Investing in Listed Equities
General permissibility of stock market investment
Investing in stocks is permissible provided the company's primary business is halal and the income from impermissible activities does not exceed 5% of total revenue. Purification (tatheer) of impermissible income via charity is required.
Full Ruling
The purchase of shares in a joint-stock company is permissible subject to the following conditions: (1) The primary business of the company must be lawful (halal). (2) Companies engaged primarily in riba-based banking, conventional insurance, alcohol, pork, pornography or weapons of mass destruction are impermissible. (3) If a minority of the company's income (less than 5%) derives from impermissible sources, investment remains permissible on the condition that proportional income purification (tatheer) is performed by donating equivalent amounts to charity without seeking reward.
Rationale & Reasoning
Modern joint-stock companies are akin to musharakah arrangements; owning shares constitutes partial ownership of real assets. Total avoidance of any incidental impermissible revenue would render investment in a globalised economy practically impossible. The 5% threshold applies only to incidental, not core, business activities.
Rule Basis (Daleel)
- 01Permissibility of musharakah
- 02Principle of purification (tatheer)
- 03Necessity (darurah) in global markets
Conditions for Permissibility
- ✓Primary business activity must be halal
- ✓Impermissible revenue must not exceed 5% of total revenue
- ✓Annual income purification (tatheer) via charity is mandatory
- ✓Shareholder must not approve of or vote for impermissible activities
Citations & Sources
AAOIFI Shariah Standard No. 21 – Financial Papers (Shares and Bonds)
AAOIFI · 2002
Ref: SS-21
OIC Fiqh Academy Resolution No. 63/1/7 – Stocks and Bonds
OIC International Islamic Fiqh Academy · 1992
Ref: 63/1/7