This topic is regarding Islam and its permission in ISLAM? Is it Halal or Haram?

AoA

I believe that the wise people have said that as long as the company you invest in is halal then its halal for you.

So investing in a beer company wouldnt be halal, while investing in fx. telecommunications would be halal.

whether stock trading is halal or haram is actually a fairly tough qn. yes one of hte components is as shahid2k said about investing in a halal company but apart from that you also have to take into account that share trading is essentially a gamble. your gambling on which stocks will see their prices increase and buying them to make money off them when the price increases...looking at it that way you may infact say that is isn't halal.

just my 2 cents.

No, Faz, I think you are misguided.

Investing in stocks is the exectly what Islam teachs, that is profits and loss sharing, due deligence is also a requirement in Islam as long as the business in which one is investing is legal and do not contravenes the Islamic principals. Buying shares in hope of profit is exectly opposite to gambling as you are sharing risk and are not getting intrest on your investment.

The wisdom behind sharing risk and prohibition of Intrest is the same behind stock market.

It's not really a gamble, it's not left to chance. The stock value of a company increases decreases based on business and thier business stratergy.

If you are aware of those things it's aperfectly calculated science, however most people do take risk in this game, but risk is not always a gamble.

According to Islamic financial syayetm if one do not shares risk, the income will become an intrest or ribbah, that is haram, but investing in business or stocks is exectly according to principals of Islam.

Prophet (PBHU) stated business in same manner, Hazrat Khadija would invest money and buy the good, Prophet (PHUH) was handling the business on profit and loss sharing basis, this is what we do in stock market, we put money and company's management handles business.

We would all share the profits and loss, that is risk sharing according to Islam.

...................................................................................................................

This article clarifies the isue.


As investors become more aware of the benefits of investing in socially responsible funds, the interest in Islamic investing is also increasing. What does it entail and how are Shari'ah compliant funds assessed?

Socially-responsible investment is a growing global phenomenon whereby investors select stocks based upon the issuing companies' moral and ethical behavior. This typically includes avoiding involvement in certain businesses, as well as maintaining ethical environmental and employment practices. In Islam, these issues are governed elegantly by the Shari'ah, or divine guiding principles revealed in the Qur'an, which Muslims worldwide are expected to follow to the extent possible given their circumstances. Corporate treasurers and institutional investors representing Muslim clients increasingly need to concern themselves with these Islamic investing guidelines. Several services now offer ratings, reports, and indexes that provide guidance in this area.

What is Islamic Investing?


Islamic investing is investing with a commitment to the Shari'ah, the divine guiding principles revealed by God to humankind in the Qur'an and demonstrated by the Prophet Muhammad (peace be upon him). Most of these principles are common to most religions and morality systems, including the three Abrahamic religions - Islam, Christianity, and Judaism. The Islamic investor considering owning stock in a company must consider the level of Shari'ah compliance in the company's business practices, because as a stockholder he becomes a minority owner of the company and shares some ethical responsibility for the company's activities. Islamic business practices encourage cooperation in producing and distributing goods and services that enhance human prosperity and dignity. The Shari'ah prohibits all business activities that produce significant harm or undignified moral behavior. Business activities involving gambling, pornography, alcohol, money-lending, harmful substances and pork are prohibited in Islam. The Shari'ah also requires avoidance of revenues derived from any direct or intentional support of such activities. It clearly calls for avoiding the payment or receipt of interest on money-lending (riba in Arabic, see below), avoiding hazardous or excessive ambiguity in transactions (gharar in Arabic), and obeying the laws of the land (government laws). Additional Islamic business principles include respect for the environment and human welfare, fair and transparent dealing, and fair and just employment and R&D policies.

Is Stock Investment Allowed Under Shari'ah?

Equity investing is strongly encouraged in Islam. Most Islamic scholars agree that owning common stock in modern corporations is allowed, within certain guidelines, and is analogous to the equity partnerships practiced by the Prophet Muhammad and encouraged in his traditions (the Sunnah). "In fact, buying stocks can be one of the most Shari'ah-conscious investments available to many individual Muslims today," says Dr. Monzer Kahf, a leading scholar of Islamic finance and economics, "provided the following guidelines are met for the issuing company:"*

The company's main line of business must be allowed.
Riba and other prohibited activities must not generate more than a small percentage of the company's income.
Financial assets (liquidity in banks and account receivables) that may generate interest must not be too large a percentage of company value.
Leverage or dependence on borrowing must not be high.
The company must have honest and transparent business practices and not be involved in cheating, fraud, etc.
The Islamic investor must estimate the percentage of their profits that may have come from riba and other prohibited activities and donate it to general charitable causes so that their investment and profit remain pure. This is called "purification" of investment gains.


What is Riba?

Riba is an Arabic word meaning increment or increase. In the context of business, it means an unearned increase in an exchange contract without offering anything in return that is recognizable in Shari'ah. Interest on money-lending is the most common kind of riba; it's strongly condemned in the Qur'an in several verses. Examples of riba include interest on bank loans and credit cards, gains from trading bonds or other debts, and interest earned on saving and other deposit accounts.

On the other hand, charging rent for the use of a physical asset, such as a car, a machine or a house, is permissible and is not riba. Therefore leases in which the lessor retains ownership and responsibility for the usability of the asset ("operating leases" generally qualify) do not involve riba. Trade on credit, where a higher-than-spot price is charged in deferred payment for goods or services, is also allowed and is not riba. Gains from trading ownership shares in physical assets or business enterprises are not riba. And growth in the value of equity or other assets resulting from human effort or market conditions is certainly not riba. All of these allowed forms of earning a return on capital are encouraged in Islam: "...God has permitted trade, and forbidden riba." (Qur'an 2:275).

What is the Rationale for the Prohibition of riba?
Microeconomic Rationale

On the micro level, the prohibition of riba aims at maintaining justice in transactions. Charging interest is inherently unjust and unbalanced as it gives the lender an assured and secured return and puts all the burden of risk and unknown future outcome on the borrower. Additionally, by limiting lending to a zero-return personal benevolent practice, the avoidance of riba places a healthy, natural limit on the amount of debt that a person or business can accumulate.

In Islam, a loan is a benevolent act, and has little place in business or commerce. A person may loan someone her car, $100, or a cup of sugar, but she cannot take interest on the loan and can only demand return of the item loaned (or its like-kind equivalent in the case of money or consumables), although she may take and hold something as security for repayment of the loan. In commerce on the other hand, we engage not in benevolent acts but in commutative contracts, i.e., agreements where two parties trade things of value with the hope of financial gain. Therefore loans are generally unsuitable for the realm of commerce in Islam.

However, it is perfectly acceptable to buy, sell, and rent goods, assets and services. Payment may be on the spot, advanced, or deferred, and a higher price may be charged for an item if payment is deferred. Similarly, a lower than spot price may be associated with advanced payment. Profit in trade, whether in sale for cash or credit, accrues only once and is based on the price agreed upon at the time of sale. Debts may be created, but they are only created in exchange for real goods or service of equal value. Debts do not grow merely with the passage of time. This puts a limit on the amount of debt a party can accumulate, equal to the value of goods or services she/he has purchased. For example, a person may rent a refrigerator or buy it on extended payment terms, but if he does not make the scheduled payments, the seller may take back the refrigerator and/or refuse to offer future credit to the buyer, but he cannot add to his debt other than to cover the cost caused by delinquency. On the other hand, riba borrowing allows getting funds for vague or non-specific use, such as getting a cash advance on a credit card for speculating in the market; it just encourages wasteful spending and growing debt.

Therefore, according to Islam, by prohibiting interest-bearing loans but allowing trade, God has allowed commerce to flourish while naturally limiting the amount and duration of debt each person or business can accumulate. Without riba, this accumulation is limited to the value of real products or services useful to the debtor, which are normally available to secure the corresponding debts. The potential for general bankruptcy is greatly reduced. Creditors' claims are straightforward and normally secured by the financed assets. Families and businesses avoid the temptation to borrow money to buy things they don't really need or can't afford. And because each debt is normally secured primarily by the acquired asset, each creditor has a strong incentive to ensure the asset he is offering is affordable and will substantively improve the debtor's life or business. The whole system is fairer to both debtor and creditor.

Macroeconomic Rationale

There are other, macroeconomic rationales for the prohibition of riba**. In a riba-free financial system, capital providers and capital users are brought closer together psychologically. Whether providing equity capital or riba-free debt capital (trade credit or leasing), capital providers must remain engaged to some extent and share commercial risk with the users of their capital. This tends to improve capital allocation, smooth economic cycles and soothe the tension between social classes by tying the fortunes of capital and labor more closely. The overall economy can become more stable and self-regulating and less dependent on the economic pronouncements and predictions of money movers and central bankers. The economy is also more efficient because it allocates capital primarily on the basis of profit-making potential, rather than primarily on the basis of the creditworthiness of the borrower. Further, by encouraging equity-based finance, a riba-free system encourages more innovation and results in higher economic growth rates. Finally, the system is more just because profit-sharing finance rules out net transfer of pre-existing wealth from those without capital to those who already have it, thereby avoiding antagonism between classes and the associated social and political problems.

What is Gharar?

Gharar is ambiguity in transactions. The Prophet Muhammad prohibited it at levels large enough to be hazardous to their definitiveness and/or ability to be fully executed. An example is selling anything that is indefinable such as the "fish catch of tomorrow," or selling anything without actually owning it first (such as short-selling of stock where the cost of acquiring stock to meet future obligations is unknowable). Gharar is not fraud or deception. Fraud and deception are prohibited under Shari'ah and the laws of the land, but gharar is more subtle. Deception is selling an old car without telling the buyer it has a major engine problem. Gharar is both parties agreeing to the purchase knowing there is a major engine problem but without first having it assessed by a mechanic to determine its approximate cost of repair. Any transaction agreed to by the parties without describing its major defining specifications generally involves an unacceptable level of gharar. However, a small amount of gharar is allowable and unavoidable in most transactions. For example, if the above problem involved a tear in the seat upholstery, the sale could occur without the parties determining its cost of repair. A general rule of thumb for avoiding a prohibited level of gharar is to avoid any transactions where, due to absence of knowledge or uncertainty of delivery, one or more parties risk the majority of their consideration (even if they agree to it).

Ratings and Index Services

There is a very small but growing industry developing to provide independent guidance to investors on the Shari'ah-compliance of stocks. Dow Jones in 1997 launched the first of its Dow Jones Islamic Market Indexes. The company, in consultation with a board of Shari'ah scholars, applies Islamic screens to the universe of publicly-traded stocks to arrive at the companies making up its indexes. It now has a family of over 60 indexes covering stocks meeting its screening criteria, with a combined market capitalization of over $9 trillion. This market-comprehensive, stable benchmarking is a critical piece of the developing Islamic stock investing industry. Another critical piece is more in-depth coverage and Shari'ah-compliance ratings of individual stocks, analogous to Morningstar or Lipper. Several efforts have been pursued in this area over the past few years. AIF Investor Services started rating companies' Shari'ah compliance on an A through F scale in 2004. The company now rates over 100 US Large Cap stocks and is adding coverage of about 10 stocks per week. As the industry grows, these existing participants are likely to be joined by others, and corporate treasurers and institutional investors representing Muslim clients or constituencies will have a growing body of information available to help guide them in making Islamic investment decisions.

well there are different opinions on this issue. one opinion is that if a company finances itself by loans on interest, trading shares of such a company is Haraam.

Well First thing first. What many people dont understand is what is SHARE... as it explains it self, share is bit of ownership of company and i havnt seen anything which tells me that buying share of a business ie owning certain portion of the business is haram. As pointed our above As long as the company is investing in hala fields there is no restrictions.

SKULL.

Bro its interesting point. thought i havnt read much abt it so i wouldnt know. THough since a company pays interest which is TAX deductable which means u get ur money bak in form of deductions, so where does the evil lies. So i find it difficult to answer this question.

interest is interest wether its tax deductible or not. at the end of the day, you will have to pay back more than what yo borrowed.

Mirbadshah I know about the risk-sharing features of shares but the truth is that on stock larkets such as the FTSE your more likely to find that day-to-day movements of share prices have less to do with news and more to do with market (or rather analyst) sentiment. in that case even if in theory share-trading is risk-efficient and a good source of financing in the real world market sentiments can mean that shares essentially become a gamble based on "what i know and you don't" for instance.

anyways considering i'm going in the financial services industry i'd rather hope that it is all halal else i've got amajor problem to sort out!

Title
Trading in Shares and Stocks

Question
Is it halal to trade in Shares and Stocks?



Date
26/Dec/2003

Name of Counsellor
Monzer Kahf

Topic
Investment



Answer


In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we would like to thank you for the great confidence you place in us, and we implore Allah Almighty to help us serve His cause and render our work for His Sake.

Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:

"Stocks/shares are basically of two kinds: common and preferred. If the preference in preferred shares in financial such as guaranteed minimum return, priority in payment at time of liquidation and the like, preferred stocks/shares are then prohibited because equal owners of the companies principal must be treated equally. They are forbidden to issue, buy, own and sell. If the preference is managerial they may be permissible.

Common stocks are not prohibited from this point of view. From another angle, stocks/shares may belong to companies that are fully compatible with the Shari'ah in establishment and all activities such as Islamic Banks, to companies whose main and major business is forbidden such as conventional banks or Las Vegas type entertainment companies, or to companies whose main/major business is permissible but their articles of incorporation allow them to undertake activities that are prohibited in the Shari'ah and their management actually do such activities, this category covers most companies on the stock exchanges such as Microsoft, Intel, Sony, General Motors, etc. because they are involved in at least one kind of impermissible transaction, i.e., Riba-based borrowing and/or lending.

Obviously, the Shari'ah ruling on issuing, buying, owning and selling the first category is permissible while prohibited on the second.

The third category is troublesome and needs certain details. It is prohibited for a Muslim to establish a company that indulged in prohibited activity and consequently, it is also prohibited to issue its stocks and offer them to the public for sale. The principle must be that it is also prohibited to buy and own such a stock because by doing so the owner becomes in fact a partner in the company whose management take up prohibited activities on behalf of all its owners as their deputed officers. In other words, the management acts as your agent, this means, you are doing this prohibited activity.

In this regard, two points are important. If one buys such stocks with the intention (that is coupled with ability) to convert such a company into all halal activities through having a majority in its board and general assembly, such a purchase is certainly permissible because it reduces the haram in the
world, although the process may take a few month or may be a year or two.

The second point (that may be more relevant to the questioner) is buying and owning such stocks as a small investor and a small minority holder to get benefit from expected capital gains and from dividends.

A small group of Muslim scholars argue that this category of stocks may be purchased and owned for investment within certain conditions that can be summarized in being sure that the prohibited activities do not make a high percentage of the total activity of the company. These include that the company does not have high rate of liability/asset, i.e., it does not live on loans, it does not earn a lot on interest it is not involved in activities that basically hurt the interests of Muslims such as producing and selling arms attackers of Muslim people.

Based on these conditions, Dow Jones in cooperation with a group of Muslim scholars have studied the registered stocks and make a list that is issued under the name of Islamic Market Dow Jones Index."

You can also read:

Investing in the Stock Market

If you have any further questions, please don't hesitate to write back!

May Allah guide you to the straight path, and guide you to that which pleases Him, Amen.

http://www.islamonline.net/servlet/Satelli...d=1119503543638