Topic: Terms for the business of Shares   (No-102360)

Q Assalam o alekum. What is the ruling on buying and selling shares? Please note that some scholars regard shares from all companies as haraam. Jazak Allah khair.

aThe business of the shares is permissible under the following terms:

1. The company whose shares you want to buy, its business is lawful, if the business of the company is not in compliance with Shariah then buying/selling of its shares is not permissible.

2. The business of this company has actually begun and the property of this company has come into existence, for example: building and machinery etc. have come into existence and cash assets are not limited to planning/preparations. If the company is limited to only planning and cash asset plus the business has not started, then it is permissible to buy or sell shares only at their original/face value, but its not permissible to buy and sell at a higher or lesser value.

3. Both profit and loss should be shared, that is, if the company gains profit, the buyers of shares will also get a share in profit and if there is a loss, they will also share the loss in proportion to their capital/investment.

4. The profit is decided based on a fixed percentage, that is, no pre-determined monthly or annual profit is fixed, such that whatever profits is earned by company, af fixed percentage will be reserved for the company and a fixed percentage of profit should be distributed among shareholders.

5. In buying shares, it is important that the company's actual business is lawful as well as the company is not involved in any secondary business that is unlawful, but if it is involved then the proportion of revenue earned from this subsidiary is computed as a proportion of its total revenue should not be significant for example 5% (like it is being banned in today's Islamic financial institutions), otherwise the shareholder should buy from the firm with the intention that he will forbid the company from doing any illegal or forbidden transactions, both in writing and Particularly at the annual meeting of the company, he will also raise the voice that the company does not commit illegal and forbidden matters. At least share holder's investment is not utilized in a forbidden and illegitimate business.

6. In the case of Article 5, when the company receives an annual profit, the shareholder should look at the balance sheet of the company to see what percentage of the company's profit has been made by investing in the unlawful business. The person should donate an equivalent percentage from the profits earned.

7. While buying shares, the shareholder should also consider that the amount of the company's interest loans is not high in proportion to the total capital of the company (eg, not more than thirty-three percent 33%).

8. The amount of net liquid assets held behind the shares being purchased is less than the market value of the shares.

9. If shares are being bought or sold at a price lower or higher than the stock price, the company in which the shares are held will have cash assets (Current Assets) as well as a definite amount of fixed assets (e.g. 20% or more are static assets)

10. It is not permissible to buy shares of non-Islamic banks and insurance companies, as well as liquor-making and primarily interest-bearing companies.

11. One condition in selling shares is that a shareholder should take possession of these shares after buying the shares and then sell them. It is not lawful to sell the shares in advance without the possession of the shares, as explained below. ۔

Occupancy Issues In selling Shares to others

What is present in the day-to-day trading of stock exchanges is that the transaction is registered immediately in the KAT, which is a computerized record of the trades on the stock exchange, but nowadays The buyer has to pay the default price after two business days of each transaction and the seller will have to make the delivery of the shares sold. (Previously, it took three days) in which case the shares purchased through CDC in the relevant company records are transferred to the buyer, in the terminology of stock exchange it is called delivery and takeover.

The aforementioned rule is that unless the shares are transferred to the buyer's name through the CDC in the respective company records, it is not lawful for them to sell them in advance, as the Shariah does not allow to sell sonething which is not in your posession/occupancy.

According to the prevailing procedure of the stock exchange, if the shares are registered in the KAT at the time of purchase, the profit of the shares ultimately falls to the buyer, but since the buying and selling of the shares is in fact buying and selling of a part of the company's purchase price And in such a transaction transfer of profit/loss to the buyer of the sale cannot be termed as possession in Shariah, and it is not possible to take physical possession of the such part, so in this case for the posession to happen eviction from others must happen. Examining the current rules and regulations makes it clear that eviction does not happen before the transfer of shares to buyers name in the records of company by the CDC. Therefore in such situations, where the share has not been transferred in record by CDC, the selling of shares is considered as sale before taking possession which is not permissible in Shariah.

To summarize, even if purchased in the current transaction, the shares are not authorized to be sold prior to update of record by CDC ( delivery ).

12. All forms of Forward Trading or Future Trading popular in stock exchanges are not considered legitimate.

 13 The practices of exchange transactions in the stock exchange are also not valid because of the pre-consignment and other illegal condition is invalid (that is, item being sold will be purchased back on higher price terms).

14 The practise of Blank Sale and Short Sale of the respective shares are also prohibited and illegal.

Allah knows best
Darulifta alikhlas, Karachi

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06 Dec 2019
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