Is It Permissible To Trade In Preference Shares?

Answered according to Hanafi Fiqh by


Is it permissible to trade in preference shares?

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

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


As opposed to ordinary shares, the majority of the leading Islamic Finance bodies and experts are of the opinion that investing in preference shares is not permissible.  This is the view of The International Islamic Fiqh Academy, Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), Dallah al-Baraka as well as Dubai Islamic Bank.

The Fiqh (jurisprudence of the answer):

Preference shares normally guarantee shareholders’ capital and promise fixed income. This contradicts principles of Islamic investment.
The GCC Shariah scholars do not approve the practice of preference shares, as opposed to their Malaysian counterparts. A preference share is a hybrid instrument that combines equity and debt in the capital market. It allows its holders to receive a fixed dividend that is not enjoyed by ordinary shareholders. The GCC Shariah scholars are of the opinion that the fixed dividend element contradicts the principles of Islamic commercial law (MF, Res. 63 (7/1) 2010) (Dallah al-Baraka, 2007, p. 373) (AAIOFI, 2010, p. 380) (Dubai Islamic Bank, 2001, p. 681). They hold that the return on investment cannot be fixed as it will be tantamount to riba. In contrast, the Malaysian Shariah scholars have ruled that non-cumulative preference shares are permissible, based on the concept of Tanazul (voluntary waiver of a profit). In this case, during the annual general meeting the ordinary shareholders willingly waive their right to profit so that it can be given to preference-shareholders.

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam
The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.
Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.
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This answer was collected from, which is operated under the supervision of Mufti Faraz ibn Adam al-Mahmudi, the student of world renowned Mufti Ebrahim Desai (Hafizahullah).

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