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Investing in the Stock Market and Passive Income

Answered according to Hanafi Fiqh by Daruliftaa.com

I have read the answer to the question on investing in the stock market by Mufti Taqi Usmani (hafidhullah).

I would like further clarification as many people involved in dawah within London express the impermissibility of buying shares. They say that in an Islamic business all partners have to have physical contact with each other or have a direct influence on the day-to-day running of the business. Therefore they say that the stock market shares are impermissible as the one who buys shares does not have this physical contact and also does not know the other owners in the business. They also express the evils of the stock market and it’s down sides of the economy as it was the main cause of the Far East financial crisis. Please can you clarify?

ANSWER

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

As mentioned in an earlier post, investing in the stock market and buying shares of a particular company is permissible, according to the majority of contemporary scholars, provided four conditions are met:

1) The main business of the company is lawful,

2) The company must have some illiquid assets in its possession,

3) One raises his objection to the company’s interest-based transactions,

4) The proportion of the company’s income gained through interest-based dealings is given in charity.

As far as all the partners having physical contact and knowing one another, that is not necessary. It is not necessary Islamically that all the partners of a business know one another, remain in contact or have direct influence in the running of the business.

When one purchases the shares of a company, one will be considered a partner and share-holder of the business, hence all the rules of partnership (shirka) will apply.

In partnership, if all the partners agree to work together, then each one will be treated as an agent of the other in all matters of the business, and any work done by one of them in the normal course of business shall be deemed to be authorized by all of them.

However, if they agree that some partners will manage the business whilst the others will be considered to be sleeping partners, then that is also permissible. (See for details: Islamic finance, P. 42-43)

As far as the moral aspect (towards which you have pointed out) is concerned, that is another matter altogether. This would depend on the company of which one is being a partner, and the whole idea of the evils connected to the stock market trading. Thus, if one was to avoid investing in the stock market due this, it would certainly be a commendable act.

And Allah knows best

[Mufti] Muhammad ibn Adam
Darul Iftaa
Leicester , UK

This answer was collected from Daruliftaa.com, which is headed by Mufti Muhammad ibn Adam Al-Kawthari. He’s based in the United Kingdom.

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