ISLAM AND STOCK BUSINESS, Zakat calculation: Mazhar

**********بسم الله الرحمن الرحيم ***********




------------------------------------------
INTEREST (USURY, RIBA, সুদ) IS ABSOLUTELY HARAM IN ISLAM.


Prophet Muhammad (sm) has cursed anyone who deals with Riba, who takes it, who pays it and who records it. They all are "equal".
------------------------------------------


In islamic view, stocks are divided into 3 groups.

GROUP-A: (Islamic stocks)

Both dividend and capital gain are abslutely halal in:

# all islamic banks.
# all islamic insurances.
# all islamic financial institutes.
# all islamic bonds / mutual funds.
# all islamic companies (that are always strictly follow islamic rules).



What are the Islamic banks in Bangladesh stock market?
1. ISLAMI BANK,
2. ALARAFAH ISLAMI BANK,
3. SOCIAL INVESTMENT BANK,
4. SHAHJALAL ISLAMI BANK,
5. EXIM BANK,
6. ICB ISLAMIC BANK (ORIENTALBANK),

7. FIRST SECURITY BANK.



What are the islamic insurances?
8. FAR EAST LIFE,
9. TAKAFUL,
10. PRIME LIFE.

11. ISLAMIC INSURANCE.

What are the islamic financial institutes?
12. ISLAMICFIN.

What are the islamic bonds and mutual funds?
13. IBBLPBOND,
14. ICBISLAMIC
(I have confusion about it, ICB is an interest-based company. Islamic mutual fund inside an interest-based company! I will keep away).

What are the islamic companies?

14. Ibn sina pharma.

----------------------

How to recognize islamic stocks?
They decided to follow islamic rules strictly. They have "shariah council" to monitor activities. If any haram money mixes unwillingly, they give it to charity.
--------------------------------------------------

GROUP-B: (Neutral stocks)

Companies that seems to be halal (cement, fuel, foods, ceramics, cosmetics, pharmaceuticals, shoes, textiles etc).
Their main business / end-product is halal but they borrow money on interest (from banks / financial institutes), also they invest some of their money on interest. Means, their business is mixed with interest (= riba = সুদ). So we should keep away from those. Neither dividend, nor capital-gain.

Some scholars say: "making profit by sell-buy" is halal in this group. Though taking dividend is not allowed.
-------------------------------------------

GROUP-C: (Haram stocks)

These are absolutely haram. Dividend and capital-gain both are haram.

Interest based: Banks, finance, insurances, bonds, debentures, mutual funds etc.
Gambling: casino, lottery etc.
Haram products/services: Wine, all products / services that are haram.

Currency sell-buy is also haram.
---------------------------
Note:
There are 2 methods of earning money from stock business:
1. Dividend: the percentage of company-profit distributed to shareholders.
2. Capital gain: earning from buy-sell, buying at low price and selling at high price.
------------------------------------------

That was my opinion in short. Now let's see what islamic scholars say about this issue.....
------------------
Here is an article about Islamic views on stock business, written by Muhammad ibn Adam, UK.

In the name of Allah, Most Compassionate, Most Merciful,

To invest in the share of a particular company or to purchase shares acompany's from the stock market has been a matter of debate betweenthe contemporary scholars.
Some contemporary scholars (who are very few) are of the opinion thatit is not permissible to invest in shares. There basic argument is that, shares do not represent an ownership for the share-holder in the company's assets, rather the share certificate is a document thatsignifies lending of some amount of cash to a particular company. Thedividend which one receives will be considered interest (riba), thusunlawful.
The majority of the scholars, however, do not agree with this opinion.Scholars such as, Shaykh Ali al-Khafif, Dr. Wahba al-Zuhaili, ShaykhTaqi Usmani and others have declared investing in the shares ofcompanies lawful (halal) subject to certain conditions.
They say that the share certificate actually signifies an ownership ina company for the share-holder. His ownership is in proportion of hisinvestment in the company. This is the reason why if the company wasto become bankrupt, the share-holder will not regain his investment inthe state of cash, rather he will receive the company's assetsaccording to his proportionate ownership.
Therefore, it will be permissible to invest in the shares of companies, and the share certificate will not imply lending cash to the company.
If one intends to purchase shares from the stock market, it will bepermissible with adherence to the following conditions:

1) The main business of the company must be lawful (halal). Therefore,to purchase shares of a company whose main business is unlawful, suchas interest bearing banks, insurance companies, companies manufacturing and selling liquor, etc... would not be permitted.
If the main business of the company is Halal, such as a textile company or a telecommunication company, then it will be permissible to subscribe to its shares.

2) Many companies, despite their main business being Halal may beinvolved in interest dealings in one way or another. Due to this thefollowing is necessary:
a) One should object to the interest dealings, preferably in the annual AGM. By doing so, the responsibility will be deemed fulfilled.
b) When the dividend is distributed, the proportion of the company'sincome which was gained by interest dealings must be given in charitywithout the intention of receiving reward, as is the case with unlawful money in general. This amount (interest accumulation) may be known by means of the income statement.

3) The company whose shares one intends to purchase must have someilliquid assets in its possession. They must not all be in liquid form (i.e. cash, cheques, bonds, etc…). If all of the company's assets are in liquid form, then the share cannot be sold or purchased except at face value.
The reason for this is that the share in this case represents money only, and money cannot be traded in except at par.
If the above three/four conditions are complied, then it will be permissible to trade in shares from the stock market.
As far as working as a stock broker is concerned, the work normallyconsists of buying and selling shares on behalf of a client. In the light of the above, it becomes clear that those shares in which it is permissible to trade, his work will also be permissible, and vice versa.
Therefore, it would be better not to work as a stock broker. However,if one is able to save oneself being involved in unlawful trading then it will be permissible.
And Allah knows best.
Muhammad ibn Adam, UK
------------------
Question:
I would like to invest using either the Dow Jones Islamic Index or the FTSE Islamic Index. Is this allowed?
Further more, sometimes the information that is displayed is a few months behind. Should I still use either indexes? Also, suppose I buy a stock in a company that has the ratios that are Islamically permissible and that has most of its businesses in halal areas, and after a few months I sell this stock because the price has risen. If I had gotten a dividend, what do I do with it; is it haram and should I give it to charity?

The other question is, sometimes the rise in price is affected by the idea that a dividend will be paid soon. Should I also give away part of the price because it was higher because of the dividend declaration?

As for Zakah, should I pay 2.5% on the percentage of the assets that I own? So for example, if the company has $1000 and I own 10% of the company then I would have to give away $2.5? And how often do I have to do this considering that I may not keep these stocks for a long time?

Answer:

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we are greatly pleased to receive your question which shows the confidence you place in us. May Allah reward you abundantly for your interest in knowing the teachings of Islam.
Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:

“In the first place, I should stress that Islam prohibits interest and certain other practices that contain any immoral or unfair ingredients such as gambling, unbalanced transactions, ambiguous contracts, etc. This prohibition includes that a Muslim must abstain from such practices as an individual as well as a partner in a company, meaning that if a Muslim enters in a company with others, Muslims/non-Muslims, a Muslim must always be keen that other partners do not indulge in any non-permitted transaction because the management of a company acts on behalf of its owners.
Accordingly, many jurists argue that it is prohibited to buy, own/hold or sell stocks of companies that makes any prohibited transaction whatsoever. But a group of jurists, whose opinion is respected, argue that this ruling poses a great deal of inconvenience and hardship on many Muslims, especially in the West and other non-Muslim countries because there are only a few stocks that comply with it such as stocks of Islamic banks and a few other small companies, even these are not available for the greatest majority of Muslims. And since hardship always calls for relaxation, they argue for exceptionality at this time and until a time when there will be reasonable number of halal stocks available to absorb the investments of Muslims, which may be even theoretically a long time.

Yet, this exception has certain conditions that can be summarized in three groups:

a. The company’s main line of activity must not be haram in itself such as interest-based banks and insurance companies and Las Vegas type entertainment business, etc.

b. The degree of involvement in prohibited transaction must not be high, and here they argue that depending on interest-based loans, maintaining high percentage on receivables that in most of the times carry interest and having high percentage of interest in the company's net income or giving donations to prohibited causes, etc. may be indications that should be considered, obviously the ideal is zero on all these, but one may say that 5%, 10%, 25%, 33% or the like may not to be a high to induce the prohibition on any or some of these points.

c. There always must be active process of cleaning your investment, i.e., to do away with the income that results from prohibited transactions by giving it to charity since according to the Shari'ah you really do not own it, and remember you are, Allah willing, rewarded for this action of cleaning but not as a Sadaqah nor Zakah. Thus, investing according to these indices or stocks in them is on one hand an exception of the basic principle and on the other hand calls for cleaning your income, both from dividend and price increment that may have resulted from Shari'ah unlawful activity of the company.

To my knowledge, the listing in these indices is updated every three or six months, and if you have old information on a specific stock you may look in the web of that company and see if there was any substantial change in its fundamentals, balance sheet and income statement from the previous period when it was listed, if the change is not substantial, you may work on the assumption that it has not changed since during the period of comparison, this is not easy, is it?

---------------


Zakah (যাকাত) on stocks:

the opinion of the majority of the contemporary jurists is that if stocks are purchased for the purpose of capital gains, i.e., watching prices and get an opportunity to sell, even after split, at higher prices, especially if the idea is done in the short run, stocks are then objects of trade and they are subject to Zakah at the market value on the day a lunar year is complete from the day a nisab is owned.
This market value is added to your other Zakatable assets, like cash and bank accounts, and Zakah is due at 2.5% of the total if it is nisab or above.
This means whatever dividend you got during the year is actually included (when it is either used for new stocks or other Zakatable assets) unless was used for consumption (whether used up like food or durable like a refrigerator and both are exempt from Zakah).

But if stocks are used for income (their dividends), the Zakah is due only on a percentage of the stocks' value that equals the percentage of the net mobile assets (inventory + cash on hand and in banks + receivables and similar payables) to total equity of the company.

In all cases, if it is difficult to calculate the Zakatable amount at the lunar year, then you may take the figures from the gregorian (solar) year and compensate for the difference by adjusting the rate of Zakah from 2.5% to 2.577% (= 2.5% + 2.4% multiplied by 354/365).

Besides this opinion, there is a view that only the income (dividends) of stocks held for their income is subject to Zakah at a rate of 10% in similarity with agricultural land and products. I believe that this view is weak and cannot be substantiated by the rules of Usual Al-Fiqh or the principles of Islamic Jurisprudence nor by the Fiqh rules.

May Allah guide you to the straight path, and guide you to that which pleases Him, Ameen.

Allah Almighty knows best.
-------------------------------


Question:

Is stock business halal?

Answer:
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear questioner, we would like to thank you for the great confidence you place in us, and we implore Allah Almighty to help us serve His cause and render our work for His Sake.

Responding to the question, Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert, states the following:

"Stocks/shares are basically of two kinds: common and preferred.If the preference in preferred shares in financial such as guaranteed minimum return, priority in payment at time of liquidation and the like, preferred stocks/shares are then prohibited because equal owners of the companies principal must be treated equally. They are forbidden to issue, buy, own and sell. If the preference is managerial they may be permissible.

Common stocks are not prohibited from this point of view. From another angle, stocks/shares may belong to companies that are fully compatible with the Shari'ah in establishment and all activities such as Islamic Banks, to companies whose main and major business is forbidden such as conventional banks or Las Vegas type entertainment companies, or to companies whose main/major business is permissible but their articles of incorporation allow them to undertake activities that are prohibited in the Shari'ah and their management actually do such activities, this category covers most companies on the stock exchanges such as Microsoft, Intel, Sony, General Motors, etc. because they are involved in at least one kind of impermissible transaction, i.e., Riba-based borrowing and/or lending.

Obviously, the Shari'ah ruling on issuing, buying, owning and selling the first category is permissible while prohibited on the second.
The third category is troublesome and needs certain details. It is prohibited for a Muslim to establish a company that indulged in prohibited activity and consequently, it is also prohibited to issue its stocks and offer them to the public for sale. The principle must be that it is also prohibited to buy and own such a stock because by doing so the owner becomes in fact a partner in the company whose management take up prohibited activities on behalf of all its owners as their deputed officers. In other words, the management acts as your agent, this means, you are doing this prohibited activity. In this regard, two points are important. If one buys such stocks with the intention (that is coupled with ability) to convert such a company into all halal activities through having a majority in its board and general assembly, such a purchase is certainly permissible because it reduces the haram in the world, although the process may take a few month or may be a year or two.

The second point (that may be more relevant to the questioner) is buying and owning such stocks as a small investor and a small minority holder to get benefit from expected capital gains and from dividends.

A small group of Muslim scholars argue that this category of stocks may be purchased and owned for investment within certain conditions that can be summarized in being sure that the prohibited activities do not make a high percentage of the total activity of the company.
These include that the company does not have high rate of liability/asset, i.e., it does not live on loans, it does not earn a lot on interest it is not involved in activities that basically hurt the interests of Muslims such as producing and selling arms attackers of Muslim people.
Based on these conditions, Dow Jones in cooperation with a group of Muslim scholars have studied the registered stocks and make a list that is issued under the name of Islamic Market Dow Jones Index."

May Allah guide you to the straight path, and guide you to that which pleases Him, Ameen.

Allah Almighty knows best.
-------------------------







1 comment:

Anonymous said...
This comment has been removed by a blog administrator.