Two fold question on the 33% cap on interests bearing debt AND regarding Purification

[GreenGiant]

Assalamu alaykum,

I’m new to stock investing and I would like to understand in sha Allah the reasoning behind the % number cap for interests bearing debt? In regards to haram income, let’s say strictly from interests, the maximum tolerable amount is 5%; that’s interests going in. Why would interests on debt (interests going out or being paid out) considerably higher? Isn’t interest equally bad receiving and paying? That’s the first part of my question.

Secondly, why is there only mention of purification for the 5% (interests going in) and not the 33% (interests going out / paid out)? Again, what makes one different from one another?

JazakAllahu khayran

[Mufti_Faraz_Adam]

Assalaamu alaykum,

Kindly see

Making Sense of the 30% Rule in Islamic Finance | Amanah Advisors

[GreenGiant]

What about the second part of the question regarding purification? Do we have to purify all or part of the 30% by giving to charity? In all cases, what is the reasoning behind it.

JazakAllahu khayran

[Mufti_Faraz_Adam]

The 5% is the actual impure income whilst the 30% refers to the contracts which are involved in Riba. So 5% is max that is purified.

Allah knows best

[Zeeshan]

Asslam o alikum,

very good article @Mufti_Faraz_Adam. Thanks for sharing.

I have a follow-up question on how to deal with a stock that was compliant at the time of purchase and now has become non-compliant as the gearing has breached the 30% criteria (talking of carnival and easy jet precisely)

1. Do these need to be sold immediately?
2. What happens to the capital gain? purify a portion or all needs to go to charity?
3. I also wonder that when there is interest income coming to the company (5% cap), we purify the dividends, how do we deal with the non-compliance resulting from 30% loan situation in regards to Capital gain which will result not from companies future potential of earning interest income but due to recommencing of operations as we come out of COVID.

Appreciate your guidance on this.

Best Regards
Zeeshan

[Nawaaz]

Wa alaykum salaam Zeeshan

Hopefully the following two answers will help with your questions:

What to do with my capital gains? Does it need purification ? Is it Halal for me to use?

Assalaamu alaykum, Purifying capital gains remains a debated issue. Some scholars argue that capital gains’ purification is not necessary, since the change in the stock price does not reflect the interest income, while others advocate capital gains purification. Those who are in favor of capital gains purification argue that it is safe not to utilize or benefit from impure income that might be reflected in the capital gains. This is because, fundamentally, the market price capitalizes the comp…

Can I wait before selling a losing stock that turned non permissible

Once the shares become non compliant, the ideal is to get rid of the profit made as soon as possible otherwise if it is not possible you can do the cleansing process once you have sold the shares. There are many way to purify the non shariah compliant income. Some may be stricter than the other. Mufti Zubair Butt has mentioned one way in his fatwa: http://alqalam.org.uk/research-papers/investment-in-stocks-and-shares/ @ibrahimkhan may share his method with you on this subject. The easie…

[Zeeshan]

jazakallah @Nawaaz - really appreciate you sharing this.

[bakir_habul]

Hi everyone.

I do not understand how this concept of 30% permissible debt with interest payment required was founded. How does excessiveness align with loan acquisition?