Is It Permissible to Accept a Non-Shari‘a-Compliant Fund from an Employer?

Question

In my previous job, a benefit was the equivalent of a 6% salary invested in a retirement fund. None of the funds was religiously compliant, so I didn’t sign up and assumed I’d miss this benefit. I learned later that a fund was chosen for me without my consent. I didn’t know what to do, so I kept receiving my benefits until I could figure that out, and I requested that my job add a Sharia-compliant fund. The value of these investments has been decreasing, and overall, I have lost from them (but got dividends), but is any of this money now halal for me? Can I direct all my available funds to a supposedly Shari’a-compliant fund that invests in halal businesses but also take loans? What should I do if I can’t dissolve the retirement fund?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

Based on your description, you were not the owner of the funds yet. You only took ownership of the funds when you received them.

When you take ownership of it, the funds should be lawful (assuming there are no other details) because you were not responsible for the unlawful transaction. As a precautionary measure, we advise that you donate about seven percent of the accrued amount to charity, and then you may take ownership or reinvest the funds as you wish. Allah knows best.

Unlawful Income and Investments

Investments of this nature usually have a percentage of NPI (non-permissible income) that accrues through interest/usury (riba) and shares from companies with impermissible transactions, etc.

(According to the late contemporary Shafi’i Mufti and expert on Islamic finance, Mufti Taha Karaan (may Allah have mercy on him), this percentage usually amounts to less than ten percent of the total accrual.)

Muslims should avoid unlawful income as much as possible. When complete avoidance is not possible, he is entitled to take off as much as he paid in and the accrual from lawful sources. As for the unlawful sources of income, he has to determine the percentage accrued from NPI (usually seven percent) and get rid of it by spending on charitable causes that would benefit the general public.

Transferring Ownership of Unlawful Income

The above rules apply to the owner of the money. If, however, the money is transferred to others, such as one’s heirs, then the impermissible nature of the accrued funds is not transferred to the recipient. If the money is unlawful because of how it is acquired, the sin is only on the one who acquired it, and there is no sin on the one who engages in a transaction with the one who acquired it, such as buying, selling, gift-giving, or hosting a guest.

The evidence for that is that the Prophet (may Allah bless him and give him peace) used to engage in transactions with the Jews in Medina, buying and selling. He used to eat with them, even though Allah, may He be exalted, described them as consuming interest (riba) and unlawfully taking people’s wealth.

The Nature of Income Changes Upon Transfer of Ownership

Whenever a meal was brought to the Prophet (may Allah bless him and give him peace), he would ask whether it was a gift or charity (sadaqa) because consuming charity was forbidden for the Prophet (may Allah bless him and give him peace). If he were told that it was charity, he would tell his companions to eat it, but he would hurry to share it with them if it was a gift. [Bukhari]

On one occasion, some meat was brought to the Prophet (may Allah bless him and give him peace), and it was said that the meat had been given in charity to Barira (may Allah be pleased with her). He said, “It was Sadaqa for Barira but a gift for us.” [Bukhari]

The View of the Malikis

Based on the above, when this money acquired by unlawful means is transferred to others, such as heirs, it becomes lawful for them, which is the view of the Malikis.

Muhammad ‘Ulaysh al-Maliki (may Allah have mercy on him) said: “There is a difference of opinion concerning wealth that was acquired by unlawful means, such as interest (riba) and invalid transactions. If the one who acquired it in that manner dies and leaves it behind, is it permissible for the heirs – which is the correct view – or not? As for wealth that is unlawful in and of itself, and its rightful owner is known, such as wealth taken by force or stolen, it is not permissible for the heir. [‘Ulaysh, Manh al-Jalil Sharh Mukhtasar Khalil]

I pray this is of benefit and that Allah guides us all.
[Shaykh] Irshaad Sedick
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar Shaykh Taha Karaan.

Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Mawlana Yusuf Karaan, and Mawlana Abdul Hafeez Makki, among others.

He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has served as the Director of the Discover Islam Centre and Al Jeem Foundation. For the last five years till present, he has served as the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.

Shaykh Irshaad has thirteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic online learning and media platform called ‘Isnad Academy’ and has completed his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy living and fitness.