Question about Sharia complaints Halal Stocks

[philip1979]

Asalamualikum,
I am just sharing my own opinion and how I invest my money on stocks using Halal stocks scanner app like Zoya or mussffa. I’ve done my own research on this matter for more than a year. I’ve seen lots of videos on YouTube and reading people’s comments and arguments here on reddit. Somebody posted a link of Hacene Chebbani on Islamic stocks trading here is the link

He didn’t give any fatwa he just explained the whole thing. Aaoifi Standards regarding Stocks and etc. scholars who against it and who are supporting it he just talked about their arguments on this whole sharia standards. One thing he said at the end is that we live in western countries and banks are using our money to invest in haram business, businesses that are based on riba and alcohol gambling etc. We have no choice other than keeping our money safe in those banks. And we have no choice how our money being used. And we just can’t put our money in a business and get profit. It’s not that easy because the options are limited and we don’t have that kind of big amount that we can open our own businesses.
So I used to use Zoya but they don’t update their app often and pretty expensive than other apps.

So there’s few things you have to consider for a stock to be shariah complaint. Activities, haram income % below 5%
Interest bearing debt and interest bearing securities below 33%
I don’t get it where they get this 33% that doesn’t make sense the Hadith they used it doesn’t go with this situation. But they were trying to find a way to make this shariah complaint so they used that Hadith.
So my question here is I don’t want to take any haram income or interest. So this is what I do app tells me how much revenue comes from haram income so I take the whole % off from my total income after selling the stocks.

Then Interest-bearing securities refer to a company’s investments in assets that generate interest. It’s like the company has cash, assets and deposits, bonds etc and they yield interest out of it. That’s how they calculate Interest-bearing securities = (Cash + Cash Equivalents + Deposits) / Market Cap

Interest-bearing debt refers to the loans a company takes out to fund its business operations. So company took a loan from bank to run their business and they are paying interest on that. And that’s the percentage of it. Interest-bearing debt = Total debt / Market Cap that’s how they calculate that.

So what i do is I make my calculations like this if company has 2% of haram/interest income and interest bearing debt 3% and interest bearing securities 5% I add them all together so it’s 10% total this total 10% company is dealing with riba. If I make $98 profit after selling my share. I take out this 10% out from my profit so it’s $9.8. I treat this $9.8 as interest and haram money. And donate them the way we donate our banks interest income to charity with expecting to get rewards for that charity. That’s what I basically do. That’s how I feel like at least i’m not using that haram money for my own.

I’m not a very knowledgeable person. I just try to follow what Allah says and use my judgment to see what’s right and what’s wrong. I would really appreciate if you guys can give me your thoughts on this. Am I doing it in the right way? Is my calculation is correct? Or if I have any misunderstanding to the whole thing. Thanks

 

[unknown404]

@philip1979 The only way a stock is halal is if it has 0 interest bearing obligations and interest income on its balance sheets. This isn’t controversial.

Now there are some scholars that are of the belief that because almost all publicly traded companies engage in interest bearing transactions, as Muslims, times have changed and so some governing bodies of Islamic jurisprudence have created their own arbitrary thresholds for how much haram is acceptable on a balance sheet, and in case the test is passed, we can label the company “shariah-compliant”.

This view is not necessarily indicative of scholarly consensus, and the sheikh in the video you liked didn’t wanna get into the nitty gritty because he probably has enough on his plate.

It’s important to keep in mind that at least in the case of the US, the reserve requirement for banks is ZERO.

This means the argument of “if we don’t invest we are enabling the commercial banking system” is really a misleading one, based on ignorance.

The fed seems to have an inclination towards a capital requirements system vs a reserve requirement system, and while depositors are obviously needed irrespective of both paradigms, this should really call into question some of the prevalent rhetoric about what justifies us engaging in “an okay amount of riba”.

 

[cautiouslittlehope]

@unknown404 In banking, there is a term called Funds Transfer Pricing, which essentially means how much margin can a bank apply for the difference between the borrow rate and lend rate. As Muslims keep their money at no cost (waiving the interest income) the banks will be able to apply higher margin for this group of clients/depositors, while keeping the lending rates competitive. This will de facto enable the banks earn more money and increase thus increase shareholder value (i.e. equity).

 

[unknown404]

@cautiouslittlehope That’s interesting, but I never knew Muslims waived their right to interest?

It doesn’t make sense not to just collect it and go and donate it to some people in need instead of leaving it in the pockets of the bank?

It’s not like there’s a possibility the interest will get mixed up, because you’ll get a message saying exactly how much interest is being deposited in your acc…

 

[cautiouslittlehope]

@unknown404

This is a good video on this.

 

[unknown404]

@cautiouslittlehope I understand but I don’t think his opinion is right, and that there are definitely scholars who disagree with him.

Just thinking logically, we are obligated by law to deposit our money in bank accounts.

Waiving the interest payment because it’s the “feel-good” approach is just running from reality, and donating the money away is at the very least offsetting the imbalance induced by usury in some minuscule way…

I’m not even sure which ruling to follow with regards to investing in companies that deal in interest, but if you follow the ruling given by this sheikh, then given the fact that he has concluded giving away interest income you get on your savings to be haram, it’s obvious what his opinions will be on voluntarily investing in public companies that deal in interest…

 

[cautiouslittlehope]

@unknown404 Are we obligated to deposit our money in savings accounts? I don't think so.

To me, the differences between (i) interest earning savings accounts, (ii) fixed income instruments (e.g. bonds), (iii) equity investments to interest based businesses (e.g. banks), and (iv) equity investments into companies whose primary industry is non-haram business are clear.

 

[unknown404]

@cautiouslittlehope It depends on which country you live in.

For Muslims in the U.S. you legally can’t stash money past a certain limit.

I know it is the same in some gulf countries.

The solution would be to stack gold, but you would need to figure out how much cash you would need liquid on hand.

Also I understand your dissection of the scenario, I’m pretty sure most people that have spent time learning about usury and Islamic finance also can make those distinctions…

The question just comes down to the Hadiths that say the person who pays riba, and the person who collects riba, the witnesses and the recorders are equally cursed.

There are also Hadiths that are of high grades talk about how riba is far worse than fornication.

So the question is, when I voluntarily invest in a car manufacture that has shares publicly traded on a stock exchange, and I know they have interest bearing obligations or income on their balance sheet, and as a share owner I now own an equitable percentage of the business, tied to my name, does this mean I am a proponent, or at the very least I will be questioned about this on the day of judgement?

I am of the opinion (and I know you probs disagree) is that we, as Muslims, are complacent and have relatively little motivation to find solutions and tackle the status quo.

We often forget the fact that almost* every product and fatwa issued by the Islamic finance industry, was an admitted temporary concession (as an attempt to provide a temporary solution to the realities of the modern economy).

It’s like the guy who created murabaha, never intended on it being a flagship product for Islam banks 50 years laters, but here we are.

He knew it was sketchy, and only went through with it because he thought it would be a temporary concession…

 

[cautiouslittlehope]

@unknown404 I'm not sure if you are confusing the insured amount ($250K) by agencies like FDIC or not, but any bank will take your money, especially if you'll be parking it in a checking account with no max limit.

When you are an equity investor, your value is equal to Assets - Liabilities = Equity. So, technically, you don't directly own any debt.

Yes, I think there are some disagreements in this space. InshaAllah we will make some progress as the number of Muslims grow.

 

[unknown404]

@cautiouslittlehope I wasn’t talking about the FDIC cap, I was just misinformed about something, I thought that there was a legal mandate to save money in banks past a certain point of stacking cash.

I don’t think it’s controversial amongst anyone in the industry that being an equity owner means you are also responsible morally for what is on the balance sheet.

It doesn’t make sense at all, especially given how grave a sin riba is.

If there were debt income instruments on a companies balance sheet that were collateralized by human life, similar to the concept of debt bondage, would that still make you reduce your analysis to an equation?

Keep in mind slavery is something Islam allows, but advocates against, and yet riba is up there with murder?

 

[cautiouslittlehope]

@unknown404 I guess we keep coming back to the same issue I respect your position, but my views are slightly different.

 

[philip1979]

@unknown404

If you have time you can watch this it's the same person Zakir Naik his view on trading. He follow the same standards.
And I understand what you said in your first comment. 0 interest means zero. But if I don't have any options here to invest my money on stocks what should I do.. that's why they came with this.. but I don't like any kind of interest profit in my capital gains. Giving away is my best option even though their standards doesn't say anything about giving away.

 

[cautiouslittlehope]

@philip1979 Waaleikum assalam! There are people who feel OK with traditional investment approach. There are people who prefer AAOIFI approach. And there some who are not comfortable even with sukuks.

It seems like you fall into the second category as you are demonstrating your willingness to perform analysis (although I am not sure if your aggregation of interest bearing debt and interest earning securities makes sense). How about if you make loss instead of profit when you exit your position? As in, you will be collecting dividends, which will be subject to purification, but the price has gone down. Furthermore, interest is earned and paid periodically (quarterly, annually, etc.). Would you not take these into account if you are not making profit from certain investments?

With regards to eligibility of a company as your target investment, you can think about it from a different perspective. We are using different gadgets (produced by Apple, Samsung, etc.), we are living in buildings that were built by using heavy machinery from Caterpillar, we are doing groceries at places like Walmart, ordering stuff from Amazon, using Microsoft on a daily basis, driving Tesla, using gasoline at Shell or Exxon gas stations, getting vaccinated by Pfizer products, our hospitals rely on drug makers like Johnson and Johnson. Are we, as Muslims, are not benefiting from these? Are we not contributing to the development of these companies by purchasing their products? Do we not want them to improve our quality of lives? Do we not want to be part of that progress? Just think about investing from this perspective as well.

 

[sam777c]

@cautiouslittlehope The idea that buying products from a company is equivalent to investing isn't really accurate imo, when you invest you are sharing in the risk and benefit of the entire business, whereas when you buy you are only benefiting from what is (presuming you've done your homework) a halal aspect of the business.

Of course that halal part of the business might be propped up by haram income, but that's very different imo than having stake in the company.

 

[cautiouslittlehope]

@sam777c Indeed, if there was a way to fractionally own a certain company's non-haram businesses, we would all do so. However, it's not feasible currently.

Having said that, if I do my analysis on a XYZ company and arrive at a conclusion that it's non-haram business (which will improve our quality of life) will be dominating it's future cash inflows and profits (insert a ratio here, like max 5% impure income), why wouldn't I invest in this company? Am I not reasonable in my judgement?

 

[sam777c]

@cautiouslittlehope Absolutely yeah, I follow the AAOIFI methodology myself- I'm only objecting to the analogy you provided because I think that's a very dangerous way to think about it.

Buying products effectively involves selecting the section of the business you support whereas an investment does not discriminate between the different operations of the business, that's all I'm trying to say here

 

[ask21771]

@cautiouslittlehope It’s certainly feasible, it is just not often done. I forget which hotel it is in New York that is owned by an investment fund in Dubai— except the bar, which was carved out of their ownership.

 

[cautiouslittlehope]

@ask21771 Is that right? How can I, as an individual retail investor, carve Microsoft's gaming business out?

 

[ask21771]

@cautiouslittlehope You can't-- thus the "not often done" part of my comment-- but it *is* feasible for Microsoft to set it up so you could, should it wish to do so. This is often done when an investment is set up with an "Islamic tranche" in a transaction alongside a conventional interest-bearing tranche.

I spend time, on occasion, talking to companies telling them that they are missing prospective investors by not seeing how parts of their business could be segmented off for the interest-averse. If they see that it is sufficiently to their advantage to do so, they might actually do it.

The first islamic bond issued in the U.S.-- the East Cameron Gas sukuk was done for a group that couldn't care less about Islam-- but they cared that they could get their project funded by using an Islamic structure, and then did so.

 

[philip1979]

@cautiouslittlehope Actually I am confused about this whole thing that's why I decided to share my approach here. I have seen tons of videos where schoolers explaining this even Zakir Naik said that in a video that he use AAOIFI standard but he use less than 10% instead of 33%. People who are saying no they have proof from Quran and Sunnah it's valid that interest is Haram completely. Any earrings from interest isn't tolerated in Islam. But I don't want any kind of interest income from my stocks. And if I invest in their company they might I use my money to pay of their interest bearing debt to the bank with interest. Don't wanna be part of that so I deduct that profit margin too from my profit. And not clear about interest bearing securities or assests parts. If you please explain to me of I keep this is it gonna be interest money too?
And I will do the same with dividends deduct those impure income from dividends and take the pure profit out of it.
And I don't usually sell stocks if I am losing money. But I should take this in consideration. But I didn't think about that what should I do if I lose money on a stock. And if any stock becomes Haram or not sharia complaints I try to sell them as soon as it becomes Haram. Because it changes annually or quatarly. I would be greatful if you can give me some suggestions based on my approach.
Thank you