Fatawa
by Mufti Husain Ahmad Madani
Question: What are the necessary conditions
to ensure a stock is Shari‘a compliant?
Most companies are involved in
at least a small amount of non-Shari‘a
compliant practices; would this make
investing in such companies impermissible?
Answer: In principle, when one buys a
stock in a company, he/she is buying
a stake of ownership in the company.
He/she would then earn potential dividends
when the company profits in
proportion to his/her stake in the company.
Likewise, the value of the stock
one owns will increase or decrease in
accordance to how well the company
is performing. As such, it is permissible
to buy and sell stocks of companies
that have halal dealings. Conversely,
it would be impermissible to buy/
sell stock of a company that generates
a majority of its revenue from haram
sources.
As for companies which have a mix of
both types of dealings, there are both
views amongst contemporary ulema as
to whether it would be permissible to
deal with such stocks or not. The majority
of the contemporary jurists have
allowed dealing in such stocks provided
the amount of haram earnings are
a negligible amount. The exact details
as to what constitutes as a negligible
amount and other conditions for buying/
selling shares may be found below:
1. The product or service of the company
being invested in must be halal. For
example, it would be impermissible
to invest in a company that produces
wine or generates its primary revenue
through interest.
2. The shareholder must share in both
the profit and the losses of the company
according to his/her share in the company.
Any sort of preferential treatment
given to a stockholder to mitigate
his/her risk share would be impermissible.
As such, preference shares would
be impermissible.
3. The amount of profit awarded as
dividends must be a fixed percent according
to the share in the company
and not a guaranteed fixed amount.
As such, any investment in which the
investor is guaranteed his/her capital
would be impermissible.
4. In addition to any liquid assets, the
company must be made up of at least
20% tangible assets. If, in its initial stages,
the company solely deals with liquid
assets, then the shares may only be sold
for their face value, as any increase or
decrease in the price would constitute
as riba (interest) and would be impermissible.
5. The value of the company’s liquid
assets must be less than its market capitalization.
6. As stated above, the company must
not generate its revenue through haram
means. If, however, the company
26 March – April 2021 | AL-MADINAH