As salaam mu alaikum.
My allah reward everyone who has tried to help answer these complex questions. I feel frustrated the world becomes constantly more complex rather than being simplified but such is life.
I am trying to understand share lending as it is increasingly becoming something that trading platforms offer and was offered to me recently.
I notice at the top of the thread that share lending is not halal. I would really appreciate an expansion of the reason for it being haram. I have read the actual terms within the platform I use and this is what happens:
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I allow the lending of shares and those shares are lent to a third party through a brokerage system. What the third party does with it can be a wide range of things from short selling to helping to create liquidity (without shares being readily available during pricing its difficult to price sometimes. I have had this situation when I am trading a share that is not traded in high volumes. So when I put the trade in, because the trade cant be matched to a seller the trade is rejected. By having shares lent to the brokerage firms they can manage the flow of trades by keeping a float of shares available to allow for the trades to execute.
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The shares are paid back 1 for 1.
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While the shares are lent out depending on market demand for the loan the share lending generates a yield. Now this could be called interest. However, when I look at the topic its different to interest. Interest is a fixed amount of money in exchange for money being loaned. When I researched RIBA as I understood it, even the loan of 10 oranges in exchange for 11 oranges after say 12 months is RIBA because you get back the same asset class. In this case oranges. Money is not being paid back for money. So I dont see how the term interest is applied here. Its a fee and more specifically a rental fee. It does get a little complicated in terms of the fact the fee can be variable. Which Ill discuss below.
In the case of share lending, you lend shares, you are paid a fee. The fee is variable depending on demand. The fee can be 0 as well if there is no demand or the firm who borrows the shares goes out of the business. Although most platforms in order to encourage share lending will make up the short fall and make sure all your shares are returned.
Share lending seems more like hotel room pricing. There are many hotels (the fairmount in Makkah is an example) where you can own a room in the hotel and rent it out either yourself or through the hotel. The hotel room is my example is the share.
The share is then put out for rent, the rental fee is adjusted based on demand just like a hotel room. In peak season when there is a lot of demand you get paid more. After the room rental is complete the room is still yours and its returned to you.
I am cautious to present my reasoning as contradicting the learned scholars here. However, for me what always attracted me to Islam is the fact that debate is allowed, there is no unquestionable doctrine. Everything can be questioned and Alhamdulillah’s there is always a good answer. My work involves a lot of math and in particular Boolean algebra. I try to build my thinking based on axiomatic logic because this allows for discourse based on principles.
I know this is not the right thread and I am sorry if I am breaking any rules. I literally just started using this platform today.
Can someone explain to me why short selling is considered haram. This is through lack of knowledge. I prefer not to google because there is so much random stuff on the internet. Mathmatically its the reverse of investing and then selling for a higher value. If I were to short sell by borrowing a share from my friend, lets say microsoft and agree a fee of say £5 for that borrowing per month I hold the share. Then I get the share, then I sell it for £300. I then buy the share back after 3 months from the market at say £100. I made a profit of £200. I then pay my friend back the share. I also give him £15 and I am left with a profit.
I am renting the share and obliged to give my friend the share back even if the price goes up.
When I was at Islamic school a very long time ago, my teacher said that if there is no shared risk then it becomes Haram. In the case of the lender they have no risk but then im confused again because i go back to my hotel room analogy.
While share lending for me will be a material amount of money per year probably 8-12,000 a year. I wont be doing it until I am 100% certain its halal. Right now the statement that is Haram is enough to prevent me. However, my principle is not to follow statements blindly without understanding them and I simply seek to understand.
