Can we act according to the fatwa of those who say that the stock market is permissible?

The Details of the Question

- Can we act according to the fatwa of those who say that the stock market is permissible since there are those who say that it is permissible and those who say that it is not permissible?
- Is it a sin to act accordingly?

The Answer

Dear Brother / Sister,

Question 1:
Can we act according to the fatwa of those who say that the stock market is permissible since there are those who say that it is permissible and those who say that it is not permissible? Is it a sin to act accordingly?

Answer 1:

Stock certificates, which are issued by various commercial and industrial organizations and are traded in the free market and on the stock exchange at their daily value, represent a partnership in a company that is engaged in production, trade or service and that is known by the buyer.

The holders of those certificates share in the profits and losses of the relevant company to the extent represented by the certificate in their hands. Stock exchanges are the markets where stocks are traded.

The decree on the purchase of a stock certificate is linked to the assets of the company it represents.

There is no religious objection to buying shares issued by a company that is engaged in legitimate production or trade as long as the company’s field of activity, whether national or international, does not involve religiously prohibited activities. However, a person who buys the shares of a company whose wealth and field of activity is not legitimate, and who benefits from its annual profits, directly or indirectly becomes a partner in a wealth that is not legitimate and halal from an Islamic point of view, which is not permissible.

Accordingly, it is not permissible to become a partner in investment funds that include instruments such as bonds, interest-bearing government bonds, etc. in their portfolios, have time deposit income and are engaged in activities prohibited by religion, and to buy and sell the shares of companies that are engaged in activities prohibited by religion. In our religion, exchanges that involve interest-bearing transactions or the buying and selling of haram things are haram.

As for becoming a partner in or buying shares in companies whose main field of activity is halal, but which may sometimes engage in interest-bearing or religiously prohibited transactions, it is possible to mention some individual and institutional fatwas stating that it is permissible to buy shares in such companies whose main business, production and investment are halal, but whose income includes some interest, provided that this amount does not exceed a certain percentage of the total income. [See AAOIFI (Accounting and Auditing Organization For Islamic Financial Institutions), 21-3/4]

He who wishes can act based on this view.

However, from the point of view of taqwa and avoiding suspicious things, it would not be appropriate to say that there is no harm in buying shares of companies that generate illegitimate income from interest, alcoholic drinks, etc. if such activities are below a certain percentage of their total capital. This is because becoming a partner by providing financial support to companies or organizations that are known to have some income-generating activities through haram means, even if the amount is small, may be like turning a blind eye to that haram activity.

Therefore, if shares of such companies or organizations are somehow purchased and it is later found out that they generate income through haram means, it would be appropriate to determine the rate of this unlawful income and deduct it from the profit of the share period and give it to the needy without waiting for reward.

Question 2:
What is the justification for buying stocks of companies whose main business, production and investment are halal, but whose income includes some interest, but the amount of interest does not exceed 5% of the total income?

Answer 2:

The decree on buying and selling stocks in the stock market of companies whose main business, production and trade are legitimate, halal and permissible, but which sometimes use interest-bearing loans or put their money in interest-bearing banks and charge interest, and on buying and selling stocks in such companies and on using the dividends as long as they are in their possession is a matter of debate among the fiqh scholars of our time, and there is no consensus on it.

A group of scholars, including well-known fiqh scholars such as Qaradawi and Qaradaghi, and some fatwa councils regard it permissible to buy and sell the shares of such companies and use the dividends if the following conditions are observed:

a) The interest-bearing loan must not exceed thirty percent of the total market value of the company’s shares.

b) What the company earns from the interest-bearing loan must not exceed five percent of the company’s total income.

c) If the shareholder receives dividends (profit), he must give his share of this five percent haram profit to the poor.

The reasoning of the scholars who consider it permissible is as follows:

Pious Muslims must prevent haram such as interest, even if it is small, in companies that they can control. However, if it is not regarded as permissible to buy shares in large companies that they cannot control, because their capital and profits are slightly haram even though their main business is halal, pious Muslims will be deprived of participating in and benefiting from a large amount of national wealth, and people with no religious sensitivity will seize this wealth, which is not in line with the objectives of Islam. Muslims who avoid haram can look at the year-end reports and find out “the amount of haram income” and subtract it from their profits and give it to the poor...

Question 3:
I did not hold a stock long enough to receive the dividends that companies distribute to their shareholders annually; that is, I did not receive dividends. I only made money by buying and selling according to the rise and fall of the stock on the ISE. Is it permissible?

Answer 3:

Since you did not receive dividends, some of the measures related to this (such as giving five percent or less of the earnings to the poor) do not interest you. The profit obtained from buying and selling shares in such a company is halal.

Question 4:
Is the money I earned from trading in the stock market between 1997 and 2011, before the participation index, in which the main business is halal, was introduced, since I did not know whether they met the criteria or not haram? There was no committee that examined them according to the criteria as they do today? Do I have to make an investigation related to the past religiously? What should I do if my money is haram?

Answer 4:

If you do not have the means to calculate and investigate it, give one-third of the dividend income to the poor as a precautionary measure.

Question 5:
We buy shares of an iron and steel factory on the stock exchange and sell them when the stock increases and make money from it. When we buy shares in this company, it is not possible to know what the owners of this company do besides this business, whether they have religious sensitivity, etc. or not. We only buy shares if the main business of the company we buy shares from is halal production. Is it haram to buy shares without knowing whether the owners of the company have religious sensitivities or not and what other businesses they are involved in?

Answer 5:

Whether their other businesses are halal or not does not make you responsible for being a partner in a company that has halal businesses.

Soru 6:
When we have a look at the stock market, we see that almost every company has an interest-bearing transaction. Even a company that appears to be engaged in a religiously permissible business (furniture, automotive, cement, grocery store, etc.) can sometimes have transactions with banks in terms of receiving and giving loans. According to the statement of the Supreme Council of Religious Affairs in its fatwa on the stock exchange, “There is no religious objection to buying shares issued by a company that is engaged in legitimate production or trade, unless the company’s field of occupation is religiously prohibited”, when I buy shares in a company that is engaged in a legitimate business that is not prohibited by religion, such as automotive, furniture, cement, iron and steel, market, textile, food, etc., I have shares of that company, but no one asks me anything about the company’s actions and I have no say in the company. In that case, is it haram for me to buy shares of a company that does a legitimate business but that also does something I would not approve of religiously and would not want if I had a say in it, and is the money I earn as a result of the increase in my share price haram?  I do not get the dividends from the companies; I only get the money from the increase in the shares. Does this fall within the scope of the verse in al Maida 5:2: “Helping one another in sin and aggression”?

Answer 6:

You have no say in the management of the company, but you know what they do, and you buy their shares because what they do is in accordance with the fatwas. Helping one another in evil and sin occurs when you participate in or help a company that is sinful. The activity of a company whose main business and capital are halal is not sinful; so, you do not help it in sin. Fiqh scholars have ruled that it is permissible because a small part of the business being haram does not make the whole business haram and the partner with religious sensitivities will distribute the earnings from this part to the poor.

However, it is always better to avoid suspicious things.

Question 7:
What is AAOIFI? How do we know if the fatwas of this organization are consistent with fiqh and have credibility?

Answer 7:

AAOIFI stands for the following: The Accounting and Auditing Organization for Islamic Financial Institutions, Manama-Bahrain; it is composed of scholars from various countries.

This institution (AAOIFI) is one of those that consider some issues permissible on conditional grounds. In order to understand whether this view is consistent with fiqh and whether it has any credibility, it is necessary to introduce the organization briefly.

The book of standards prepared by the organization has been translated into many languages and many countries have accepted these standards (interest-free finance rules) as binding in their own transactions. The book of Standards has also been translated into Turkish and printed; translators: Mehmet Odabaşı (Giriş – 20 Standartlar), Doç. Dr. İshak Emin Aktepe (21-41 Standartlar). After this translation, about 30 more standards were published.

The following information about AAOIFI is included at the beginning of the translation:

AAOIFI, formerly known as the Financial Accounting Organization for Islamic Banks and Financial Institutions, was established in Algiers on Safar 1, 1410 / February 26, 1990 in accordance with the founding agreement signed by several Islamic Financial Institutions. AAOIFI was registered in Bahrain on Ramadan 11, 1411 / March 27, 1991 as an international non-profit organization with independent legal personality.

The objectives of AAOIFI can be listed as follows:

(1) Developing an understanding of accounting and auditing for Islamic financial institutions.

(2) Trying to disseminate and implement this understanding by organizing trainings, conferences and symposiums, publishing periodicals and preparing research.

(3) Preparing, publishing, explaining, examining and revising Islamic standards for Islamic financial institutions, which are based on the decrees and principles of Islamic law that regulate and encompass all areas of life, as well as the social structure from which these institutions emerge.

(4) Increasing the confidence of the users of the financial statements of Islamic financial institutions in the information that is provided and encouraging them to work with these institutions (investments, financing, deposits and benefitting from banking services).

The fiqh committee of this organization includes about twenty scholars known and respected throughout the Islamic world, and its chairman was the Pakistani scholar Muhammad Taqi Uthmani.

The Standards are the result of a great deal of hard work, and dozens of people who provide various services join the members of the fiqh committee. The discussion of each standard and the evidence on which it is based are also included in the book.

The ratios described in the question are based on ijtihad, not on a verse of the Quran and hadith. The fiqh rules on which this ijtihad is based on are as follows:

a) The removal of umum al-balwa (widespread affliction) and hardship

b) The survival of the country’s economy, its competitiveness, ensuring large-scale production and trade, the demands of small savers to protect the value of their money and make a profit in a halal way through the partnership method... all these and others are important needs of both the public and individuals. The rule “A need is an imperative, whether it is general or specific.”

c) If the question “If this logic is valid, why is it not permissible to buy stocks of companies whose capital and business are also haram?” arises, the answer to this question is another rule of fiqh: “In terms of decree, the less is subject to the more; the less takes the decree of the more; that is, if the most part is something is haram, the whole of it is regarded as haram, but if a small part of something is haram, the whole of it is not regarded as haram.”

One of the conditions is the nonexistence of shares of companies in the market that do business without taking any interest-bearing loans. If there are such companies, the institution does not issue a fatwa to buy the shares of companies that receive even a small amount of credit.

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