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Is Margin Trading Permissible?

Shaykh Abdul-Rahim Reasat answers a question on the legality of margin trading.

Can you please confirm if margin trading is permissible? This is where you predict if the market will go up or down by using leverage positions.

Thank You.

I pray you are well.

Margin trading is not permissible for a number of reasons. Firstly, because it entails entering into a interest-bearing contract with the broker. “The Messenger of Allah, Allah bless him and give him peace, cursed the one takes interest, the one who gives it, the one who writes [the contract], and those who witnesses it.” (Muslim)

Also, the use of leverage positions, as done in Forex, is problematic as this process uses instruments, such as options and futures, which fundamentally contradict the nature of a sound, Shari‘a-complaint contract. (Mufti Taqi Usmani, Fiqh al-Buyuʿ).

It is better to ask Allah to open the doors of halal provision for you; you’ll be saved from the problems that rain down on people to deal with interest.

May Allah grant you the best of both worlds.

Abdul-Rahim

Checked and approved by Shaykh Faraz Rabbani.

Working in Car Dealership That Offers Financing

Ustadh Salman Younas answers a question on the permissibility of working for a car dealership that at times offers financing for purchases.

Question:

Assalam alaykum wa rahmat Allah wa barakatuh.

I had a question regarding working in a car dealership. I would be selling cars and earn base salary plus commission. The people buying the cars may pay all cash, or may finance and sometimes it is zero percent interest. But sometimes they have to pay interest, even though I believe it is not as often as zero percent financing. Please let me know insha Allah.

Answer:

Wa alaykum assalam wa rahmat Allah wa barakatuh.

Generally, the job of selling cars as an agent would be permitted. Thus, the money you earn from your work in a car dealership would be licit specifically when the majority of income the company is earning is through permissible means.

The major issue with your working in a car dealership is the assistance you may have to provide for obtaining an interest-based loan. This would include overseeing the signing of the contract, filling it out, signing it, and so forth.

As Mufti Taqi Usmani states, this would not be permitted and would fall under the hadith where the Prophet, blessings upon him, strongly rebukes not only the receiver and giver of interest, but also the one “who has written the interest.”

As such, this element of your job must be avoided. You may, for example, ask someone else to do such paperwork. If you cannot avoid it, you should try and seek work that will not have you engaged in such interest-based dealings. This does not have to be done immediately.

You can continue working in your current job until you find a reasonable alternative. But you should seek God’s forgiveness and hate the interest-based nature of the work in your heart.

Salman

Checked and approved by Shaykh Faraz Rabbani.


Working as an Accountant When Interest Transactions Are Involved

Answered by Mufti Taqi Usmani

Q.) As accountants we are faced with a moral dilemma with regard to certain aspects of our work. Thus we write to you seeking guidance in this matter. Please advise us with regard to the following:

According to the well known Hadith, Rasulullah (Sallallaahu Álayhi Wasallam) has invoked the curse of Allah upon four categories of people due to their association with interest. Among them is the one who has written the interest transaction. Concerning the above, what is the position of an accountant who prepares the financial statements of clients? In the course of this preparation, he has to record amongst other transactions, the interest transactions of his clients in their books.

It should be noted that he is generally never present at the time of the transaction (except rarely which also can be avoided). Does the accountant in the course of recording such interest in the financial statements of clients also fall within the ambit of this Hadith? The accountant in reality merely prepares an analysis of the year’s transactions and reports on the profit/loss and the assets and liabilities of the business i.e. the financial position of the business for a particular period. Hereunder are some of the different types of transactions which accountants routinely record. Please advise us with regard to each one of them as to whether they fall within the ambit of the said Hadith.

Question 1: An accountant is working for a company. The company charges its debtors interest on their overdue accounts. The accountant is instructed by the directors, as part of his functions, to make appropriate entries in the records of the company in terms of which interest is charged on certain overdue accounts. The question arises whether it is permissible in Shariah for such an accountant to:-

* Become involved in this manner in the charging, recording and execution of interest on overdue accounts.

* Remain employed with such an employer who charges interest on overdue accounts.

* Receive a salary that can be considered as halal in Shariah from such a company, a small portion of whose income is represented by interest collected from debtors.

Question 2: The accountant working for a company writes the checks of the company. At times the amount recorded on the check includes an amount of interest. What is the position of the person who issues out such check? Also what is the position of the signatories to such checks? It must be noted that the accountant himself was not an original party to the transaction of loan which gave rise to the interest obligation. In certain circumstances, even the signatory was not an original party to the transaction.

Question 3: A motor vehicle salesman sells a vehicle to a customer. The customer finances the vehicle through the bank upon which he pays interest. The salesman in most instances has to assist the customer in completing the application for finance to the bank by filling in the details on behalf of the customer. Some application forms also have a place for the signature of the person who assisted the customer in completing his application.

Will this assistance to the customer be prohibited? Does the salesman also become a witness to this interest transaction merely by assisting to complete the application? It should be noted that the financing transaction is distinct from the sale transaction and it is solely between the customer and the bank.

Question 4: A client comes to the accountant seeking advice of the best option with regard to undertaking a certain business venture or the acquisition/purchase of an asset. Among the various options which the accountant advises him on is the position of financing via a bank whereupon he will be charged interest. What is the position of advising with regard to such an option? If the client is a non-Muslim, will it make any difference?

Question 5: A person working for a non-Muslim company invests surplus funds, on instruction, in interest bearing securities. What is his position in relation to the said Hadith?

Question 6: If the client’s business activities are mostly of a nature which the Shariáh has declared forbidden, such as he sells liquor, or trades in meat not slaughtered according to Islamic rites, can the Muslim accountant undertake to do his books?

Question 7: A Muslim accountant works for a non-Muslim company which deals generally in halal merchandise, but also sells some haram items, such as liquor, etc. Is he committing any Sharee violation in recording the transactions pertaining to the haram items?

Question 8: What advice can you give to accountants in general pertaining to their profession?

Submitted by: A group of Sixteen Accountants

A.) Answers by Mufti Taqi Usmani:

It is true that according to a well known Hadith those who invoke the curse of Allah with regard to a transaction of Riba (interest or usury) include a person ‘who has written the interest’. However, this Hadith refers to the scribe of the transaction i.e. a person who has written an agreement or prepared the document to evidence the transaction. It does not include a person who was not involved in the transaction itself in any way, but while preparing the accounts of a person, has come across reference to the Riba transaction and has recorded it as an event that has already happened without his involvement.

This is how the scholars have interpreted the Hadith: Al-Ubbi, the famous commentator of Sahih Muslim has explained the Hadith in the following manner: ‘By the word ‘writer of Riba’ the Hadith intends the scribe of the document evidencing the transaction of Riba, and by the word ‘witness’ it means a person who attended the occasion to become a formal witness in support of the transaction. The Holy Prophet (Sallallaahu Álayhi Wasallam) has held them all as equal in sin because the transaction took place only with their joint efforts.’

It is evident from these references that it is the writing of the document of Riba which invokes the curse of Allah and not its subsequent recording in a statement of the facts that already happened. Therefore, the case of an Accountant of a firm or a company is different from the person who is directly responsible for the operation of interests.

Answer 1: So far as the accountant is not involved in charging interest, claiming it from the debtor or pursuing him for that matter, merely making entries in the books of account will not make him liable to fall within the ambit of prohibition stipulated in the Hadith. Unless the major part (at least 51%) of the company is haram it is not prohibited to draw salary for permissible services rendered to that company.

Answer 2: If the check is intended to be written or issued exclusively for the payment of interest with a clear statement that this should settle the amount of interest due on the issuer of the check, it is not permissible for any person to write or issue such a check. However, if the check is issued for the settlement of different liabilities of which interest is also a part then the issuance or writing of such a check cannot be termed as absolutely prohibited. This applies to both issuer and the signatories of the check.

Answer 3: Of course, any assistance provided to the customer for obtaining an interest-bearing loan, including the filling of the application form for the loan, is not permissible according to Shariáh and it does fall within the scope of the warning of the Hadith.

Answer 4: A Muslim cannot advise any one to opt for a financing option based on interest. The mere fact that the rental in a lease contract has been based on the market rate of interest does not render the transaction unlawful. However, there are certain other conditions which must be fulfilled for a valid lease transaction that cannot be summarized in this letter.

Answer 5: As mentioned earlier, direct involvement of a Muslim in a transaction of interest is prohibited and comes under the purview of the above Hadith. Therefore, it is not permissible for an employee of a non-Muslim to invest his surplus funds, on his instruction, in interest-bearing securities, because in this case the employee works as an agent for the employer which is a direct involvement in the transaction of Riba.

Answer 6: If most of the activities of a business are haram, a Muslim should not take up the work for that business.

Answer 7: The answer to this question is analogous to question 1 i.e. so far as a Muslim is not involved in a prohibited transaction directly, merely recording that transaction in the books of account is not haram. However, a Muslim should avoid this also as far as possible.

Answer 8: My advice is to abide by Shariah in every walk of life.

Documenting Usurious Transactions as an Accountant

Answered by Shaykh Faraz A. Khan

Question: Is the following hadith related to my work as an accountant?

 

Narrated Abdullah ibn Mas’ud: The Apostle of Allah (peace_be_upon_him) cursed the one who accepted usury, the one who paid it, the witness to it, and the one who recorded it. (Sunan Abu Dawood)

 

I work as an accountant for a company which provides accounting and legal services for several entities. These entities deal significantly with structured loans, debts and derivatives financial instruments (options, forwards, swaps etc).

 

My day to day work is the administration of these structures. This entails calculating interests, reviewing loan agreements, and recording/ reviewing these loans and derivatives transactions and producing the financial statements.

 

Can you please advise if this work is permissible as I understand these type of transactions have elements of Riba and Gharar embedded in them and whether I fall in the scope of the “one who records”.

 

Answer: Assalamu alaikum wa rahmatullah,

I pray this finds you in the best of health and states. Please pardon me for the undue delay in response.

The category of ‘the one who recorded it’ in the hadith you cite is understood by scholars to refer to the one who wrote the contract at the time of the actual usurious transaction, as he too is involved in the transaction. In the words of Imam Munawi, “The reason that these [four] categories share in the curse is because the contract is not completed without all of their participation.” [Fayd al-Qadir]

Therefore, the hadith would not refer to one who is not involved in the actual transaction but merely records it later. Of course, the person should hate the transaction in his heart.

For a detailed fatwa by the esteemed scholar Mufti Taqi Usmani, please see:

Working as an Accountant When Interest Transactions Are Involved

Hence, if your work does not entail drafting actual contracts with usury but merely recording past transactions, it is permissible. If it does entail drafting contracts of usurious transactions, then you should find alternative work, although this can be done gradually, meaning you don’t have to leave your current job until you find a viable alternative that is halal.

And Allah knows best.
wassalam
Faraz

Checked & Approved by Faraz Rabbani