Trading In The Shares Of Shari’ah-Compliant Companies That Are Involved In Riba-Based Transactions With Conventional Banks
The availability of jobs and the requirements that accompany it; investments that are permitted and pure from any unlawful work; those are all considered part of collective obligation (fardhu kifayah) because people will need to earn a lawful living.
Therefore, the establishment of Islamic financial institutions and companies in which their activities conform to the principles of Islamic law should be accelerated. Thus, it is compulsory to study new developments in the arena of investment and explain what is permissible and what is not permissible, as well as stating the preferable and the requirement of necessity, and the need which takes into consideration the fact that there are Muslims living in both Muslim countries and Muslim-minority countries.
Verily, the Forum has concluded by searching and discussing on the rule of purchasing and selling the shares of joint stock Shari’ah-compliant companies that are involved in riba-based transactions with conventional banks.
The first view
Investing money in the said companies is not permissible, as there is an element of riba. Riba is prohibited, regardless of the amount (riba, whether big or small is forbidden) or whether riba is apparent during the establishment of the companies or following its establishment.
This is because according to the contract of the company, every participant is a principal agent and performance of the agent is in proportion to the performance of the principal. So, based on that, the acts of those who manage the company in addition to the acts of the participants are considered one and the same. Verily, the scholars have mentioned that it is not permissible to be involved in contracts that include unlawful elements or amount to unlawful elements.
The second view
Due the following considerations, it is sometimes permissible to invest in such companies:
<!–[if !supportLists]–>1. <!–[endif]–>Joint stock companies are new, in which they were not in existence during classical times. Nevertheless, it is a sort of partnership, although there are particularities that differentiate it from entities that are known by the scholars. This is because the shareholder has a little power, as most actions and decisions are co-determined. Hence, the shareholders do not have the powers that are usually at the disposal of the principal;
<!–[if !supportLists]–>2. <!–[endif]–>For companies in which the core business does not involve unlawful elements, the act of being involved in riba-based transactions with conventional banks is considered a minor (subsidiary) flaw and not a major one. To further elucidate this matter, we can refer to the Islamic legal maxim that states, “There is forgiveness in subsidiary which is not forgiven in the origin”. Furthermore, the ribawi elements are just a small percentage of the activities of the companies;
<!–[if !supportLists]–>3. <!–[endif]–>In this era, joint stock companies have become a common or public need, especially for those who do not possess the capabilities of engaging in investments with minimum risks. Therefore, public interest is in proportion to necessity that is permissible in Islamic law, and under the legal maxim which said, “One can do the smallest detriments in order avoid the biggest.” This is because there is a scarcity in terms of companies that are truly in compliance with the rules of the Shari’ah;
<!–[if !supportLists]–>4. <!–[endif]–>The scholars who have permitted the participation in such companies stipulated a condition, i.e. the investors must purify the profit earned by expending it in charitable ways and transfer their investment to other investment avenues that are permissible in Islamic law, according to their capabilities. In addition, certain rules should be enforced to confirm the portion of interest that is involved in those transactions; and
<!–[if !supportLists]–>5. <!–[endif]–>It must also be confirmed that the actual assets and benefits of the companies are more than the debts.
Third view
It is permissible to participate in such companies, if their activities are conducted for the purpose of public interest, i.e. everyone or almost everyone needs it. It is also permissible to trade the shares, as well as circulating the shares of such companies, if the purpose of trading it is to get profit from the value of share and not from the profit which will be distributed to the participants periodically, and that is based on lawful money or asset that is considered in circulation of shares of the company as mentioned in the second view.
Issuer: Fifth Fiqh Forum, Kuwait Finance House, 15-13 Rajab Hijrah, 2 – 4 November 1998.