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Buying Shares in Companies which Deals with Riba (interest) – Shaykh Muhammad ibn Saalih al-‘Uthaymeen

June 25, 2009

Shaykh Muhammad ibn Saalih al-‘Uthaymeen (may Allaah have mercy on him) was asked about the ruling on buying shares in companies.

He replied:

Buying shares in companies is subject to further discussion, because we have heard that they put their money in foreign banks, or quasi-foreign banks, and take interest on it, which is a kind of riba. If this is true then buying shares in them is haraam and is a major sin, because riba is one of the worst of major sins. But if it is free of this then buying shares is halaal, so long as there is nothing else involved that is haraam according to sharee’ah. End quote.

Majmoo’ Fataawa Ibn ‘Uthaymeen (18/question no. 119).

Don’t miss to read the below interesting analysis : (excerpted from the net)

Take the top 500 corporate giants of India which are basically engaged in Halal business and their end products and services too are Halal. One shall be astonished to look at the capital structure of these companies as more than half of the capital of these companies comes from debt instruments such as interest carrying debentures, secured loans and other borrowing from commercial banks and financial institutions. In fact a company is said to be based upon strong fundamentals whose debt-equity ratio is in the range of 60:40 to 70:30. And nearly all these 500 companies conform to this criterion mostly. The moot point here is can a company be bracketed under Halal business concerns just because its finished goods and services are Halal even though the majority of its capital and finance comes from debt and interest-carrying loans. Take these top 500 Halal companies again. It is a bare fact that these companies park their reserves and surplus capital in high-yield and fixed income debt instruments and government securities. And sometimes the returns from these investments far exceed the income from their declared business. Corporate giant, Tata Iron and Steel Company which is ranked second in terms of market capitalization and weightage on the Sensex of the Bombay Stock Exchange is a classic case whose main income in the early 90’s came from such investments under the sub-head “Other Income”.

Viewed from yet another angle, a good company’s capital, as stated earlier, mainly consists of nearly 40 per cent equity and 60 per cent debt. At times of boom in the economy, companies usually earn more than 100 per cent on their investments. But they pay back their debtors only the pre-determined interest of say 20 per cent and pass the benefit of the remaining 80 per cent to their equity share holders besides their own 100 per cent entitlement. Under this scenario the profit-sharing of the debtors and the equity share holders would be 20 per cent and 220 per cent respectively. Conversely, at times of economic recession, companies could hardly earn anything, and even the debt servicing has to be met with from the share of the equity share-holders such as company reserves and further borrowing. In the former case if the equity share holders get abundantly benefited from the Haram investment of the debtors, in the latter case, it is the turn of their Halal investment to get the raw deal at the hands of the Haram one. The fundamental question here is does Islam permit the intermingling of Halal and Haram investments with such dire consequences, and that too of the present magnitude? The plain and unambiguous answer is a simple “no”. How can the stock-market trading be termed Halal then?

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