Halal Debt - Part 2 + First Investment

[michaelleemason]

https://www.reddit.com/r/IslamicFinance/comments/l3dog2

This is just a continuation of my previous post - and a post explaining my first investment. Please note that the below is just my personal opinion based on my knowledge and experience.

Another item appearing on balance sheets as liabilities is - deferred revenues.

Deferred Revenues are also in a majority of circumstances not interest related. It is basically when you've received early revenues for services or goods to be provided later. For example, a company (named 'Company A') is involved in selling Mobile Phone plans. A customer signs up and pays Company A ($120 - $10/month) in advance for a year. Company A then records $120 in its liabilities as Deferred Revenues. Every month it is going to reduce its liabilities by $10 - and increase its revenues by $10 - when the services have been provided. Until then it stays in the deferred revenues portion of liabilities.

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I have also made my first investment. This is a very minor investment, and I plan on holding this for a decade (at the very least) This investment is in the TSX by a corporation named Franco-Nevada. FNV.

What does FNV do?

It is in the mining industry - collecting royalties and "streaming" revenues. Basically it gives money to exploratory mining companies and if the exploration is successful, it collects royalties and/or streaming revenues from these companies.

Mostly Gold, Some silver, some other minerals, and a max of 20% in Oil and Gas

Is this halal?

1) According to Zoya - yes.

2) I also - don't like the 30% debt ceiling given by the AAOIFI - I am unsure whether I can consider this to be halal. I want a 0% debt - (which is tough but not impossible). (Good video to watch on this -

)

This corporation - to date - has 0 interest bearing debt. Like actually 0 interest bearing debt. You can review the F/S to confirm. It also has (to my knowledge) 0 interest bearing securities.

Now - this corporation however, does have access to credit bearing facilities. It last used those facilities in 2019 - but it isn't currently using these facilities. It could also potentially earn some interest revenues - but they are so minimal in nature that they aren't even listed on the FS - so its likely less than 0.1% (0.1 % should still show up on the FS as 0.5M in revenues)

Does it give dividends?

Yes - but minor dividends. Historically roughly 1% of the share price - so its not a stock to own if you just care about dividends.

How is the cash flow and other ratios of the stock?

Pretty terrible tbh. Cash Flow from Operations per share ($) is pretty low and Price Earnings Ratio is pretty high.

So how is this a good investment?

This corporation invests in a lot of exploration mines. Currently, has around 250 mines that are in the exploratory stage. If these mines discover any minerals then the corporation just adds that to its revenues until the mine is completely depleted. Also, similar to the reason above - its revenues and earnings are growing year over year - and should keep on growing because it takes a while for the mines to be completely depleted.

However, this is just an investment in a business - no one can tell you exactly how this stock is going to do. I have made a very small investment in this stock and plan on holding this for at least a decade.

There are also several risks with this investment like all investments - as you can probably calculate.

However, one additional risk I foresee is that the value of gold is based on public perception as gold has historically been a store of value. This has (on a personal note) left me a bit clueless - as now gold isn't really currently used as an exchange currency and it has very limited intrinsic value. It is also never really used up - so the supply of gold is always increasing. Now with the advent of cryptocurrencies - this has a potential to change as people may start valuing cryptocurrencies like they valued gold. I know this is a long shot -but if I am holding a stock for a decade - I may consider this anyways.

 

[resjudicata]

@michaelleemason I find the overemphasis of some Islamic investment in mining to be disturbing. Sure, there are some good sides:

• They seem to have business models that don't involve riba.
• They involve gold and silver used by the Prophet (S).
• Gold can act as a hedge against inflation.

However, there are some issues also:

• Mining is a dangerous activity that endangers the life of it's employees, who are often children: https://www.ohchr.org/EN/NewsEvents/Pages/Nofutureforenslavedchildrenworkinginmines.aspx
• If a billion Muslims around the world consider mining as the only halal investment, then you will have huge bubble there. Precious metals have very little practical value compared to other businesses like technology, healthcare, energy, etc. This would be an absolute waste of the wealth of an entire Ummah.
• The world today needs heavy investment in many fields like technology, utilities, etc. In my opinion, if you want to claim that these investments are haram, then you should also provide a way to live without them. You can't share a Youtube video on Facebook with your Apple iPhone about how GOOG, FB and AAPL are haram.
• Our Ummah has a good amount of wealth thanks to the natural resources that Allah has blessed our lands. Our investment in the next few decades will be critical in deciding our future. Look at how Norway diversified it's oil wealth with it's sovereign fund. Look at how China is planning to control the entire continent of Africa with "investments": https://www.bbc.com/news/world-africa-45916060. Our precious metals and real estate investments are not going to take us anywhere.

 

[michaelleemason]

@resjudicata This is a good post. I appreciate the points

1. FNV is signed on to the "World Gold Council's - Responsible Gold mining principles" which addresses the social and environmental aspects. However, this is a very important thing to look at.
2. I agree with that. A better investment would be to start muslim owned businesses and invest in these muslim - owned businesses and run those according to islamic principles.
3. I agree about the investment needed in other fields (and debt free corporations are basically just Oil and Gas/Mining corporations) - however, the next point is a shambolic point. The world also needs banks - and I am sure all Muslims have bank accounts - so lets invest in banks? If we cant why do we have bank accounts? Investing in a corporation/business is different than buying products off of that business.
4. Completely agree - and again, the alternative is to create our own businesses; and we need to invest in businesses - however, if you're saying that we should just ignore riba and just invest in businesses where it makes economical sense - i do not agree with that statement.

 

[resjudicata]

@michaelleemason An Islamic investment should have several goals/conditions (as I understand it):

• Avoid Riba.
• Avoid guaranteed transfer of money from the poor to the rich. We can grow our wealth, but with some risk that we may also lose it.
• Be of benefit to the community, and not cause any harm.

We can't start and end our search at the first point. We should ideally have all of them, but if we have to compromise, then we have to minimize the overall haram parts, not just avoid Riba and totally ignore the rest.

There is a difference between banks and other companies. I use only a very small portion of the bank's offerings - namely the checking account (we actually have a fee for this in Switzerland). The rest is a wide variety of haram products. If there was a bank that only offered the product that I use (checking account for a fee), then I would invest in it. This is different from a technology company like Apple, Amazon, Microsoft or Google where Muslims use every single product that they offer. If you do that, then I don't distinguish between that and investing in it.

 

[michaelleemason]

@resjudicata Your first two points are very similar. The prohibition of Riba helps with the guaranteed transfer of money. And not cause any harm is also something that is important.

Also - yes being a benefit to the community is to be strived for.

However, the "compromise" portion is something I disagree with. Please let me know which component FNV does not meet.

Also - Riba isn't just any sin. It's a declaration of war against Allah and his prophet.

O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger.

(Quran 2:278-9)

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Also - I completely disagree with your statement that purchasing the goods and services are of a similar nature than investing. I think we're going to agree to disagree on this completely. While riba was forbidden to the muslims at the time of the Prophet and the sahabas - there was no such prohibition on the rest of the people that lived in Arabia. Yet - the muslims purchased goods and services and sold goods and services to the non muslims. Even if these non muslims engaged in riba. I haven't come across any evidence that demonstrated that a Muslim refused to purchase a good from a Jewish individual (or any other) just because the business that they had purchased was through loans with Riba.

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Also - I don't understand the difference between the bank and other companies in your analogy. Since you do have a chequing account -(regardless of you paying a fee or not) you are a customer of the bank - Your money deposited is being used as loans for other customers.

 

[resjudicata]

@michaelleemason

refused .. just because the business that they had purchased was through loans with Riba

The issue is that commercial loans are a necessity for a modern technology company. If you're using laptop or smartphone, it's absolutely sure that the software or hardware could not have been built without a loan being involved. Every additional unit that you purchase requires them to take extra loans (in a small but indirect way). So if you want to prevent Riba from happening, not buying is more impactful than not investing. I don't know any business in early Islamic times that could not run without Riba, so I can't give you examples from history.

I don't know what happens with checking accounts in Europe. The central banks interest rates are negative. But the point is that I'm using the bank mostly as a way to receive and send money. If a bank charges for these services, and doesn't get involved with loans, then I would invest in them. I expect Transferwise (https://productmint.com/the-transferwise-business-model-how-does-transferwise-make-money/) to fit this model, and I'll cancel my regular bank account as soon as they allow incoming Swiss Francs. This is the only bank service that the vast majority of Muslims need, and I would invest in them if I could (based on what I know so far).

 

[michaelleemason]

@resjudicata Commercial Loans are not a necessity. Corporations just take loans because the payment terms on those loans are lesser than the returns expected by investors. Not a necessity - but an ease. I am not saying that I am taking the responsibility of preventing Riba from the world - I am just saying that the money I earn should be as free from Riba as possible.

Again - in early Islamic History there were non muslims who took Riba loans and muslims were never barred from trading with them BECAUSE of this. Even in the later ages, muslims traded across the globe but did not make sure that the products that they were purchasing were manufactured free of riba.

These are two different transactions.

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The money in your chequing accounts is GUARANTEED to be used by the banks to provide loans to other customers. The fractional reserve banking system is exactly why loans are cheaper than investments. So as per your analogy - either invest in a bank or dont use a bank. We are also using technology not for the purpose of making interest - but to use it as a method of communication.

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Again my contention is that Investing in a corporation that deals in Riba is a different transaction than using the products and services of a corporation that deals in Riba.

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The world is inflicted with Riba right now, and this will continue to get worse.

From Abu Hurayrah : The Prophet, , said: "There will certainly come a time for mankind when everyone will take riba and if he does not do so, its dust will reach him." (Abu Dawud, Kitab al-Buyu', Bab fi ijtinabi al-shubuhat; also in Ibn Majah)

This does not mean that we should just pretend that Riba is ok. You do the best you can to make sure that your Income doesnt have riba in it - and thats about what you can do.

 

[beardedyouthpastor]

@michaelleemason FNV is the only real Sukuk I know of. Enough said.

 

[michaelleemason]

@beardedyouthpastor There are several others like this. DMLP for example