سوال

Kindly guide me about the Islamic ruling on stock market exchange trading online (like taking share of Amazon, Microsoft, Google) etc. are permissible in Islam (halal or haram)?

اَلجَوَابْ بِاسْمِ مُلْہِمِ الصَّوَابْ

Trading shares on the stock exchange is permissible subject to the following conditions:

1. Halal Core Business: The company's core business must be permissible (Halal). Buying or selling shares of companies involved in non-compliant businesses—such as conventional banks, insurance firms, alcohol manufacturers, or institutions built on interest—is strictly prohibited.

2. Commencement of Operations: The company must have actually started its business operations, and tangible assets (such as buildings, equipment, or machinery) must physically exist. If the company is only in the planning stage and holds only cash/liquid funds with no actual operations, its shares can only be bought or sold at their exact Face Value; trading above or below face value is not allowed.

3. Sharing in Profit and Loss: There must be genuine participation in both profit and loss. Shareholders are entitled to profits when the company earns, and they must bear financial losses strictly in proportion to their invested capital.

4. Percentage-Based Profit Sharing: Profits must be distributed based on a percentage ratio of actual earnings, rather than a fixed or guaranteed monthly/annual amount. The return must reflect an agreed percentage of whatever profit the company generates.

5. Limit on Incidental Non-Compliant Activities: Along with a Halal core business, any secondary or incidental non-compliant activities must remain below recognized industry thresholds (for example, non-permissible income must not exceed 5% of total revenue, as practiced by contemporary Islamic financial institutions). While avoiding such companies is preferred, investing is permissible on the condition that the shareholder actively opposes these unlawful transactions, especially by raising objections at the Annual General Meeting (AGM) to demand that the company stop non-compliant practices.

6. Dividend Purification: If an investor owns shares in a company that earns a minor portion of incidental non-permissible income, they must examine the financial reports upon receiving dividends, calculate the percentage of unlawful income, and give that exact proportion to charity without expecting any spiritual reward (Thawab).

7. Cap on Interest-Bearing Debt: The ratio of the company's interest-bearing debt relative to its total capital must not exceed a significant threshold (for example, total debt must not exceed 33%).

8. Net Liquid Assets Ratio: The value of the net liquid assets (cash and receivables) backing each share must be less than the market value of that share.

9. Presence of Fixed/Tangible Assets: To buy or sell shares at a premium or discount relative to their face value, the company must hold a notable proportion of fixed, non-liquid assets (for example, at least 20% or more in fixed/tangible assets) alongside its cash and current assets.

10. Possession Before Resale: The buyer must take valid possession (constructive delivery / credit into their CDC or trading account) before selling the shares. Selling shares prior to settlement and actual delivery is not permitted.

11. Prohibition of Forward and Futures Contracts: Forward trading and futures trading, as currently structured and practiced in conventional stock exchanges, are impermissible under Shariah.

12. Prohibition of Badla Financing: Conventional "Badla" transactions (where an investor buys shares without enough cash and sells them to another party with a binding agreement to buy them back later at a higher price) are prohibited, as this involves selling before possession and constitutes a conditional buyback (disguised loan with interest).

13. Prohibition of Short Selling and Blank Selling: Both blank sales and short sales are strictly prohibited, as the seller does not own or possess the shares at the time of sale, and selling what one does not own is explicitly forbidden in Islamic law.

Adapted from Tabweeb: 84460

سنن الترمذي ت بشار (2/ 526)

حدثنا أحمد بن منيع، قال: حدثنا إسماعيل بن إبراهيم، قال: حدثنا أيوب، قال: حدثنا عمرو بن شعيب، قال: حدثني أبي، عن أبيه، حتى ذكر عبد الله بن عمرو أن رسول الله صلى الله عليه وسلم قال: لا يحل سلف وبيع، ولا شرطان في بيع، ولا ربح ما لم يضمن، ولا بيع ما ليس عندك.

بدائع الصنائع في ترتيب الشرائع (6/ 120)

يجوز بيع المشاع وكذا هبة المشاع فيما لا يقسم وشرطه هو القبض والشيوع لا يمنع القبض لأنه يحصل قابضا للنصف المشاع بتخلية الكل ولهذا جازت هبة المشاع فيما لا يقسم وإن كان القبض فيها شرطا لثبوت الملك كذا هذا.