salam brother

How long would a stock screening be valid for and how often would you need to check to see if business is still shariah complaint

Wasalam

May Allah bless you.
If the company you are enquiring about has a shariah board then please, refer this question to their scholars.
If the company is listed on a shariah index, then you should refer to the shariah board in charge of compliance of the index.
Each shariah index is different, for example FTSE Shariah Global Equity Index Series monitor companies. If a company change its financial compliance between two successive quarters, then the company will be monitored for two consecutive quarters. If during that time they are still not compliant, then their shariah compliance status will change accordingly.
On some Islamic indices, companies are monitored each month, and if they are not compliant they get removed from the index.

If you are enquiring about a company that is shariah compliant according to your screening, but it is not listed on a shariah index, then I think @Mohsin_from_IFG might be better positioned to say what is the best course of action.

And Allah knows best!

@Mufti_Faraz_Adam - any advise on this?

Also, balance sheets are not always available quarterly. In this case, what should we do?

Is it okay to use either of Total Assets/ Market Cap as the denominator when calculating the financial ratios?