The Halal Investment Conundrum: Companies with Clean Financials and Permissible Products, Albeit with Haram Terminal Applications

[unknown404]

Whenever a Muslim decides to invest in a company, for the most part the only two things that are taken into consideration with regards to shariah-compliance are the balance-sheet, and the product itself.

If those two get a pass, then we don't consider how those halal products are being used.

Knives are halal to sell to the public, as are apples. We don't have an obligation (as far as I know) to go and ask individuals what they are going to do with these inherently halal products.

But selling knives to a known-thief or selling apples to a cidery, or even selling accounting software to a mortgage firm is when the issue arises.

These products are inherently halal, but we are approached by businesses (and not individual consumers) that have a clear-cut blatant intent on how they wish to utilize the product.

Here are a few examples of halal products being used by businesses with clear, open intent, in a way that is totally haram:

1) Cloud Services:

Cloud providers like Google, Amazon, or Microsoft provide inherently halal webservices. This doesn't change the fact that companies like Netflix, Meta, NSFW websites, all banks and social media platforms, are all facilitated by these cloud providers. There is no doubt that they are well aware who their customers are. Especially at such scale.

2) Social Media Platforms:

This one doesn't need much explanation. Reddit is about to IPO. If it has 0 riba on its sheets, does this make it halal given how much haram content is on the platform? This goes for every social media platform. Why do many "Islamic" finance websites greenlight social media companies?

3) GPU Companies:

NVIDIA / AMD sell these incredible processing devices that are great at 3D matrix arithmetic. Basically an inherently halal modern abacus on steroids. However these devices have spent two decades being sold for rendering. Whether is was video games or video editing, we KNOW with borderline certainty that any game that requires a GPU to render it isn't going to be void of music or haram elements. Nowadays most of the GPU revenue is rolling in for a new use case: generative AI. The only apparent issue here would be companies like Stability Diffusion that approach NVIDIA with clear cut intent to buy compute in order to generate haram media (picture making / NSFW media).

4) AI Legal Startups:

Imagine a startup offers a language-learning AI model that can draft documents, summarize cases, and most importantly synthesize a series of really strong arguments to present in court. This product is essentially an inherently halal autonomous word processer. But selling this product to firms that operate under a legal system that is contradictory to the shariah is the problem. I'm sure there are law verticals even in secular countries that don't violate Islam, but that means the startup will need to restrict their customer base to firms who operate only within those verticals.

5) Recruitment Platforms / Agencies:

LinkedIn falls under this category too, and these platforms can be used for great good, and offer a really useful service for networking and finding employment, but the problem in owning equity in these businesses is that you know for a fact that you are going to be aiding the employment hunt of finance bros (who will do conventional finance) or people that will work in other haram industries like conventional media. I am yet to see such a platform or agency of this nature that only focuses on engineers, medical professions, education, etc... Even from the business operator POV it would be weird to stipulate "No conventional finance job listings" & "No attaching a photo of yourself with makeup to your CV".



I understand that this rules out many companies, but I think the problem people have is that the mechanism of buying equity has been abstracted to merely pressing a button, obscuring the fact that we become legitimate owners.

If we were directly involved in transactions and a business with clear haram intentions wanted to buy our product, accepting their money would be undeniably haram.

The only real solution is for Muslims to start being builders so they can operate their businesses in a halal manner while creating investment windows for other Muslims.

 

[paulacs]

@unknown404 What you’re trying to achieve doesn’t work in an eco system which is hybrid of shariah compliant and the modern western world. It would be good to have just one example. In reality even Muslim built businesses would need to have non-Muslim customers and that invariably opens the gate to non-halal use.

 

[sbmor777]

@unknown404

for the most part the only two things that are taken into consideration with regards to shariah-compliance is the balance-sheet, and the product itself.

For typical sharia-compliance screening criteria like AAOIFI or FTSE, income from haram sources is also taken into account. Haram revenue must be less than 5% of gross.

Now for most of the examples you listed no company reports in enough detail to separate out the haram income and determine if it's within the screening criteria threshold. Usually it's just revenue from riba that can be taken into account unless it's like a beverage company with an alcohol subsidiary that is reported separately.

However, does that mean we can't invest in any companies doing business like you listed? Just because they probably have some haram income. Like assuming a company might sell accounting software to a bank or that a recruiting agency might help people find finance jobs. I simply disagree that these potential activities mean we shouldn't invest in companies like this.

This is also why the sharia-compliance screening includes a criteria for main business. If the main business of a company is haram, then it wouldn't pass the screening. But making accounting software isn't haram and recruiting isn't haram so the main business is fine. Unless it was clear that the main business was specifically targeted to a haram industry like only making accounting software for mortgages or only recruiting for banks, then in my opinion (and according to the major sharia-compliance criteria) it is fine to invest in these companies.

 

[unknown404]

@sbmor777

For typical sharia-compliance screening criteria like AAOIFI or FTSE, income from haram sources is also taken into account. Haram revenue must be less than 5% of gross.

Perhaps you have misunderstood me. The AAOIFI criteria for example sees NVIDIA selling GPUs. Thats all they see and they don't go further.

Are those GPUs used for modeling by intelligence agencies, are they used for videogame rendering, or movie production, etc the list goes on.

This way of thinking is a result of how shared ownership in equity is so abstracted.

If you not only were an equity owner but also the operator of a chip fab, and Palantir came to you to buy GPUs, you know for a fact that you are doing something haram by selling to them.

Why can't you make the same parallel from the sidelines as a passive investor? Yes you aren't an operator but you are still an owner. You KNOW that AWS hosts netflix and nsfw sites.

Also you know 100% these products are used for haram. There is no "potential" scenario here. All of these companies know who their customers are because they are dealing with businesses, not individual consumers.

Also, in the case of consumer facing companies, the recruitment platform in theory has full control over which job listings are allowed and so on. This is why there is an issue.

The current haram income metric is useless because it doesn't factor in if products are knowingly being sold to companies that knowingly do haram.

 

[sbmor777]

@unknown404 I understand but I simply disagree with you. We don't know for sure that every company in the areas you listed is 100% knowingly doing haram as you say. Is it even a significant portion of their business? We don't have that detail and we don't know.

If the main business is permissible like selling GPUs or recruiting then I'm fine investing in it and I think the screening criteria make sense to not filter all these companies out simply because some customers may be using the products for haram.

 

[unknown404]

@sbmor777 I really am not trying to convince you of anything and you are free to disagree. I am not even a student of knowledge.

But I will reiterate. There is no doubt that NVIDIA customers are using the GPUs for haram. There is no "may" here...

We can disagree about the ruling but we can't disagree about this fact. NVIDIA spent 20 years selling GPUs to render video game that are 99% haram.

Notice I'm not bringing up their other use case of rendering videos, because your "may" concept is applicable here. We don't know if customers are going to be rendering Hollywood movies or educational documentaries.

Nowadays with generative AI, I agree with you. We don't know for certain if the customer might do something haram.

I like your output on this sub, but it doesn't make sense to me how you can rationalize the following hypothetical:

If you owned a recruitment platform, and operated it as an executive, you would presumably not allow haram elements like the listing of impermissible jobs, or tabrruj profile pictures. Why? Because these are factors that are in your control. You can hardcode them into your platform, and they are clearly haram.

This is akin to secular corporations hardwiring their values into their products (No CP, no anti-semitism, no sale of drugs...etc)

But why is it that when you invest from the side line does it seem okay to overlook the operations of the company, when you yourself are an owner?

 

[sbmor777]

@unknown404

But why is it that when you invest from the side line does it seem okay to overlook the operations of the company, when you yourself are an owner?

I don't think I do. I see it as making accounting software or GPUs is an ok business, nothing haram about it inherently. What the customers do with the products isn't my or the company's problem.

It's obviously different when the product itself is haram like alcohol or pork or a mortgage lender.

 

[newwalkinchrist]

@sbmor777 2 things:

1- the 5% rule is not for the main activity it is only for the non-activity related income

2- if a company is generating revenue from producing alcohol, does it matter the percentage?

 

[sbmor777]

@newwalkinchrist 1 - Yes I'm aware and that makes sense as the main business would never be less than 5% of revenue.

2 - I think it does. I mean less than 5% of revenue is pretty insignificant.

 

[newwalkinchrist]

@unknown404 this is exactly my problem with the adapters of aaoifi standard. the first rule says the main activity of the company must be halal.

"making software" as main activity: totally halal

"making software for architects": totally halal

"making software for architects, riba-based banks, transportation": how is this halal? if fails the first rule in the standard. but nobody cares?

 

[angeshekinahh]

@unknown404 Good point.
What is also never taken into account are the contracts of the companies. Yes, a "simple" contract can also be haram or fasid.
With some companies, I wouldn't be surprised if many of their contracts are like this.