What is the Sharia's opinion on investments and buying and selling of shares*?

What is the Sharia's opinion on investments and buying and selling of shares*?

Some scholars consider shares of all companies to be prohibited. 

*Similar fatwas may apply to cryptocurrencies!


Response:

Praise be to Allah.

All companies and firms, based on their activities and operations, can be divided into three groups.


The first group includes companies and firms engaged in permissible activities. This group includes, for example, transportation and logistics companies, clothing manufacturing firms, office supplies, furniture, medical equipment, construction companies, etc., provided that they do not engage in lying, fraud, usury, or lending practices and adhere to the Sharia's commandments in all aspects of their activities.

Investing in and buying and selling shares of such companies, which are referred to as permissible or clean companies, is allowed.


The second group comprises firms and companies essentially engaged in prohibited activities. Examples of such companies include tourism agencies promoting vice and the hotel industry, alcohol production factories, banks involved in usurious operations, commercial insurance companies, printing presses, and firms distributing pornography, among others. Owning shares in these businesses, as well as advertising and promoting them, is prohibited.


There are no difficulties or doubts regarding the legal status of firms in the first two groups; everything is clear in this regard.

As for the third group, these are companies engaged in permissible activities at their core but resort to certain prohibited operations and actions in their work. For instance, this could be a transportation company that has deposits in a bank and earns profits through usury or one that seeks bank loans with usurious terms or loans from private individuals to finance its projects.


Firms belonging to the third group are referred to as mixed companies. Contemporary scholars hold various opinions regarding their legal status in Sharia. A more reliable opinion states that participation in their activities through investments, equity ownership, or buying their shares, as well as advertising, is prohibited. This is because a person holding shares in such a company becomes a participant in the company's activities to the extent of their shareholding and thus becomes complicit in all the prohibited operations of the company (usurious loans, etc.).


As for the prohibition of advertising and promoting such companies, the prohibition is based on the principle that in Sharia, it is forbidden to assist in sin and promote what is prohibited. The Almighty Allah has said:


"Help one another in righteousness and piety, but do not help one another in sin and transgression." (Quran, Surah Al-Ma'idah, Verse 2).


This view has been adopted as correct by the majority of contemporary scholars, including members of the Permanent Committee for Fatwas (Saudi Arabia). The decision was announced by the Academy of Islamic Jurisprudence, which is subordinate to the Organization of Islamic Cooperation.


In the fatwas of the Permanent Committee, it is stated:


"The purchase of shares in any company that engages in activities prohibited by Sharia is permissible (mubah). However, if the company engages in activities that are prohibited in Sharia (such as usury, etc.), then it is forbidden to buy and own shares in that company. Therefore, if an Islamic shareholder company engages in usurious or other Sharia-prohibited activities, a Muslim is obligated to divest from it, and the profit obtained from it should be given to the poor and needy."


Members of the Permanent Committee include Sheikh Abdulaziz Ibn Baz, Sheikh Abdurrazzaq Al-Afeefi, Sheikh Abdullah Ibn Ghudayyan, Sheikh Salih Al-Fawzan, Sheikh Abdulaziz Al-Sheikh, and Sheikh Bakr Abu Zaid. (Fatawa al-Lajnat al-Da'ima, Vol. 14, p. 299).


In addition, the fatwas of the Permanent Committee also state:


"Firstly, it is forbidden to be a shareholder in a company that operates through usury (either receiving or giving loans), as this would involve assisting in sin. Allah the Almighty has said: 'Help one another in righteousness and piety, but do not help one another in sin and transgression. Fear Allah; indeed, Allah is severe in penalty.' (Quran, Surah Al-Ma'idah, Verse 2).


Secondly, if someone owns shares in a company that engages in usurious practices, they should sell their shares, and the profit obtained from interest-based transactions should be spent on charitable endeavors."


Sheikh Abdulaziz Ibn Baz, Sheikh Abdurrazzaq Al-Afeefi, Sheikh Abdullah Ibn Ghudayyan, and Sheikh Abdullah Ibn Ku'ud are among the scholars who have issued these fatwas. (Fatawa al-Lajnat al-Da'ima, Vol. 14, pp. 299-300).


The Academy of Islamic Jurisprudence, which is subordinate to the Organization of Islamic Cooperation (OIC), made a decision regarding shares at its seventh conference held in Jeddah from 7th to 12th Zul-Qa'dah 1412 AH (corresponding to 9th to 14th May 1992 CE):


"A. The basis in trade relationships is permissibility; therefore, the establishment of a joint-stock company (corporation) that operates within the framework of Sharia is considered permissible.


B. Scholars unanimously agree that trading in the shares of a company whose primary activities are prohibited (usury, production and sale of prohibited items) is prohibited.


C. It is prohibited to participate in the activities of a joint-stock company (buying and owning shares, making investments) that sometimes engages in actions prohibited by Sharia, even if the company's primary activities are in compliance with Sharia." (Majallatu al-Majma', No. 6 (Vol. 2, p. 1273), No. 7 (Vol. 1, p. 73), No. 9 (Vol. 2, p. 5)).


A similar decision was also made at the 14th conference in 1415 AH (1995 CE) by the Academy of Islamic Jurisprudence, which is subordinate to the World Islamic League.

"1. The foundation of trade relationships is permissibility, so the establishment of a joint-stock company (company) that operates within the framework of Sharia is permissible in Sharia.

2. Scholars unanimously agree that purchasing (owning) shares of a company whose primary activities are prohibited (usury, production of prohibited items, and their sale) is prohibited.

3. It is prohibited for a Muslim to acquire shares in companies and banks if they occasionally engage in usurious operations in their activities, produce or trade in forbidden products.

4. A person who acquired shares without knowing that the company engages in usury but later becomes aware of it should leave that company.

The prohibition is confirmed by many pieces of evidence from the Quran and Sunnah regarding the prohibition of usury. Buying shares in a company that engages in usury makes the shareholder a participant in usury, as shares are a common part of the company's capital, and the owner of shares has a stake in the company's assets. Thus, the shareholder receives profit from every loan issued by the company or participates in receiving every loan obtained by it, as the company performs these actions on behalf of the shareholder, as authorized by him. Authorizing the commission of a prohibited act is not permissible.


May Allah bless and greet our master Muhammad, his family, and all his companions. And praise be to Allah, the Lord of the worlds."


Dr. Muhammad ibn Sa'ud al-'Usaymi was asked about the status of purchasing shares in mixed companies.

He answered: According to the opinion of the majority of scholars, this is prohibited. Buying shares and investing capital is only allowed in companies whose activities are pure. The original fatwa is available at the following link:

As for the opinion that it is not permissible to buy and own shares in companies at all, this opinion is incorrect because there are companies belonging to the first category that conduct their activities within the framework of Sharia. Perhaps the person who expressed this opinion meant that such firms are very few, and the majority of firms belong to the second and third categories. islamqa.info


And Allah knows best.

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