Debt-free Stocks- Can I ever truly be free of Riba while investing?

nharixo

New member
Assalamu alaikum all,

I'm fairly new to investing and would like your thoughts. I've been doing a lot of research about the criteria for making stocks shariah compliant, and while I don’t want to say scholars that have studied and come up with these criteria are wrong, it just doesn’t sit right with me personally. Riba is such a huge sin that I would prefer to be completely clear of it.

To that end, I’m contemplating investing in only debt-free companies, using screeners like Simply Wall St to keep up to date with debt levels but still using Islamicly/Zoya to verify shariah compliance as anything earning more than 5% revenue from Riba would not be compliant. I could then purify dividends & cap gains to the proportion of interest earned by the company.

E.g. I invest in a company that has zero debt and earns 1% of its revenue from interest earning assets/accounts. I continually purify 1% of the dividends earned and purify 1% of the cap gain when I eventually sell the stock.

My question is does this sound like a sound and/or practical idea? My worry is that even if I’m purifying dividend and cap gain earnings, the company/stock price is still profiting from the interest earned which would affect my eventual cap gains. Or would the purification cover it? Is there really any way to know how much of that eventual cap gain would be from Riba?
 
@nharixo Walaikumussalam

Companies usually have cash that they use for operations. Cash comes in from selling their products/services. At the end of the year, if they have a positive balance, they earn interest from that. If not, they may have to take debt to cover their expenses, and they pay interest on that. So every company today will either be paying interest or earning interest. Could you give some examples of totally debt-free companies you found using Simply Wall St?
 
@resjudicata jazakAllahu khayr, yes I understand companies are either earning interest or paying interest (most likely both).

My question is whether it is feasible to invest in debt free companies (not paying interest) and purify the earnings from the interest earned. Can the true proportion of the capital gains earned from interest over many years ever be known? Or purifying the 5% (as the shariah compliance limit) should cover it?

Examples of debt-free companies such as SIMO, ISRG, GRMN, FB. A lot of stock screeners have a debt filter you can set to 0.
 
@nharixo As an aside, another way to screen is to look into companies that have 0 interest expense.

I think the question your asking is best answered by a reputable scholar you listen to.

People on this subreddit have a wide variety of opinions on this matter, some trust the AOIFI or whatever it’s called others such as myself are like you and think we should avoid any sort of interest.
 

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