Halal Debt

[michaelleemason]

Salam.

I was under the impression that there are exactly 0 stocks that i'd consider to be halal because I dont subscribe to the 25/30/33% debt levels.

However, brother @brotherian gave us a great list of 0 debt stocks:

https://www.reddit.com/r/IslamicFinance/comments/hvk8of

and also provided a stock screener:

https://finviz.com/screener.ashx?v=111&f=fa_ltdebteq_u0.1,fa_roe_pos&ft=4&o=-marketcap

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I still notice that some of these stocks have some debt - but under closer inspection this debt i'd consider halal.

• Accounts Payable/other payables: If these payable are small in value, in my unqualified opinion this is fine because this is just when you receive a bill and you have like 30,60,90 days to pay. I personally have a payable amount of around $500 because I dont pay all my bills when they come out, and usually wait until the last day. I think that this is a regular business activity and doesn't fall into the debt issue especially because there is likely - 99.99% no interest involved.
• Capital Leases - Capital Leases/Finance leases vs. Operating leases are mostly just an accounting term. Basically this means that they have leased an asset (car, machinery, etc.) and they make regular payments on this asset. In layman's terms, i'd simplify capital leases to be leases that are usually longer. I.e. a 20 year lease will be shown as debt, while a 5 year lease likely isn't (the standards to present these are dependent on what accounting standards they are using - IFRS/US GAAP). Having this on debt does not necessarily mean that there isn't or there is interest payments made on the lease payments. For this you'd need to see the expenses in the income statement (P/L statement)

Also, I am a CPA (Canada) and If you have any questions regarding the above, or on any specific line items on a Balance sheet/income statement - send me a message and ill try to clarify.

I'd also like to set up our own investment portfolio - if other users are so inclined.

Edit: Note, I believe that these two forms of debt are "halal" because typically (99.99%) of this debt doesn't have interest on it. It could potentially have interest (for example, they forgot to pay their bills and had to pay interest. On a personal explanation - you forgot to pay your cellphone bill and the company charged you interest on it) and you would see it on the Profit and loss statement.

 

[saucyspicey14]

@michaelleemason Thanks for sharing , many of us thinks a lot about the debt levels and its totally up to each individual to follow it or not
That being said , what you have shared in points 1 & 2 are basically redefining those levels and showing why they were needed from the first place ,
You have just lowered the levels to unknown % value that you are comfortable with , again thats totally fine but i prefer to follow the scholars levels because otherwise there is no clear rule defined and we will continue to interpret what is allowed differently in each case

Happy to hear back from you and thanks again for sharing

 

[chiefscml]

@saucyspicey14 i agree with you that id rather follow the scholars who have done the work rather than try and interpret myself, but the difference here is that the ratios established by the scholars is on "interest bearing debt", thats the kind thats haram and is only allowed upto a max of 33%. if it wasnt interest bearing, there would be no issue at all. even if it was 100%. accounts payable/ lease is usually interest free unless otherwise indicated. on the balance sheet, interest bearing debt is usually referred to as current or non current debt. if theres some other debt which is also interest bearing and not included in the current/non current debt, there's usually a footnote to indicate that.

 

[saucyspicey14]

@chiefscml Totally , thats the interpretation of the scholar rule as well , the rule applies only to interest bearing debt , you should exclude any interest free debt from the 33%
Applications like islamicaly and Zoya does that math but it can get tricky because as you mentioned we may not have all the debt details data from the income statement so they have to take some calculated risk decisions

From AAIOFI standards
“That the collective amount raised as loan on interest – whether long-term or short-term debt – does not exceed 30% of the long-term or short-term debt – does not exceed 30% of the market capitalization of the corporation, knowingly that raising market capitalization of the corporation, knowingly that raising loans on interest is prohibited whatsoever the amount is.loans on interest is prohibited whatsoever the amount is.”

 

[michaelleemason]

@saucyspicey14 I agree about following a scholar definition > my unqualified definition.

However, just to clarify, I think that the above debt is fine because there isn't any interest on these two forms of debt and this is why i consider it to be halal. I didn't explain my position well. Ill put in a little end note there

 

[resjudicata]

@michaelleemason Thanks for this list, I didn't know that 0 debt companies were possible today.

However, I would like to still understand how they manage to do this. My understanding was that early companies would take on a lot of debt to drive business (e.g. TSLA), but once they mature, they have enough cash flow they may even generate interest on the cash they have. (e.g. AAPL)

Are these simply companies that are in between these stages? Did they pay a lot of interest in their early days to grow? If so, I don't subscribe to the idea that companies are haram while they are growing and once they become mature with the help of those haram aspects, it then becomes halal.

 

[michaelleemason]

@resjudicata

If so, I don't subscribe to the idea that companies are haram while they are growing and once they become mature with the help of those haram aspects, it then becomes halal.

That's something I haven't even thought of. Thank you for pointing it out; I am going to think about this before I make an investment.

The two points that I am thinking of is this.

1) Not halal: The company and the money made is already haram - and money made of haram is still infected by the haram interest payments.

2) Halal: The current company I am investing in does not have any haram aspects, and literally any asset I purchase will have been made with interest. For example, prior to finding this out, I was looking into purchasing a business. The business was likely purchased before me through government loans (because Canada makes loans at a very very low interest rate) and the business was also built by interest.

 

[17warner]

@michaelleemason I would love to join a debt free investment portfolio. Please keep me in the loop!

 

[olliegen]

@michaelleemason May Allah reward you

 

[godgirl2004]

@michaelleemason So you're telling me any stocks under this scanner with these conditions are halal?

 

[michaelleemason]

@godgirl2004 No. This is just one part of the equation

 

[godgirl2004]

@michaelleemason Do you mind confirming the other parts for me?

 

[michaelleemason]

@godgirl2004 Not a Islamic Scholar - so I shouldn't be the one distinguishing between halal and haram.

However, the basics from what I personally can think of:

is if (1) the business operations are halal. I.e. Banking/Alcohol/Entertainment probably not halal.

2) I'd also not invest in any War relating business operations for example wouldn't invest in Haliburton. The business operations aren't exactly haram - as i'd think blacksmiths would've been allowed as a legitimate business activity in Islam and most if not all sahabas had swords etc. - however, the way these businesses do their dealings isn't exactly acceptable - i.e. looking to de-stabilize regions to increase sales.

You could also exclude businesses running on stolen lands - such as Israel - but again, I am not sure if this makes it haram.

Speaking to a scholar here would be a better bet.