buying shares

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Is it permissible to invest in shares of IT/Software/Engineering/Jewellary/Recruiting/Retail(example $2 dollar company like Reject Shops ) companies listed in Australian Stock Exchange?

My question is related to purely buying shares for long term and holding for dividends/profits from company business.

Inshallah Your response will be very useful to make investment decision.

JazakAllah

Answer:

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

It is permissible to buy shares of a company provided that the following four conditions are fulfilled:

1) The first condition is that the business of the company must be of a permissible nature. Therefore, it will not be permissible to buy shares of a bank, insurance company, alcohol manufacturing company and companies that engage in other types of haram business.

2) The second condition is that the company must own some fixed assets, such as some buildings, land, raw materials, merchandise etc. If the company merely has liquid assets (i.e. money) and has not acquired any fixed assets then it will not be permissible to buy or sell the shares of the company for more or less than the face value of the shares.

3) The third condition is that if the company either pays interest (by taking interest based loan from the bank) or receives interest (by depositing its surplus funds in an interest bearing account) then one must voice his opposition to such interest based transactions, even if his opposition is overruled. A good time to voice one’s opposition to such interest based transactions is in the annual general meeting (AGM).

4) The fourth condition is that when one receives his dividend, he should find out from the Income Statement what percentage of the company’s income was from interest based deposits. Thereafter, he should take out that percentage from his dividend and give it as charity to the poor without the intention of rewards. For example, if 5 percent of the company’s income was from interest based deposits, he should give 5 percent of his dividend as charity to the poor without the intention of rewards.

(Fiqhi Maqalaat:1/144-151)

Therefore, if the four conditions mentioned above are met, it will be permissible for you to buy shares of the companies that you mentioned; otherwise, it will not be permissible.

And Allah knows best.

Mufti Faizal Riza
8/11/2011