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Investing into Stock Exchange

Answered as per Hanafi Fiqh by DarulIftaBirmingham
  1. Is investing in the stock exchange permissible or not?
  2. If one is able to pay the money before interest becomes due, is he allowed to have a credit card?
  3. Is the Finance System from an Islamic Bank permissible to take to construct a house or a hospital?

 In the name of Allah, the most Beneficent, the most Merciful.

Answer 1

It is common nowadays to buy and sell shares of a company. Sometimes they are brought directly from a company, sometimes it is done through an agency like a stockbroker and sometimes the shareholders buy and sell shares amongst themselves. All three categories mentioned above are permissible. (Jadid Fiqhi Masaail p.390 v.1)

Therefore, in the aforementioned scenario it will be permissible for one to invest or trade in to the stock exchange in those firms who do not trade in unlawful things.

Mufti Taqi Usmani Saheb in Fiqhi Maqalat has mentioned four conditions in regards to the permissibility of investing in to the stock market.

They are:

1.      It is not an unlawful institution like alcohol firms, insurance companies, etc…

2.      All the goods of the company for example its machinery is not in the form of liquid assets but is in the form of fixed assets.

3.      If the company is dealing with interest, then in its annual meeting, objection should be raised.

4.      When the profits are distributed at the end of the year, the money acquired through interest should be given to charity without the intention of reward. (P151 v.1, Also: Raddul Muhtar p553 v.9)

Answer 2

According to the majority of scholars the usage of credit cards is permissible as long as the cardholder is sure that he is able to pay off the debt to the card issuing company before any interest becomes due.

Answer 3

The finance system from an Islamic Bank to construct a house or a hospital works under the concept of musharakah (joint agreement). Briefly, Musharakah is a relationship established by the parties through a mutual contract. Therefore, all the necessary ingredients of a valid contract must be present. For example, the parties should be capable of entering into a contract; the contract must take place with free consent of the parties without any duress, fraud or misinterpretation, etc…

But there are certain conditions, which are peculiar to the contract of “Musharakah.” They are summarized here:

  1. The proportion of the profit to be distributed between the partners must be agreed upon at the time of entering the contract. If no such proportion has been determined, the contract is not valid in Shari’ah.
  1. The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners or rate any profit tied up with his investment. For example if A and B enter into a partnership and it is agreed that A will receive £10,000 per month as his share of the profit, and the rest will go to B, the partnership will be invalid. The correct basis for distribution would be an agreed percentage of the actual profit accrued to the business.
  1. According to Imam Abu Hanifah (RA) the ratio of profit of each partner may differ from the ratio of capital invested by him. However if a partner has put an express condition in the agreement that he will never work for the Musharakah and will remain a sleeping partner throughout the term of the Musharakah, then his share of profit cannot be more than the ratio of his investment.
  1. In the case of loss, all the Muslim jurists agree on the point that each partner shall suffer the loss exactly according to the ratio of his investment. Therefore, if a partner has invested 40% of the capital he must suffer 40% of the loss not more, not loss, and any condition to the contrary shall render the contract invalid.
  1. Most of the Muslim jurists are of the opinion that the capital invested by each partner must be in liquid form. It means that the contract of Musharakah can be based only on money, and not on commodities. (Extracted from An Introduction to Islamic Finance, Mufti Taqi Usmani, p.35- p.39)

If the finance system being offered by an Islamic Bank complies with the aforementioned conditions, then it will be permissible to use it in order to construct a house or a hospital.

Only Allah Knows Best.

Mohammed Tosir Miah

Darul Ifta Birmingham.

This answer was collected from DarulIftaBirmingham.co.uk, which is run under the supervision of Mufti Mohammed Tosir Miah from the United Kingdom.