What Is The Ruling on Stocks in Islam, Which Includes Halal and Haram Assets?
Investing in stocks has become a popular way to grow one’s wealth. However, for Muslims, it is important to understand the Islamic rulings on investing in stocks, especially when there is a mixture of halal and haram wealth involved. This article aims to explain the ruling on investing in stocks according to Islam, presenting the different scholarly opinions as well as the underlying arguments.
Definition of Stocks in Islam
A stock is a financial instrument that denotes company ownership. In Islam, investments are considered halal if they do not involve riba (interest), gharar (uncertainty), and maysir (speculation). Therefore, a company’s stocks must be analysed to ensure its activities are in accordance with sharia principles. These principles are important to keep the investment not only materially profitable but also blessed and in accordance with religious teachings (El-Gamal, 2006).
Scholars Views on Stock Investment
All scholars forbid investing in stocks if the company’s primary activity is haram, such as the production of alcohol, gambling, or riba. However, some scholars also forbid buying stocks that have a small portion of income and assets derived from haram sources.
They base their views on Quranic verses and hadiths that prohibit involvement in haram activities. For example, in Surah Al-Baqarah (2:275), Allah ﷻ prohibits riba unequivocally, without mentioning a little or a lot. This view is based on the belief that even if there is a small amount of riba mixed in, it is sufficient to prohibit the stocks, as the owner of the stocks is also the owner of the company and is responsible for any haram activities that occur within the company.
Scholars Views on Permissible Opinions
On the other hand, some scholars allow investment in stocks if the company’s main business activity is halal. They argue that if the company has a small part of haram activities but is dominant in halal activities, then the stocks can still be considered halal on the condition that investors do tazkiyah (purification of wealth) from haram income. The argument relies on the principle of ‘lil aktsari hukmul kull’, which posits that the law of the many halal remains unaffected by a small amount of haram.
The criteria for Halal and Haram Stocks are Based on The Conclusion of The Two Opinions
Business Sector
The first criterion is the company’s business sector. Stocks of companies engaged in forbidden sectors such as alcohol, gambling, and riba are clearly considered haram. According to Iqbal & Mirakhor (2011), companies in these sectors violate sharia principles as their core business involves activities prohibited in Islam.
Riba Levels
Some scholars permit a degree of tolerance for riba if it is insignificant and not pervasive. However, most scholars are more conservative and recommend avoiding stocks that contain riba altogether. This is due to the fact that riba, regardless of its size, remains a sin that requires avoidance (Siddiqi, 2006).
The Tazkiyah Method Which Purifies Wealth Based on a Second Opinion
Principles of Tazkiyah
Tazkiyah is the concept of wealth purification in Islam that aims to cleanse wealth from haram elements. This is part of a Muslim’s efforts to ensure that the wealth he owns is truly clean and blessed (Al-Qaradawi, 1999).
Implementation Methods
One method of tazkiyah is to donate part of the profits generated from haram activities to charity, or sadaqah. For example, if 5% of a company’s revenue comes from bank interest, then 5% of the dividends received should be donated. This is done to remove the haram element from the assets owned and ensure that the assets used are halal (Chapra, 1985).
Islam generally requires several conditions for stock investments to be considered halal. Differences in scholarly opinion reflect the diverse interpretations of Islamic law in the modern context of investment. Muslim investors should be cautious, choose stocks that are shariah-compliant, and perform tazkiyah if necessary. They can invest with peace of mind and remain compliant with Islamic teachings. It is also important to keep their knowledge up-to-date and consult with Islamic scholars or financial experts to ensure that their investments remain within the sharia corridors.
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