In this article, we delve into the unique opportunity for Muslims to explore stock investing while still staying true to their values. But what are these ways we can invest while still adhering to Shariah law?
Over the past decade, we’ve observed tumultuous market conditions marked by significant events, including the far-reaching impacts of the coronavirus pandemic.
However, despite these challenges, the ASX 200, an Australian share market index encompassing the 200 largest companies listed on the Australian stock market, has demonstrated remarkable resilience, maintaining a steady growth rate of 2.81%.
This growth presents a unique opportunity for Muslims to explore stock investing while still staying true to their values. But what are these ways we can invest while still adhering to Shariah law?
The Current Economic Climate
Given the recent financial crisis and the subsequent surge in markets due to governments injecting a lot of money into the economy, a chance to invest has emerged.
After the crisis, much of this money went into real estate and the stock market. This pattern is happening once more, as governments around the world are infusing billions into their economies. Where might all this money go? Well, assets like stocks and shares, seem to be the top choices.
Navigating the Halal Investment Landscape
Many Muslims are wary of investing in stocks and shares, equating it to gambling, involvement with Haram companies or concern about interest-bearing loans – all of which are forbidden in Islam. While there’s some validity to these concerns, most scholars agree that stocks and shares are Halal, or permissible in Islam, provided specific criteria are met.
Criteria for Halal Stocks
Here are five steps to ensure the stock you’re considering is Halal:
- Business Nature: First, the business should not deal in Haram products or services. Examples of these are alcohol, tobacco, firearms, adult entertainment and non-Islamic financing.
- Ethical Stance: While a company may be Halal, it should also be ethical. This means no involvement in questionable practices like slave labor or environmental degradation.
- Debt Levels: Some believe that investing in any debt-laden company is impermissible. Others, reflecting the majority opinion, think that as long as the company’s debt doesn’t exceed 33% of its total assets, it’s acceptable. This flexibility in debt criteria aims to prevent overly restricting Muslim investments.
- Revenue from Haram Sources: Ensure the company’s revenue from Haram sources doesn’t exceed 5%. This leeway is given as almost every company might have minor Haram revenue streams.
- Asset Liquidity: Invest in companies with tangible assets, ensuring you’re not just buying a ‘shell’ company holding just cash.
Where to Find Halal Stocks
While there isn’t a universally recognised body for Halal stock screening, there are some potential solutions:
- Islamic fund managers: These entities can manage your investments on your behalf, ensuring they’re Halal.
- Stock screening apps: Applications like Zoya and Islamicly can be a starting point, but they’re still in development and may not be 100% reliable.
- Personal vetting: You should always personally ensure the stocks align with Islamic principles.
To conclude, while investing in stocks and shares might seem daunting, especially when trying to adhere to Islamic principles, with the right tools and knowledge, it becomes a straightforward process. Always remember to do your research, seek advice when in doubt, and make informed decisions.