Is the Custodianship of Shares Permissible in the Shafi‘i School?

Answered by Shaykh Muhammad Carr

Question

My question is: Most investment brokers offer custodianship of shares today. Is this form of beneficial ownership considered permissible according to the Shafi‘i School?

ِAnswer

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

I pray you are in good faith and health. Thank you for your question.

Allah (Most High) narrates the story of the People of the Cave, “So dispatch a man of you with these silver coins of yours to the city.” [Quran, 18:19]

Broker custodianship is permissible and is a type of agency (wakala). Custodianship does not compromise your ownership of the shares in any way.

Agency 

The custodianship of shares offered by brokers refers to a service in which a broker or a financial institution holds and safeguards your securities (like stocks, ETFs) on your behalf.

This is a type of agency arrangement that is permissible in Islamic Law. Agency (wakala) is defined as “Delegating something that one has the right to do—among actions that permit deputization—to another person, using an appropriate formula, without intending for it to be carried out after one’s death.” [Hamadi, Fath al-Wahhab al-Malik]

Custodianship Explained

Custodianship means you own the shares, but the broker holds them in custody. The custodian is responsible for:

• Safekeeping of your securities
• Handling administrative tasks like dividend collection, and corporate actions (e.g., stock splits, mergers)
• Facilitating settlement when you buy or sell shares
• Providing reports and statements

I pray this is of benefit and that Allah guides us all.

[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.