How Can I Invest in the Stock Market With Confidence It Is Halal?

Answered by Shaykh Muhammad Carr

Question

I’m trying to build wealth through the stock market in a way I’m confident is halal. I’ve done extensive research, but I feel lost between two scholarly positions.

The strict view (Fiqh Academy, Muslim World League): All shareholders are responsible for a company’s incidental riba because management acts as an agent on behalf of all shareholders.

The majority view (AAOIFI, Mufti Taqi Usmani, al-Zuhaili): Minority shareholders are not responsible for transactions they neither approved nor controlled, provided the company’s core business is halal, its interest-based debt and interest income remain below approximately 30% and 5% respectively, and any impermissible income is purified.

Which view should I follow, and how should Muslims invest?

Answer

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

Investing in the stock market essentially revolves around allowing what would otherwise be impermissible due to necessity. AAOFI permits investing in such companies, while the Fiqh Academy does not. Most contemporary scholars have adopted this view, and I recommend you do the same.

It justifies its opinion based on the shari`a principle of removal of hardship from the public and the principle of absolute need (AAOIFI, 2015). [Revisiting the AAOIFI Shariah Standard’s Stock Screening Criteria]

Scholars agree that, as a matter of principle, it is not permissible to invest in companies with mixed income. They differ as to whether concessions can be made based on qualitative and quantitative filters that would now allow investors to invest in such companies.

AAOIFI permits investing in mixed-income companies, provided the qualitative and quantitative filters are not breached, and that impermissible income is disposed of.

The Shariah Board of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) has ruled an exception to this prohibition under certain conditions:

• The company’s articles and bylaws should not state its objectives to be for unlawful purposes or activities.
• The majority of the company’s transactions should be lawful, with the unlawful transactions being minimal and remaining forbidden, as indicated by the following conditions:

a) The amount borrowed on interest should not exceed 30% of the company’s market value.

b) The amount deposited earning interest should not exceed 30% of the company’s market value.

c) The revenue from unlawful transactions, such as interest earned and money received from forbidden sales, should not exceed 5% of the company’s total revenue.

The Fiqh Academy, on the other hand, prohibits participation in joint-stock companies that may sometimes engage in prohibited transactions, such as Riba-based transactions, even though their main activities may be lawful under shari’a. [https://iifa-aifi.org]

Allah Most High says, “Allah intends ease for you and does not intend hardship for you.” [Quran, 2:185] The Prophet (May Allah bless him and grant him peace) said, ‘Make things easy and do not make them difficult. Give glad tidings and do not drive people away’. [Bukhari]

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

And Allah (Most High) knows best.

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

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Is It Permissible for Me to Invest in the Stock Market? – Explains the conditions under which stock market investing is permissible, emphasizing that investments must comply with the principles of Islamic finance.

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.