Answered by Shaykh Abdul-Rahim Reasat
Question
I found various financial ratios are required from a company for halal stock investment. I have investments in an energy company, and in a company which trades in impermissible goods. What should I do?
Answer
I pray you are well. Thank you for your question.
You can take the profits made from your investment in the energy company and spend them – but you must give away in charity the amount proportional to the profit gained by the company through interest-based activities.
Any profits gained from the company which trades in impermissible goods is haram income, which you must dispose of by giving it to the poor.
Conditions for a Halal Investment
Unfortunately, despite searching for a reference, I couldn’t find the source of the conditions you provided for a halal investment. I did, however, consult the works of scholars who are considered to be experts in the field of finance. According to them, the conditions which must be fulfilled for a halal investment in stocks and shares are as follow:
1 – The industry one is investing in must be intrinsically permissible. Investing in shoes, energy, communication, automobiles, etc is permissible, due to the products of these industries being permissible to purchase and use.
Investing in the alcohol industry or in any company whose product or activity is impermissible, is itself haram. Any profits gained from such ventures must be given to the charity. One must sell those shares too.
2 – The company one is investing in must have some physical assets, such as a building, or machinery, etc. If all its assets are liquid then purchasing these shares and trading thereby would fit into the definition of Interest (riba), which is impermissible.
3 – If the company has a source of income which utilizes interest one must speak up at the Annual General Meeting and urge the other shareholders to shun usurious activities. The chances are that they will not listen, it is the nature of modern economics, but one must do so according to expert scholars, in order to do one’s part in shunning interest.
Allah has cursed it, and declared war on those who deal with it. [Quran, 2:279] Engaging in it is usually an efficient way to bring problems into your life.
There is another position according to which one would not be permitted to invest in any company due to interest being ubiquitous in modern finance. This is a safer position, but due to the widespread nature of such investments, and as a means of facilitation for people, this condition has been imposed, as well as the coming one.
4 – One must check the annual profit figures of the company, note how much was gained through interest bearing activities, and then give the proportionate amount in charity to the poor. This, with the former condition, ensures that a Muslim does not willingly engage in interest, nor profit from it. [Usmani, Fiqhi Maqalat]
If the above conditions have been fulfilled then trading in stocks and shares will be permissible.
I pray that helps.
May Allah grant you the best of both worlds.
[Shaykh] Abdul-Rahim Reasat
Checked and Approved by Shaykh Faraz Rabbani