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Interest (riba) in Company Shares

Answered as per Hanafi Fiqh by Daruliftaa.com

Further to your reply to the brother’s question on the permissibility of investing in the stock market (under certain conditions), I am slightly confused.

Firstly, one cannot invest (i.e. buy shares) in a company without it being listed on the stock market. Secondly, if a company is invested in the stock market then a certain proportion of the finances come from shares and the rest comes from borrowing in the form of company bonds or loans.

Bonds and loans are clearly haram due to the interest incurred on the return. In this case, the conditions that have been prescribed are very difficult to fulfil since the “debt” to “share” ratio changes during each financial period and is calculated in several ways in the company’s statement of accounts.

Also, since we are ordered to stay away from anything that has to do with “riba”, is it hence permissible to work for a multi-corporate company e.g. an oil company that is financed by both shares and “debt” in such a fashion?

ANSWER

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

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 on whether it is permissible to invest in the shares of such companies. A group of scholars are 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 Shaykh Taqi Usmani, Dr. Wahbah Zuhayli 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 a 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.

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.

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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