Share business- The Islamic viewpoint

Islamic Economic System has prescribed rules and guidelines for trading and investment.  When business is according to the Islamic rules and guidelines, then it is allowed.  A basic rule of Islamic trading is that either of the participants should not hurt or harm the other.  In the same way there should be no cheating or deception.  There is a Hadith in Mustadrak ‘Alas Sahihain, Kitaab Ul Buyu’.

 

Translation:  It is narrated on the authority of Hadhrat Abu Sa’eed Khudri (May Allah be well pleased with him), that the Holy Prophet (Sallallahu alaihi wa sallam) said: Neither bearing loss is permitted nor inflicting loss is correct.  (Mustadrak ‘Alas Sahihain, Kitab ul Buyu’, Hadith No: 2305)

 

Basically a share is a proportionate part of the shared wealth (Share Capital) which is in the form of the assets and investments of the company.  Business in such wealth, whether it belongs to 1 person or is shared by a group of people, is permitted when it is done as per the rules and guidelines of Islam.

 

Some basic points need to be kept in mind here:

 

1.  The company's business should be lawful and permissible in Islam.  The company should deal in such things which are permitted in Islam, like computers, medicines, etc.  Trading in shares of such a company is permitted.  On the other hand, dealing in shares of companies which deal in unlawful and forbidden things e.g. wine etc. is also forbidden.  For the shareholder, the company's status is that of a representative. The way a Muslim is forbidden from dealing in forbidden things, in the same way, a Muslim is forbidden to appoint a representative on his/her behalf to deal in such things. 

 

There is a Hadith in Musnad Ahmed and Musnad e Abdullah bin Abbas.

 

Translation:  It is narrated on the authority of Hadhrat ‘Abdur Rahman bin Wa’ala (May Allah be pleased with him) that he said: I asked Hadhrat ‘Abdullah bin ‘Abbas about dealing in wine.  He said that the Holy Prophet (Sallallahu alaihi wa sallam) said: The Lord who prohibited its drinking also prohibited its trade.  (Musnad Imam Ahmed bin Hambal, Musnad ‘Abdullah bin ‘Abbas, Hadith No: 1937)

 

It is also given in Fath ul Qadeer, Vol. 6, Kitab Ul Buyu’, Pg No: 403/404 and also in Durre Mukhtar, Vol. 4, Kitab Ul Buyu’, Pg No: 135. 

 

2.  If the company trade is basically of a permitted type (i.e. the business is permissible) but to increase its investments or to avoid income tax, the company takes a bank loan or deposits its money in the bank, then the ruling will be different basing on whether the country is an Islamic one or a non-Islamic one, (Dar ul Islam or Dar ul Harb).

 

In a non-Islamic country a Foul Sale (Ba’yah Fasida) is allowed provided it is not through cheating of any kind.  Also a non-Muslim's wealth is Mubah (permissible).  Thus, obtaining extra wealth without any kind of cheating, etc. is allowed. As given in Fath ul Qadeer, Vol. 7, Kitab Ul Buyu’, Pg. No. 37-39.

 

For this reason in a non-Islamic country, interest is not established in a transaction between a Muslim and a non-Muslim.  Accordingly, the Shariah permits trading in the shares of companies which deposit their money in a non-Muslim bank in a non-Islamic country.  In an Islamic country, trading in shares of such a company amounts to an interest-based transaction and that is prohibited.  Going for an interest-based loan without a pressing need is not permitted.  But in the face of a very pressing need Imam Ibn Nujaim Misri (May Allah shower His mercy on him) has permitted an interest-based loan.  As given in Al Ashba Wan Nadhaair.  On this basis dealing in shares of companies which take a loan may be permitted.  But the interest payable should be equal to the amount of tax which the company pays.  Still to be on the safe side, it is better not to buy the shares of such companies because taking a loan for evading income tax or to increase investment does not seem to be a pressing need.

 

Some scholars have ruled that dealing in shares of such companies is permitted with 2 conditions

 

1.  First, the shareholders should protest against the interest-based transactions in the Annual General Meeting.  The Company is like a representative of the shareholder and if the shareholder protests against the interest-based transactions, then irrespective of whether it affects the company or not, the shareholder is absolved of his responsibility.

 

2.  The percentage of the profit which arises out of the interest-based transaction should be calculated and that percentage of the profit should be given away in charity.

 

In the light of the above explanation, even in those companies, dealing in whose shares has been declared as permitted, dealing in all shares is not permitted.  Some cases are permitted and some are not.  The cases where shares are registered and transferred to the buyer's account and "Sale on Margin" where the broker is not given any amount more than the principal amount are permitted.  But other cases where shares are not registered and the cases where the broker is given anything more than the principal amount and all other cases which involve speculation or gambling of any kind are not permitted.

 

Buying shares from Sharekhan.com

 

A Share is a kind of partnership in the company.  The person holding the shares of the company is like an owner of the company proportionate to the shares held.  A condition among the rules of partnership in Islam is that the partners should be profit in both profit and loss.

 

As you said that in sharekhan.com, it is a business without any loss, then these kinds of transactions are not permitted in the Shariah.  The partners should share both the profits and the losses (if any).

 

Apart from this, the shareholders should investigate properly and satisfy themselves that the business of the company in which they want to buy shares should be of permissible kind.

 

Signing interest-based share documents

 

The guidelines as per the Hanafi School of Jurisprudence are that a transaction in which a Muslim deals with a non-Muslim in a non-Islamic country and receives extra money without any kind of cheating is not considered as interest.  However, in an Islamic country as the government is responsible for the safety of the non-Muslims as well, that kind of transaction becomes an interest-based transaction, which is forbidden.  As given in Hidayah, Vol. 3, Pg. No. 86.

 

Now that it is clear that in a non-Islamic country, a transaction between a non-Muslim and a Muslim in which without any cheating the Muslim will get extra money is not considered as interest, so, if signing documents relating to interest-based transactions is in an Islamic country, then it is not allowed.

 

But if in a non-Islamic country, signing of such documents is necessary, then provided there is no cheating involved and the Muslim will benefit from it, then as per the Hanafi School of Jurisprudence, as it is not an interest-based transaction, it is allowed.

 

And Allah (Subhanahu Wa Ta’ala) knows best.

 

Mufti Syed Ziauddin Naqshbandi Qadri,

 

[Professor, Islamic Law, Jamia Nizamia,

Founder-Director, Abul Hasanaat Islamic Research Center]