Guidelines for Buying and Investing in Shares

Author: Saudi Fatwa Committee (Lajnah Al-Da'imah)

Key Principles for Purchasing Shares​

When considering investing in shares (tijari hissas), it is essential to evaluate the nature of the company or business where you intend to invest. The following guidelines are based on Islamic principles to ensure compliance with Shariah.

1. Understanding the Nature of the Business​

• Prohibited Businesses:
  
  • If the company operates in haram sectors, such as riba-based banks or other impermissible activities, investing in such a company is strictly haram.
  • Participating in these businesses amounts to direct involvement in sin and disobedience to Allah.
• Permissible Businesses:
  
  • In principle, investing in businesses or companies that engage in halal activities is permissible unless there is evidence to indicate otherwise.

2. Companies Engaging in Riba (Usury)​

• If a company engages in riba-based activities, such as:
  • Depositing funds in banks to earn interest.
  • Taking loans from banks and paying interest.

Such companies are classified as involving riba consumption and facilitation, both of which are cursed by the Prophet Muhammad (ﷺ):
"Allah has cursed the one who consumes riba, the one who gives it, the one who records it, and the witnesses to it."
[Sunan Abu Dawood, Hadith 3333]

• If you are aware of a company’s involvement in such practices and it cannot avoid them, it is prohibited to invest in it.

3. Dealing with Shares Already Purchased​

• If you purchase shares in a company and later discover that it engages in riba or other impermissible practices:
  1. Determine the Proportion of Haram Income:
     • If the proportion of income generated from riba is known, you must dispose of this amount by giving it away in charity to cleanse your earnings.
  2. Unknown Proportion:
     • If you cannot ascertain the exact proportion, it is recommended to donate half of the profit as a precautionary measure to ensure your wealth remains pure.

4. Share Trading for Capital Gains​

• If you buy shares with the intention of capital gains (waiting for the price to rise) and the business is halal, this is permissible as long as no riba-based transactions or impermissible practices are involved.

Summary of Rulings​

1. Prohibited Investments:
   
   • Investing in riba-based institutions, such as banks, is absolutely haram without exception.
2. Permissible Investments:
   
   • Investing in shares of halal companies is permissible by default, unless you know they engage in impermissible transactions like riba.
3. Cleansing Haram Income:
   
   • If you inadvertently invest in a company involved in riba, calculate and dispose of the proportion of haram income. If this is not possible, give away half of the profit as a precaution.
4. Speculative Share Trading:
   
   • Buying shares to sell them later at a higher price is permissible if the company’s business is halal and compliant with Shariah.

Conclusion​

Investing in shares is permissible as long as the company operates in a halal manner. Careful diligence is required to avoid haram investments. If unintentional involvement in riba-based businesses occurs, steps must be taken to cleanse the income from such transactions.