Why is investing in companies with interest considered permissible?

Investment Questions and Chats Stocks
#1

Asalamu alaykum. JazakAllah khair for your efforts to create and keep responding to messages on this platform.

I’m having sort of an investment crisis. I’m a relatively new investor, having started just around the beginning of this year. I learned about shariah compliance of stocks, didn’t really question it, and have been investing based on that since.

Recently though, I’ve come to the question – why is it okay for us to invest in companies with ANY interest at all, if interest is totally forbidden? I was watching this video: https://www.youtube.com/watch?v=hhhbgzUtWyU&t
and the Amana portfolio manager mentoned that scholars agreed that if Muslims do not get into the market, we’ll be left behind, and this was the initial motivation for creating guidelines for shariah compliant investments. Is this really the original motivation, or am I misunderstanding?

I’m in Canada (near Toronto), which is a little different than the US, in that most people around here invest in land/houses rather than stocks. Houses get insanely expensive, but of course, we can’t really afford them without a mortgage (I know there are halal mortgage funds, but they’re extremely pricy at the moment). For the record, I am NOT here to try and get a “okay, in your situation a mortgage is halal!”, but rather trying to apply the principles we apply to stocks, to this situation, and show how in my opinion this seems to be problematic :confused:

So, technically if Muslims live on rent their entire lives here, they’re being “left behind” compared to their peers. Housing is getting more and more and more expensive, and so from a non-muslim perspective, this really is the best investment someone can make. Why can’t someone just make the same argument that we’ll be left behind, and use that to justify a mortgage? And I know about the 33 or 30% mcap to debt ratio, well, what if I can cover 70% of the cost of my house, and get a mortgage on only 30%?

Please understand that I’m not here trying to attack the idea of halal investing, or anything like that – I’m genuinely just a little concerned, because if we can use these ideas for investing, where does it stop, and, for example, how can’t this translate directly to the mortgage scenario I mentioned? (Imagine there aren’t halal mortgage funds, because they’re super expensive anyway, and aren’t available everywhere, and we always have the option to rent a house instead of buying, yes, but we also have the option not to enter the stock market, right?)

JazakAllah khair, I hope this makes sense, I would really appreciate some help. Again, please don’t take this as an attack or anything, I’d obviously love to feel confident that my stocks are halal, but I’m having trouble understanding why we can make these exceptions for stocks, but not elsewhere, in which case where does it end? :frowning:

1 Like
#2

Wa alaykum salaam Uzair

Welcome to the community! You raise some very interesting points. Here in the UK, limited islamic mortgages exist, and although they are more expensive than conventional mortgages, they are not unaffordably more expensive.

I would also like to understand the difference in reasoning for investments and whether this could be extended to conventional mortgages. I suspect one of the main reasons that they are not comparable is because a conventional mortgage works very differently to investing in stocks. With a conventional mortgage there is no trade with a tangible asset involved. You are simply borrowing money from the bank to buy a house, and paying more money back to the bank, which can be considered as clear riba. This is principally very different to stocks, where buying shares literally means buying a physical share in a company- therefore there is an actual trade taking place with a tangible asset and is therefore permissible (providing that the agreed shariah screens have been passed).

@Mufti_Billal @Mufti_Faraz_Adam - Would you please be able to provide some guidance on this?

And Allah knows best
JzkAllahkher
Nawaaz

#3

JazakAllah brother for your thoughts. I hope one of the Mufti’s is able to provide some clarification, although your points sound logical to me :slight_smile: I appreciate the input!