As the owner of a publicly-traded company, there are two primary ways in which you can earn money:. The second is if you sell your shares for a price that is greater than the price you bought them. From a Halal and Haram perspective, there are no violations in either of these methods of earning money i. Accordingly, since the default for everything in Islam is permissibility, investing in the stock market, in general, is Halal.
The permissibility of profiting from owning a company does, of course, depend on the permissibility of the business activity the company is engaged in. Examples are companies that sell alcohol, pork, pornography, etc. Is it Halal to invest in such a business? Perfectly fine. Can you really say for certain that the jump in sales was caused by the racy ad? Further, can you say that the jump in share price was caused by the increase in sales?
Anything other than a ballpark estimate of income from prohibited activities seems rather impractical and futile when one considers the expected accuracy of such estimations.
Helping Muslims make smart financial decisions
My rule of thumb when it comes to investing in companies that have income from both halal and haram activities is the following:. There is no set percentage that defines trivial, but I would argue that : you know it when you see it.
I agree that using interest-bearing debt is Haram. If you know my blog or YouTube channel you know that this is a central theme in my articles and videos. If we are in agreement, and I think we are, that an exception is being made in pursuit of the greater good, that is, there is greater good in allowing Muslims to invest their money in companies that have limited dealings with interest-bearing debt than there is in not allowing it, if this is the argument, then we should state the argument as such.
This is what we should tell people because this is the truth of the matter. So for example, I would tolerate a higher level of interest-bearing debt for a company that I knew was close to curing cancer than I would for a video game company.
Aside from the debt-to-market capitalization ratio, one of the criteria that all the governing bodies seem to be agreed upon is the ratio of liquid-to-illiquid assets in a company. So the liquid-to-illiquid asset ratio essentially measures how much cash and cash equivalents the company holds when compared to the rest of its assets .
Every single financial ratio you can think of for the two companies is exactly identical. Company B is owned and operated by Joe Shmoe, who has a year track record of running every company he touches into bankruptcy.
It would be pretty darn nuts to give both companies the same valuation and to say that this valuation should be 1 million dollars. Riba relates to profiting off of loans of money. This is not in play here. So the criteria of liquid to non-liquid assets is a complete non-factor in anything related to the permissibility of investing in a company at whatever price you choose. Say: they contain great sin and benefit for people, but their sin is greater than their benefit.
And they ask you what should they give to charity? So Allah SWT is teaching us that in cases where a particular activity has both benefits and harms, good and sin, wisdom entails weighing the good against the bad and deciding accordingly. Another way of asking the same question is to ask: Is the world better off because this company exists or not?
Righteousness is in good character, and wrongdoing is that which wavers in your soul, and which you dislike people finding out about. How is this investment decision sitting with you?
Are you Ok with sharing this investment decision with others and making it public?Forgot username? Forgot password? We have detected that you are using an ad blocker. Muslim Link relies on revenue from these advertisements so please consider disabling the ad blocker for this domain. While investing can be an intimidating topic for most people, Muslims have the added challenge of ensuring that their investments are shariah Islamic jurisprudence compliant.
The strict prohibition of interest in Islam makes many conventional investment options off limits to observant Muslims. Bonds and Guaranteed Investment Certificates GIC'swhereby investors give money as a loan and then get that money back plus interest at a later date, clearly do not pass the test of shariah compliance.
So rather than the investor giving a loan and getting paid interest regardless of how the company does, with equity, the investor shares in the profit if the company does well and shares in the losses if it does poorly. The most common way to get equity of a company is to buy its shares on the stock market. Not every company who is offering its equity through selling shares in the stock market represents a halal investment though.
For obvious reasons, companies who deal in alcohol, tobacco, pork-products, gambling, pornography, interest-based financial services, or weapons of mass destruction would not be shariah compliant. This scrutiny of the nature of the company's business is considered the qualitative screen of shariah compliance.
There is also a quantitative screen that looks at the company's finances. For example, the company can't carry too much debt. Just as observant Muslims can't purchase a property using an interest-based mortgage to profit from the rent, investing in companies who rely too heavily on interest-based loans and financing is also out of bounds.
Along those same lines, a company who keeps too much cash in an interest-bearing bank account would also be screened out. With such restrictions, it's easy for potential investors to become overwhelmed and give up on the idea of investing all together and opt to keep their money in their bank account instead.
Such a choice, however, would mean missing out on potential returns that one could get from investment income. It would also be a loss to the economy as a whole if individuals with capital simply let their money sit idle, when it could otherwise be put to use by companies and industry to develop technology, bring products and services to customers, and help businesses grow.
There's also an important perspective to look at on the level of personal accountability. The market works like a kind of election where each dollar spent is a vote for what you want to have exist in this world. If you have dollars to spend or invest, this is your opportunity to "vote" for and support companies that you believe in. It's your chance to nudge the world in the direction you want it to go—regardless of how tiny your nudge might be.
In the end, we know we are accountable to God for what we do with the things He has blessed us with and wealth is one of those blessings. So, if you have the means and the wealth, you really want to be thinking about where to invest your money. But how do you ensure that your investments are shariah compliant? Fortunately, Muslim investors do not have to be left to their own devices in determining which stocks pass the filter of shariah compliance—the work has already been done for us.
How to Pick Halal Stocks?
What Muslim investors want to know is not so much the value of that index or how that value goes up or down, but exactly which companies are included in the index.Here are several platforms that offer halal investing services and products.
Halal investing opportunities serve as a viable option for small investors. Halal investing also offers compliant investment products and assistance of financial advisers. In reference to Halal investment standards, they are ethical investment standards. Islamic investors prefer to invest those companies, which earn their profit through Halal means. In addition, under Islamic law, you are not allowed to be a lender or receive interest payments from investments. By creating a Halal investment portfolio, you are an all-equity owner in businesses.
This is riskier as you are lowest on the capital stack. There are several industry types that are also non-shariah compliant. These will restrict your capabilities to invest in public equities or build a proper investment portfolio:. Beyond just industry groupings, there are several ratios that you need to be mindful of when building a Halal investment portfolio.Short Selling: Halal or Haram?
Several ratios that are important to consider with Halal investment apps include:. Comparison of Shariah-compliant investment ratios. With Halal investing, you seek to make investments in companies that are not significantly in debt and are distressed. Good news! There are a number of different platforms that allow you to invest through Halal means. The Halal Investing portfolios by the Wealthsimple is a low-cost and simple method to build your wealth.
You can optimize the portfolio to enhance its performance. In this way, you can invest in those companies that follow Sharia Islamic laws. The Sharia scholars first screen the investments. This ensures that the investments are in line with the rules and basic principles of Sharia.
The Halal investing portfolio includes 50 stocks, selected to track the market. You can invest your money in companies around the globe. This allows you to lower the risk and maximize your profit. Amana Funds works by employing the proprietary screens. Amana Funds follows only halal investment policies. Islamic scholars of this non-profit organization keep these investments pure from interest Riba.Many of you will know that we launched our inaugural course — Screening for Halal Stocks — earlier this year.
Let me give you some background to explain. All of these arguments can, and do, come under sustained attack. Ultimately though, I believe argument a holds some convincing power.
But it would only hold this convincing power if it was very difficult, if not impossible, to invest in only those stocks that do not have any debt and construct a well-balanced and profitable portfolio. But is that actually practically and commercially viable? And the results of this screen are quite stunning — this list massively outperformed the market over the last 3 years. There are a huge number of bio tech, medical and technology companies dominating the top half of this list.
This makes sense given these companies often prefer to raise equity rather than debt — and often — given the speculative nature of their business — struggle to get any debt. This is a warning sign though. Because anyone who invested in all of these companies would be investing in a very concentrated portfolio focused on tech and medicine.
A hit to those sectors would materially impact such a portfolio. Of some comfort though is the fact that there are a surprising number of larger companies in this list of companies. If one were to invest according to the weight of the market cap relative to the overall market cap of the entire list i. Over three years such a portfolio would have risen by By any reckoning that is a phenomenal return. However, a note of caution before you all go piling into this list of stocks: we have had a strong bull run for the last 5 years and in bull runs, tech and medical companies such as the ones in this basket of stocks, tend to do very well.
In bear markets when markets decline they are often the worst hit as well. These companies are also not your classic income generator that you should have in your retirement portfolio, with low dividend yields 0. They are very much growth stocks and quite expensively priced as can be seen below:.
The debt-free basket of stocks has clearly done superbly well over the bull market, but it is yet to be seen how things pan out in the next few years when it is anticipated markets will level off and, potentially, start declining from their current highpoint.
The other pressure point is dividend-yielding stocks.
A Muslim’s Guide to the Stock Market: Beginner Level
Muslims need to have a sufficient universe of such stocks to pick from. A lot of these companies are US companies too. However, it is a less firmly held view. If backward projection ends up showing that these zero-debt companies fare well through bear markets and busts, and risk analysis shows that the additional risk borne by holders of this zero-debt basket that is quite concentrated in a few sectors is acceptable e. This is an issue that can potentially have significant repercussions on the way the industry is set up and the debate on this will benefit from the views of other professional in the field, as well as everyday Muslim investors who have looked into this area.
So please do voice your opinions in the comments below. That will only enrich the discourse for everyone. Finally, do check out our latest course — Halal Investing for Busy Professionals — for our analysis of the world of halal investing out there today as well as the Halal Investment Comparison Engine which allows you to easily compare between the halal investing options!
Market Data- can individual investors obtain market data at a reasonable cost? I guess this is why you teamed up with a city trader for this article? You can usually filter level of debt with stock screeners like FT etc.
In my experience though, you do have to then do a manual check against the latest set of accounts just in case the screener data is outdated.
A company may have zero debt, therefore zero interest. However, the same company may be earning interest from their own investments, therefore are involved with interest. If we invest in such a company, we would be helping them in sinning being involved with interest.
Is there any company that is not involved with interest at all? Thank you.Every month over 50, people rely on our expert analysis, helpful tools, and sharia commentary. Islamic Finance Guru IFG is a hub that helps Muslims with their investment, personal finance and entrepreneurial journeys. We want to take Muslims from being among the poorest in society to those who are wisest with their money. We think that this is the most effective way to deal with problems like discrimination, under-representation and poverty.
IFG understood that from the get-go and were phenomenal at connecting us with the right people, as well as helping us refine our pitch. I now recommend them to every good team I know. Helping Muslims make smart financial decisions. We help you find halal investmentsIslamic mortgages and funding for your business. Halal Investments. Islamic Mortgages. Tax-Saving Islamic Wills. As seen on. Halal Investing We explain both the fiqhi and commercial side of halal investing.
Find out more. Entrepreneurship We are big believers in Muslim entrepreneurship. We help you on your journey. Personal Finance We give you helpful hacks to manage your money the smart way. Our authors are experts in their field and always neutral. Mags from Jamma. Featured Partners.But there was just one problem. I knew nothing about the subject. How do they work? How do I buy and sell them? How do I know which ones to buy? What about the Islamic aspect? How can I know if they are halal or haram?
So this led me on a quest of many weeks to do an intense self-study on the stock market and try to figure it out. I even looked into Islamic rulings on stocks and bookmarked various fatwas on the issue as well.
I am happy to say that after all of that I was able to understand the market at a basic level to be able to at least delve into the subject. I even bought and sold some individual stocks just for fun and practice. I am now confident enough to say that I have a better understanding of stocks and investments than I did before my quest. They especially want to understand it from an Islamic perspective before delving into the craft.
Below is my complete guide. Reading the fatwas without understanding how the market works first may confuse you. If anyone finds anything missing, please let us know in the comments section below. Disclaimer — The links and resources below are what helped me personally understand the subject. I am not guaranteeing that it will do the same for you.
I am only relaying this information to help my brothers and sisters who are in the same boat that I was in before. I am hoping that they will get enough out of it to at least be able to have a basic understanding of how investments, particularly stocks, work.
Bonds are exclusively interest based and should be avoided by Muslims. Just indicating that here because some of the videos below delve into it.
There will be more on this in the fatwa section. How to Invest in Stocks and Bonds for Beginners. Value Investing Course — This used to be a Udemy course and was very informative but for some reason they have taken it down.
I am providing the link to the notes that I took instead.With one-quarter of the world being Muslim and the development of online trading, the question of where intraday trading fits in with Islamic law is increasingly being asked. This page will consider numerous viewpoints and sources in order to answer whether day trading is halal or haram. One of the biggest concerns centres around the risk sharing element.
So, in the case of forex, stocks, binary options, futures, commodities, and currency, is investing haram or halal? Please note that this site is not a religious authority on the subject of Islamic day trading. If you want to be certain that your trading activities are Halal, we recommend that you consult with a religious authority that can consider your individual situation.
It is generally accepted that buying stocks is not haram. This is because you are simply owning a percentage in a business. However, you do need to be sure the company in question is not dealing in a un-Islamic manner. Companies like Guinness alcohol and Ladbrokes gamblingfor example, would not be allowed. So, what do you do if the company deals in goods and services that do not agree with Islamic law?
You do not invest. If you want to avoid any potential conflict the easiest decision is to avoid buying and selling shares in the stock at all. Having said that, there remains some wriggle room. In some cases, you may still be able to trade and remain halal. Most Scholars are in agreement that if the company only deals in a fraction of un-Islamic goods and services then you may still invest. It is suggested that you simply give away the percentage of the profits that are created by the haram section of the business.
The other major area of concern centres around interest. However, that may not always be feasible. Fortunately, it is relatively straightforward to stick with just halal shares. Instead, opt for companies where the value is derived from their broader business. You can actually find Islamic stock screeners that will identify halal stocks for you.
However, such software is relatively expensive. Alternatively, most platforms allow you go get a screenshot of the company, highlighting their debt levels and market capitalisation.
For the most part, common sense is your greatest weapon. Avoid heavily leveraged companies that are concerned with the buying and selling of haram goods and services. So, in summary, whether stock trading is halal or haram, entirely depends on the companies you opt for and how much profit you retain.
Forex trading is increasingly accessible and the potential for quick money draws more traders in every day. However, dig a little deeper and you might wonder is forex trading actually haram?