Is stockmarket Haraam(forbidden) in islam?

Answer 1

Investing in stocks with a view to making a profit sounds as if it is haram, but there's bound to be a Muslim better able to answer than me.

Answer 2

Stock market isn't haram, but it does depend on kind of companies, you have to be buying from companies that do not deal with Ribba and do halal...
From what I have noticed Islamic countries such as Saudi did not forbid its existence.. but again you have to be careful about the companies..

Answer 3

Your really need to go to an islamic site and ask a Muslim scholar this

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?

Thank you for your time and effort and may Allah give you success in what you are doing.

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 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.

If you have any further questions, please don't hesitate to write back!

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