Investing in the stock market

Answered according to Hanafi Fiqh by Askimam.org

 

you say in your fatwa that investing in the stock market is not permissible because its riba. my question is, riba is making a contract and getting a definite increase on the money provided. here in the stock market, one does not make a similar contract and there are good chances that one may lose his entire investment. so, how does it equal to riba?

Answer

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

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We do not know which specific fatwa you are referring to. However there are differences of opinion among contemporary senior Ulama on the concept and permissibility of shares.

Some Ulama are of the opinion that purchasing shares is not a valid transaction. Hence the dividends earned will be regarded as riba.

 

According to other senior Ulama, the concept of shares is justifiable in Shari’ah and the purchasing of shares and its dividends with conditions[1] constitutes a valid transaction.

In view of the academic differences on the issue of shares, there is flexibility on purchasing shares and its dividends. If one abstains from purchasing shares and its dividends, he will be practising on taqwa.

And Allah Ta’āla Knows Best

Maaz Chati

Student Darul Iftaa
Blackburn, England, UK 

Checked and Approved by,
Mufti Ebrahim Desai

 

 

 


1)       [1] The main business of the company does not violate the rules of Shari’ah; therefore it is not permissible to acquire the shares of companies providing financial services on interest like conventional banks. This also involves companies involved in gambling, pornography, prostitution, the selling of pork, alcohol beverages, tobacco, illegal drugs, etc.

2)       If the main business of the company is halal but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder must express his disapproval against such dealings preferably during the annual general meeting of the company

3)       If some income from the interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend must be given in charity without the intention of

4)       The company must own a considerable proportion of illiquid assets.

If the company only owns liquid assets, then the share represents money only and money cannot be traded in, except at par, otherwise riba will take place

Also if any one of the above mentioned conditions is violated, the investment will be impermissible.

(Introduction to Islamic Finance by Mufti Taqi Usmani, Page 207, Maktabah Ma’ariful Qur’an)

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