I would be grateful if someone could kindly explain the islamic ruling associated with an ‘Advanced Subscription Agreement.’ The reason why I ask is that IFG offer subscriptions for various company shares, some of which are through this mechanism and whilst I have reservations o this transaction type, I don’t know of the legal ruling on this and would like to know as this has held me back in investing.
My understanding of this subscription type from another website is as follows;
Investment into a company via an Advanced Subscription Agreement (ASA) is purely an equity agreement. The intention is for investors to pre-pay for shares that will be allocated during a subsequent funding round at a discount to the pre-money valuation as stipulated in the Advanced Subscription Agreement.
Q: WHEN WILL I RECEIVE SHARES IN THE COMPANY?
A: Shares are usually issued on the next funding round subject to the company hitting a pre-determined target as set out in the ASA. Should the requirements not be met, come the Long Stop Date, the number of shares that will be allocated is determined by the Long Stop Price.
The islamic reasons why I have some reservations on this type of transaction are primarily linked to the uncertainty in it, whilst islam places an emphasis on certainty in the transactions that one gets involved in - for example, with the ASA I am concerned about;
- Entering into a transaction where the price of something is not known
- Entering into a transaction where the value of what i am buying (be that the individual shares and/ or the company valuation) is not known
- Being allocated a price for the shares at a future date - this could be at an attractive or unattractive price - at that future date, I have no knowledge of what this could be nor at that stage would I be able to withdraw if it was unattractive
I would be very grateful for some help in understanding this matter and the basis upon which it is allowed.