Investing in Stocks and Working as a Stock Broker

Answered by Mufti Muhammad ibn Adam al-Kawthari

Question: I would like to know if it is ok to invest in the stock market, or work as a stock broker.

Answer: In the Name of Allah, Most Gracious, Most Merciful

In the name of Allah, Most Compassionate, Most Merciful,

To invest in the share of a particular company or to purchase shares a company’s from the stock market has been a matter of debate between the contemporary scholars.

Some contemporary scholars (who are very few) are of the opinion that it is not permissible to invest in shares. There basic argument is that, shares do not represent an ownership for the share-holder in the company’s assets, rather the share certificate is a document that signifies lending of some amount of cash to a particular company. The dividend which one receives will be considered interest (riba), thus unlawful.

The majority of the scholars, however, do not agree with this opinion. Scholars such as, Shaykh Ali al-Khafif, Dr. Wahba al-Zuhaili, Shaykh Taqi Usmani and others have declared investing in the shares of companies lawful (halal) subject to certain conditions.

They say that the share certificate actually signifies an ownership in a company for the share-holder. His ownership is in proportion of his investment in the company. This is the reason why if the company was to become bankrupt, the share-holder will not regain his investment in the state of cash, rather he will receive the company’s assets according to his proportionate ownership.

Therefore, it will be permissible to invest in the shares of companies, and the share certificate will not imply lending cash to the company.

If one intends to purchase shares from the stock market, it will be permissible with adherence to the following conditions:

1) The main business of the company must be lawful (halal). Therefore, to purchase shares of a company whose main business is unlawful, such as interest bearing banks, insurance companies, companies manufacturing and selling liquor, etc… would not be permitted.

If the main business of the company is Halal, such as a textile company or a telecommunication company, then it will be permissible to subscribe to its shares.

2) Many companies, despite their main business being Halal may be involved in interest dealings in one way or another. Due to this the following is necessary:

a) One should object to the interest dealings, preferably in the annual AGM. By doing so, the responsibility will be deemed fulfilled.

b) When the dividend is distributed, the proportion of the company’s income which was gained by interest dealings must be given in charity without the intention of receiving reward, as is the case with unlawful money in general. This amount (interest accumulation) may be known by means of the income statement.

3) The company whose shares one intends to purchase must have some illiquid assets in its possession. They must not all be in liquid form (i.e. cash, cheques, bonds, etc…). If all of the company’s assets are in liquid form, then the share cannot be sold or purchased except at face value.

The reason for this is that the share in this case represents money only, and money cannot be traded in except at par.

If the above conditions are met, then it will be permissible to trade in shares from the stock market.

As far as working as a stock broker is concerned, the work normally consists of buying and selling shares on behalf of a client. In the light of the above, it becomes clear that those shares in which it is permissible to trade, his work will also be permissible, and vice versa.

Therefore, it would be better not to work as a stock broker. However, if one is able to save oneself being involved in unlawful trading then it will be permissible.

And Allah knows best

Muhammad ibn Adam, UK
www.daruliftaa.com