Fatwa ID: 03637

Answered by: Maulana Tahsin Alam

Question

I am contacting you with a question regarding halal investment. A few years ago, I purchased stock/shares in my previous employer (a publicly-traded energy company), via my employer's stock purchase plan for employees. I initially assumed my investment was halal, but have now discovered that some stock investments are not shariah compliant. While the company's source of income must be halal for the stock to be shariah-compliant, I have now discovered that there are key financial ratio requirements that a company must meet in order for its stock to be halal – I've listed these requirements below (details here). There are now stock screeners (including Zoya/Investroo) that provide the shariah compliance status of investing in a company's stock.

While the energy business is a halal source of income, given my newfound knowledge about shariah compliance for stocks, I have discovered that my investment is not shariah-compliant as my previous employer does not meet the financial ratio requirements outlined below (e.g. the company has more than 33.33% debt). My investment has appreciated since I made the purchase – if I sell the stock now, I will make a profit. Should I sell the stock as soon as possible since I now know it is not a halal investment? If so, what should I do with the profit I've made? Also, I am invested in another company that does not have a halal source of income, which I did not know before I made my investment. If I were to sell the stock now, what should I do with the proceeds? 

Financial ratios requirements for halal stock investment:

• Debt is less than 33.333% of total assets
• Cash and interest-bearing items are less than 33.333% of total assets
• Accounts receivable and cash are less than 50% of total assets
• Total interest and non-compliant activities income should not exceed 5% of total revenue

بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم

In the name of Allah, the Most Gracious, the Most Merciful

Answer:

As there are many scholars in Islamic Finance, they will all have different opinions on what is Sharīʿah compliant and what conditions need to be met.

As for the opinion we follow, if these following conditions are found, the investment will be considered ḥalāl.

1) The main business of the company is lawful (i.e. not involved in alcohol, interest, pornography etc.)

2) The company must have some illiquid assets in its possession (i.e. it must have tangible assets in its possession like buildings, materials or stocks in trade)

3) One raises his objection to the company’s interest-based transactions

4) The proportion of the company’s income gained through interest-based dealings is given in charity (without the intention of the reward). For example- If the profit was $100 and 5% of that amount was gained through interest, then that amount must be donated.^[1]

Therefore, the profits you have made will be permissible to use based on this opinion.

Only Allah knows best

Written by Maulana Tahsin Alam

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham