What is the Islamic ruling on dealing in shares by means of Mudarabah (Profit sharing) or investment? What are the types of companies whose shares are unlawful to trade in?
Praise be to Allah, The Lord of the Worlds.
In terms of investment and Mudarabah, contemporary Muslim scholars divide companies into three types:
First: Companies whose business is lawful, such as industry, agriculture and trade, and they don`t deal with usury-taking banks. Therefore, trading in the shares of this type-by means of investment and Mudarabah-is absolutely Halal (Lawful).
Second: Companies whose business is Haram (Unlawful), such as usury-taking banks, commercial insurance companies, and companies that sell liquor, pork, cigarettes and the like. Scholars are agreed that it is forbidden to trade in the shares of this type by means of Mudarabah or else.
Third: Companies whose dealings are basically lawful, but they deal with usury-taking banks. Contemporary scholars hold two different opinions on this issue:
1-If the company`s charter stipulates dealing in Riba then trading in its shares is forbidden because they involve usury. This ruling is adopted in the resolutions of the International Islamic Fiqh Assemblies of the Organization of the Islamic Conference and the Muslim World League.
2- If the company deals in Riba due to misconduct of the manager or a staff member, or some laws and regulations dictate depositing its funds in Riba-taking banks then trading in these shares is lawful. However, the participant should get rid of the percentage of this Riba (usury or interest) from his profit and give it to charity. And Allah The Almighty knows best.