Buying and investing into shares

Answered by: Maulana Javed ibn Nazir Kachhalia​

Question

If a person buys shares of a company that works in permissible products and does not earn any income from interest but raises finance through bonds/debentures which involves interest is the money earned halal?

بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم

In the name of Allah, the Most Gracious, the Most Merciful 

Answer:

In regards to your question;

To buy shares from a company that doesn’t deal or invest in anything that is against the ethos and principles of Shariah is permissible.[1]

The following research can be found on our website:

There is a difference of opinion amongst scholars with respect to whether buying or selling shares is permissible. Mufti Taqi Usmani (DB) has given permission on buying and selling shares on the basis of the following.

1. 
   The company in its original form is not involved in unlawful trading i.e. it is not a bank, insurance or an alcohol company.
2. 
   The company’s assets should, not be in liquid form (not in the form of cash) but have acquired some fixed assets as well.
3. 
   A voice should be raised (protest) against the dealings of interest despite it being rejected.
4. 
   When the profits are distributed out then whatever percent has been received from interest should be given out as sadqah.  (Fiqhi Maqalaat p.151 v.1 & Jadeed Fiqhi Masaail p.390 v.1)

My blessed teacher-Mufti Tosir- states the views of our respected teachers of Darul-Uloom Bury are that this condition only applies in an Islamic country such as Pakistan where objections may be raised against the company for dealing in interests and not in non-Muslim countries.

Therefore, it will be permissible for you to buy and sell shares even though you do not have the chance to raise an objection against them.

Furthermore, Mufti Mohammed ibn Adam has written a fatwa in regards to the above, which says:

With regards to investing in the shares of a company, it must be remarked that even if a company’s main business is lawful (halal), it may still be involved in interest dealings one way or another. It is very difficult to find a company that is not involved in interest dealings at all.

These companies are involved in interest in the following two ways:

a) Depositing their surplus money in an interest-bearing account, thus accumulating interest,

b) Borrowing money on interest in order to increase funds or to administer their business.

Contemporary scholars have debated whether it is permissible to invest in the shares of such companies. A group of scholars is of the view that it is impermissible for a Muslim to deal in the shares of such companies, as it is tantamount to taking part in interest dealings.

However, a large number of contemporary scholars, including ShaykhTaqi Usmani, Dr.WahbahZuhayli and others are of the view that this is permissible, owing to the fact that a joint-stock company is basically different from a simple partnership. In partnership, all policy decisions are taken with the consensus of all the partners, and each partner has a veto power with regards to the policy of the business. Therefore, all the actions of a partnership are rightfully attributed to each partner.

Conversely, the “majority” takes the policy decisions in a joint-stock company. Being composed of a large number of shareholders, a company cannot give veto power to each shareholder. The opinion of an individual shareholder can be overruled by a majority decision. Therefore, each and every action cannot be attributed to every shareholder in his individual capacity.

In light of the above, if the main business of the company is Halal, it will be permissible to invest in its shares, even if the company gets involved in interest in the above two ways. The only condition is that the investor should raise an objection (preferably in the annual AGM) against interest dealings, even though it is thought that the objection will be overruled.[2]

Now, if the company is borrowing money on interest, then the above objection will be sufficient. However, if it is accumulating interest by depositing surplus money in interest-bearing accounts, then one must ascertain (by means of the income statement) as to how much percentage of interest is included in the company’s income. The proportion of such income from the dividend must be given to charity.

It becomes clear from the above that the ruling of giving interest money into charity is not with regards to the interest paid by the company, rather in relation to the actual interest that was included in the annual income of the company.[3]

Only Allah knows best.

Written by Maulana Javed ibn Nazir Kachhalia

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham