Question

Assalamu Alaykum wa Rahmatullahee wa Barakahtuh,

Sheikh, would you please provide some advice on halal investing? I am interested in investing, but I want to be very cautious with navigating this in a halal manner, and I am not sure which investments would be halal, beyond a basic understanding.

I understand the basic tenets of halal investing, such as the company itself should be halal and sell halal products, the company should not engage in riba, etc.

What I don’t understand is whether it is permissible to assign thresholds to those tenets, such as saying that investing in a halal company is permissible as long as total interest/debt is less than 5% of the total makeup of the company, for example. And if such a case is permissible, then is purification of that wealth a requirement (for example, giving away 5% of the wealth earned as a charity)?

Also, would you provide insight on Wahed Invest, AAOIFI, and the Shariyah Review Bureau? I’ve seen these entities promote halal investing but I am not sure whether to trust them or not and I want to be very cautious with this.

I’ve tried to find some feedback from scholars on this topic, but I can’t find much on it, so any advice on this would be much appreciated.

Answer

When investing and buying shares in a company it is important to ensure that the company is shari’ah compliant and is not involved in any unlawful activities. The reason for this is that when you buy shares in a company you are a partner in that company and become party to their activities. Hence, if they are engaging in unlawful activities it is as though you are also engaging in unlawful activities.

Some shari’ah bodies like the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) have permitted investing in companies whose primary business is lawful but may have some subsidiary unlawful activities, provided these are limited. For example, they state that if the primary business is lawful but there is some unlawful income, it will be permissible to invest in the company provided the unlawful income is less than 5% of the total revenue and the unlawful income is disposed of. This disposal will be required from dividends received and does not apply to capital gains.

AAOIFI is a reputable organisation lead by specialist scholars in Islamic finance. They have passed numerous resolutions on a variety of topics related to Islamic finance. As they are lead by reliable scholars and their conclusions are based on valid juristic methodology, if a person was to adopt their view on such matters it would be permissible to do so. On the other hand if a person wanted to adopt a more cautious approach and only invests in companies or business opportunities which do not engage in any sort of unlawful activity then that would be optimal.

As for the other organisations mentioned, we have not had much exposure to their products or methods of working, hence will not be able to provide any comments in this regard. We would advise contacting their shari’ah boards and speaking to them directly about any doubts or questions that you may have. If after discussing with them there are any specific points you would like clarification on please do not hesitate to contact us again.

AAOIFI Shariah Standard (21): Financial Papers (share and bonds) page 55

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel